Applicability of Requirement That Interest be Placed in the General Fund to Certain Funds Administered by the Department of Natural Resources

DEPARTMENT OF NATURAL RESOURCES--FUNDS--INTEREST--Applicability of Requirement That Interest be Placed in the General Fund to Certain Funds Administered by the Department of Natural Resources

1.  RCW 43.84.092 provides that, with certain exceptions, earnings of investments of surplus balances in the state treasury shall be credited to the general fund.  This requirement does not apply to constitutionally and statutorily designated trust assests, which may not be diverted for a nontrust purpose.

2.  Interest earned on the Park Land Trust Revolving Fund may not be credited to the general fund.

3.  Interest earned on the School Construction Revolving Fund may not be credited to the general fund except to the extent such interest represents earnings on any unexpended portion of a 1990 appropriation from the general fund;

4.  Subject to any prior claims to pay debt service on bonds issued by the Department, as described in RCW 76.12.110, interest on the Forest Development Account is to be credited to the general fund; and

5.  Interest earned on the Access Road Revolving Fund is to be credited to the general fund.

                                                                  * * * * * * * * * *

                                                                December 8, 1992

Honorable Brian Boyle
Commissioner of Public Lands
Department of Natural Resources
Post Office Box 47001
Olympia, WA   98504-7001

                                                                                                                 Cite as:  AGO 1992 No. 29

Dear Commissioner Boyle:

            By letters previously acknowledged, you have asked whether earnings from the Park Land Trust Revolving Fund, the School Construction Revolving Fund, the Forest Development Account, and the Access Road Revolving Fund should be placed in the general fund pursuant to RCW 43.84.092.[1]   The Department of Natural Resources manages these funds.  They are held in the state treasury.

            For the reasons stated in this opinion, we conclude that:

            1.         Interest earned on the Park Land Trust Revolving Fund may not be credited to the general fund;

            2.         Interest earned on the School Construction Revolving Fund may not be credited to the general fund except to the extent such interest represents earnings on any unexpended portion of a 1990 appropriation from the general fund;

            3.         Subject to any prior claims to pay debt service on bonds issued by the Department, as described in RCW 76.12.110, interest on the Forest Development Account is to be credited to the general fund; and

            4.         Interest earned on the Access Road Revolving Fund is to be credited to the general fund.

                                                                    ANALYSIS

            RCW 43.84.092 generally requires that investment earnings on funds in the state treasury be deposited in the treasury income account for subsequent distribution to the state general fund.[2]   RCW 43.84.092(1) and (2) state in pertinent part:

                        (1) All earnings of investments of surplus balances in the state treasury shall be deposited to the treasury income account, which account is hereby established in the state treasury.

                        (2) Monthly, the state treasurer shall distribute the earnings credited to the treasury income account.  The state treasurer shall credit the general fund with all the earnings credited to the treasury income account except:

                        (a) ["listed funds" exempt from the interest credit requirement].

            Several funds managed by the Department of Natural Resources are "listed funds" under RCW 43.84.092(2)(a), and therefore are exempt from the crediting of interest income to the general fund.  However, none of the funds and accounts about which you inquire are included on the exemption list.

            Based on this lack of an express statutory exemption, one might conclude that the earnings from each of the funds about which you inquire should be credited to the general fund.  We would not so conclude, however, being mindful of the rule that statutes must be construed in a manner that is consistent with constitutional requirements.  Grant v. Spellman, 99 Wn.2d 815, 819, 664 P.2d 1227 (1983).

            We were faced with a similar issue in AGO 1989 No. 14.  There, based strictly on its express language, RCW 43.84.090[3]  would have operated to transfer 20 percent of the income from certain constitutional trusts managed by the Department of Natural Resources to the general fund.  The trusts at issue in that opinion were the Natural Resources Deposit Fund and the Resource Management Cost Account.  Based on the Washington Enabling Act and article 16 of the Washington Constitution, the opinion concluded that the State Treasurer could not make the 20 percent deduction from the investment earnings of these trust funds.  Even though RCW 43.84.090 appeared to allow such a deduction, no such deduction could be made.  AGO 1989 No. 14 at 9.

            The funds at issue in that opinion were received from the management of federal grant lands, which were held in trust.  The opinion reasoned that investment income earned on such trust assets was an integral part of the trust and could not be expended for purposes other than trust purposes.  AGO 1989 No. 14, at 10-11.  Accordingly, the opinion concluded that the 20 percent deduction contemplated by RCW 43.84.090 could not be assessed against income from investment of trust monies.  AGO 1989 No. 14, at 11.  Based on general trust principles, however, the opinion also concluded that a reasonable management fee could be assessed if authorizing legislation permitted.  AGO 1989 No. 14, at 12-13.

            As recognized in the 1989 opinion, federal grant lands are to be "held, appropriated, and disposed of exclusively for the purposes for which they were granted."  AGO 1989 No. 14 at 3.  See alsoCounty of Skamania v. State, 102 Wn.2d 127, 685 P.2d 576 (1984), where the court invalidated legislation that would have allowed constitutionally and statutorily designated trust assets to be used to further nontrust purposes.

            With this background, we proceed to analyze the various funds about which you inquire.

            A.  Park Land Trust Revolving Fund

            RCW 43.51.270(1) directs the Board of Natural Resources and the State Parks and Recreation Commission (Parks) to negotiate for the sale of certain trust lands to Parks.[4]   Sales proceeds are deposited in the Park Land Trust Revolving Fund (PLTRF).  The PLTRF is created by RCW 43.51.270(5).  The purpose of the PLTRF is for the Department of Natural Resources to acquire property to replace the trust property sold to Parks.

            The moneys in the PLTRF represent the payments made by Parks to acquire the trust lands.  As such, these moneys are trust assets.  Townsend v. Rainier Nat'l Bank, 51 Wn. App. 19, 23, 751 P.2d 1214 (1988).  Consistent with the Skamania decision and AGO 1989 No. 14, the state may not divert constitutionally or statutorily designated trust assets for nontrust purposes.  Crediting interest earned on the PLTRF to the general fund under RCW 43.84.092 would not be an expenditure for the benefit of the trusts.  Accordingly, the interest on the PLTRF may not be credited to the general fund.  Instead, it must be retained for the benefit of the trusts themselves.

            B.  School Construction Revolving Fund

            In 1990, the Legislature appropriated $100 million from the general fund to purchase common school trust lands.  Laws of 1990, 1st Ex. Sess., ch. 16, § 311, p. 1907.  Most of the appropriation was earmarked to purchase lands commercially unsuitable for timber harvest.  Laws of 1990, 1st Ex. Sess., ch. 16, § 311(2), p. 1907.  These earmarked funds were to be deposited in the School Construction Revolving Fund (SCRF) created by the appropriation.  These appropriated funds were to be used by the Department of Natural Resources to purchase such lands from the common school trust.   Laws of 1990, 1st Ex. Sess., ch. 16, § 311(2), p. 1907; see also Act of Feb. 22, 1889, ch. 180, § 10, 25 Stat. 676, 679 (the Enabling Act); Const. art. 16.

            Once the Department of Natural Resources uses the appropriated funds to purchase lands from the common school trust, the funds become impressed with a trust status in that they replace and represent the value of the lands purchased from the trust.  Townsend, supra.  The 1990 appropriation does not indicate whether the general fund appropriation, once used to purchase lands from the common school trust, remains in the SCRF or is transferred to a different fund.

            Under the terms of the 1990 appropriation, the portion of these trust funds representing the value of the timber on the lands purchased from the common school trust is deposited in the same manner as timber revenues from other common school trust lands--i.e., to the common school construction fund.  Const. art. 16; RCW 28A.515.320.[5]   The portion of the trust funds representing the value of the land purchased from the common school trust is used by the Department of Natural Resources to purchase productive timber land of equal value, to be managed as common school trust land--i.e., replacement land.  Laws of 1990, 1st Ex. Sess., ch. 16, § 311(3), p. 1907.

            As noted above, once the moneys appropriated from the general fund are used for the purchase of unproductive common school trust lands, they in effect, become trust assets.  On the basis of constitutional and trust principles previously discussed, if these trust funds are retained in the SCRF, then any subsequent earnings on them must be credited to the trust.  To the extent the moneys in the SCRF instead represent original general fund appropriations not yet used to purchase lands from the common school land trust or earnings on such appropriations, then interest on those amounts must be credited to the general fund as required by RCW 43.84.092.

            C.  Forest Development Account

            The Forest Development Account (FDA) is established by RCW 76.12.110, which states:

                        There is created a forest development account in the state treasury.  The state treasurer shall keep an account of all sums deposited therein and expended or withdrawn therefrom.  Any sums placed in the account shall be pledged for the purpose of paying interest and principal on the bonds issued by the department, and for the purchase of land for growing timber.  Any bonds issued shall constitute a first and prior claim and lien against the account for the payment of principal and interest.  No sums for the above purposes shall be withdrawn or paid out of the account except upon approval of the department.

                        Appropriations may be made by the legislature from the forest development account to the department for the purpose of carrying on the activities of the department on state forest lands, lands managed on a sustained yield basis as provided for in RCW 79.68.040, and for reimbursement of expenditures that have been made or may be made from the resource management cost account in the management of state forest lands.

            Although RCW 76.12.110, quoted above, establishes the FDA, it does not identify the sources of funds flowing into this account.  FDA funding comes from two sources.

            The first is RCW 76.12.030 which establishes the terms of a trust for forest board transfer lands.[6]   Under the terms of RCW 76.12.030, the Board of Natural Resources is authorized to collect at a maximum rate, 25 percent of the proceeds derived from the lease of such lands and from the sale of resources taken from them to pay for administration, reforestation, and protection.  This 25 percent allocation is deposited to the FDA.[7]   See AGO 1987 No. 10.

            RCW 76.12.120 provides a second source of funds for the FDA.  Under this statute, with certain exceptions, 50 percent of monies from the lease of "all state forest lands" and the sale of their resources go to the FDA.  However, this statute specifically excludes from transfer to the FDA any proceeds for which the constitution or RCW 76.12.030 require other disposition.

            As has been the case with the other funds discussed in this opinion, the proper disposition of earnings on the FDA turns on the character of the monies it contains.  Unless these monies are trust monies, RCW 43.84.092 requires interest earned on them to be credited to the general fund.

            Under the terms of the statutory trust established by RCW 76.12.030, the 75 percent allocation of proceeds derived from the lease of forest board transfer lands and the sale of resources from them represents trust monies.  The 25 percent allocation, which by statute is distributed to the Board of Natural Resources for administration, reforestation, and protection, would not.  RCW 76.12.030; AGO 1987 No. 10.  Only this latter 25 percent allocation is deposited to the FDA.  We see no legal infirmity in a requirement that interest earned on this 25 percent be placed in the general fund and conclude that crediting to the general fund is required by RCW 43.84.092.

            Similarly, for two reasons, the 50 percent allocation to the FDA under RCW 76.12.120 does not involve trust funds.  First, proceeds from the constitutional trust lands are expressly excluded from deposit to the FDA by the terms of RCW 76.12.120.  Second, trust proceeds from the statutory trust lands under RCW 76.12.030(2)--the 75 percent allocation--are separately distributed under the terms of that statute rather than under the terms of RCW 76.12.120.  Accordingly, the monies in the FDA by virtue of RCW 76.12.120 are not trust assets and interest on these monies should be credited to the general fund under RCW 43.84.092.

            Finally, we note that RCW 76.12.110 creates a "first and prior claim" as a lien against the FDA to pay interest and principal on bonds issued by the Department of Natural Resources.  To the extent that such a lien exists, it would preclude the removal of earnings from the FDA under RCW 43.84.092.

            D.  Access Road Revolving Fund

            The Access Road Revolving Fund (ARRF) is established by RCW 79.38.050.  This statute provides:

                        The department of natural resources shall create, maintain, and administer a revolving fund, to be known as the access road revolving fund in which shall be deposited all moneys received by it from users of access roads as payment for costs incurred or to be incurred in maintaining, repairing, and reconstructing access roads, or public roads used to provide access to public lands or state forest lands.  The department may use moneys in the fund for the purposes for which they were obtained without appropriation by the legislature.

(Emphasis added.)

            The above-quoted statute is one section of broader legislation which authorizes the Department of Natural Resources (1) to acquire property for the purpose of affording access by road to public lands or state forest lands, and (2) to enter into agreements for the construction, maintenance, and use of access roads or public roads to provide access to public lands or state forest lands.[8]   RCW 79.38.010, .020.

            Under chapter 79.38 RCW, the Department of Natural Resources may impose charges against purchasers of materials from public lands or state forest lands using access roads or public roads that have been constructed or reconstructed through funding by the Department of Natural Resources.  RCW 79.38.030.  These charges are not deposited to the ARRF, however, because RCW 79.38.060 provides that these moneys are used (1) to reimburse any state fund or account from which expenditures have been made for these purposes, and (2) to provide payment to the funds or accounts for which the public lands or state forest lands to which access is provided are pledged by law or constitutional provision.  In this way, the trusts recapture any expenditures they made to acquire, construct, or reconstruct such roads and also receive additional user fees.

            The Department of Natural Resources also may allow use of access roads when it is in the best interest of the state to do so, and in connection therewith may require the payment of access road user charges to generate funds to pay for maintenance, repair, or reconstruction of access roads or public roads used to provide access to public lands or state forest lands.  RCW 79.38.040.  These are the funds placed into the ARRF pursuant to RCW 79.38.050.

            Nothing in the statutes relating to the ARRF or the charges deposited to the ARRF indicates that the charges represent reimbursement for trust funds spent to maintain, repair, or reconstruct access roads.  Although the statutes are less than a model of clarity, it appears that the monies in the ARRF are user fees unrelated to trust expenditures.  Moreover, it appears that use of these access roads is predicated on a benefit to the state apart from the collection of user charges.  RCW 79.38.030, .040.  For these reasons, we see no basis for classifying the monies in the ARRF as trust assets.  That being the case, we conclude that earnings on the ARRF should be credited to the general fund pursuant to RCW 43.84.092.

            We trust that this opinion will be of assistance to you.

                                    KENNETH O. EIKENBERRY
                                    Attorney General

                                    MAUREEN HART
                                    Senior Assistant Attorney General

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