AUTHORITY OF ENTITY CREATED BY SCHOOL DISTRICTS AND EDUCATIONAL SERVICE ...

SCHOOLS - DISTRICTS - EDUCATIONAL SERVICE DISTRICTS - INTERLOCAL COOPERATION ACT - INSURANCE - SHORT-TERM OBLIGATIONS - AUTHORITY OF ENTITY CREATED BYSCHOOL DISTRICTSAND EDUCATIONAL SERVICE DISTRICTS TO ISSUE REVENUE ANTICIPATION NOTES

1.  Chapter 48.52 RCW authorizes school districts and educational service districts to join together to create a risk management pool pursuant to chapter 39.34 RCW, theInterlocal Cooperation Act.  The risk management pool thus created may take the form of a separate legal or administrative entity.

2.  TheInterlocal Cooperation Act does not authorize the exercise of any new substantive powers by the public agencies that enter into interlocal cooperation agreements.  Since educational service districts do not have the authority to issue short-term obligations, a separate legal entity created by educational service districts and school districts does not have the authority to issue short-term obligations.

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                                                                  May 14, 1991

HonorableRobertV.Graham
State Auditor
Legislative Building, AS-21                                                                            Cite As:
Olympia,Washington 98504-0421                                                                  AGO 1991 No. 19

            DearMr.Graham:

            By letter previously acknowledged, you have requested an opinion on several questions which we have paraphrased as follows:

1.      Does an educational service district have authority under chapter 39.34 RCW (theInterlocal Cooperation Act) to join together with one or more school districts and establish a risk management pool by creating a separate entity district from both the educational service district and the participating school district(s)?

2.      If the answer to question 1 is yes, does such a separate entity have legal authority to finance the risk management pool by issuing revenue anticipation notes?

3.      If the answer to question 2 is yes, to what extent is that authority affected by the limitation of indebtedness provisions of article 8, section 6, of the Washington Constitution, and chapter 39.36 RCW?

            We answer your first question in the affirmative and your second question in the negative.  Since your third question is predicated upon an affirmative response to your second question, we do not reach question 3.

ANALYSIS

            Question 1:

            Does an educational service district have authority under chapter 39.34 RCW (theInterlocal Cooperation Act) to join together with one or more school districts and establish a risk management pool by creating a separate entity district from both the educational service district and the participating school district(s)?

            Our analysis begins with the familiar proposition that public entities, including educational service districts and school districts, have only those powers specifically conferred by statute or necessarily implied therein.  Chemical Bank v. WPPSS, 99 Wn.2d 772, 792, 666 P.2d 329 (1983).  See also AGO 1991 No. 17.

            Since 1985, political subdivisions of the state have been authorized to join together for purposes of risk management and self-insuring.  RCW 48.62.040.  The statutory scheme clearly applies to both educational service districts and school districts, since specific reference is made to each in chapter 48.62 RCW.1/

            Thus, chapter 48.62 RCW authorizes educational service districts and school districts to join together to create a risk management pool.  This same chapter sets forth various conditions [[Orig. Op. Page 3]] that must be satisfied if such a pool is created.2/

            Chapter 48.62 RCW does not, however, determine the mechanism by which such a pool is to be created.  Rather, it provides merely that "[t]he agreement to form such a pooling arrangement shall be made under chapter 39.34 RCW."  RCW 48.62.040(3).

            Chapter 39.34 RCW is commonly referred to as the Interlocal Cooperation Act.  It authorizes public agencies, including school districts and educational service districts,3/

            to exercise "[a]ny power or powers . . .jointly with any other public agency of this state having the power or powers".  RCW 39.34.030(1).  The Act further authorizes "[a]ny two or more public agencies [to] enter into agreements with one another for joint or cooperative action pursuant to the provisions of this chapter".  RCW 39.34.030(2).

            As it pertains to your first question, the Act requires that the agreement specify "[t]he precise organization, composition and nature of any separate legal or administrative entity created thereby" (RCW 39.34.030(3)(b)), or, in the alternative, set fourth certain provisions which must be included "[i]n the event that the agreement does not establish a separate legal entity to conduct the joint or cooperative undertaking" (RCW 39.34.030(4)).  Thus, the Act allows agencies which undertake a joint activity to do so by creating a separate legal or administrative entity.

            In summary then, school districts and educational service districts are specifically authorized to create a joint risk management pool, and are directed to do so by means of an agreement entered into pursuant to chapter 39.34 RCW.  This statute, in turn, clearly contemplates that such an agreement may provide for creation of a separate legal or administrative entity to conduct the joint enterprise.4/

             [[Orig. Op. Page 4]]

            We therefore answer your first question in the affirmative.

            Question 2:

            If the answer to question 1 is yes, does such a separate entity have legal authority to finance the risk management pool by issuing revenue anticipation notes?

            The answer to your second question is again found in the Interlocal Cooperation Act, RCW 39.34.  Specifically, RCW 39.34.030(6) provides that "[f]inancing of joint projects by agreement shall be as provided by law."  Accordingly, we must consider the law governing the issuance of revenue anticipation notes.  It is well established in Washington that "[m]unicipal corporations do not possess inherent power to borrow money.  Authority to do so must be found in appropriate legislative provisions."  Edwards v. Renton, 67 Wn.2d 598, 601, 409 P.2d 153 (1965).  Accord Chemical Bank, 99 Wn.2d at 792.

            Chapter 39.50 RCW governs short-term obligations which include "warrants, notes, or other evidences of indebtedness, except bonds."  RCW 39.50.010(5).  The chapter authorizes municipal corporations to issue revenue anticipation notes.  RCW 39.50.020 provides in part:

            Subject to any applicable budget requirements, any municipal corporation may borrow money and issue short-term obligations as provided in this chapter, the proceeds of which may be used for any lawful purpose of the municipal corporation.  Short-term obligations may be issued in anticipation of the receipt of revenues . . . .  These short-term obligations shall be repaid out of money derived from the source or sources in anticipation of which they were issued or from any money otherwise legally available for this purpose.

             [[Orig. Op. Page 5]]

(Emphasis added).  The authority to issue short-term obligations is limited to "municipal corporations."  This term is defined by RCW 39.50.010(3):

            "Municipal corporation" means any city, town, county, water district, sewer district,school district, port district, public utility district, metropolitan municipal corporation, public transportation benefit area, park and recreation district, irrigation district, or fire protection district or any other municipal or quasi municipal corporation described as such by statute, except joint operating agencies under chapter 43.52 RCW[.]

(Emphasis added.)

            Your question concerns an entity created by school districts and educational service districts.  It is clear that school districts have the power to issue revenue anticipation notes pursuant to chapter 39.50 RCW.  School districts are specifically included within the definition of municipal corporation in RCW 39.50.010(3).  However, in our judgment, educational service districts do not have this authority.

            The authority to issue revenue anticipation notes under chapter 39.50 RCW is limited to "municipal corporations."  That term is defined as one of a series of specific kinds of governmental entities listed in the statute, or "any other municipal or quasi municipal corporation described as such by statute".  RCW 39.50.010(3).  Educational service districts are neither listed in the statutory definition nor, in any statute we have found, "described" as municipal corporations.5/

            Therefore, educational service districts cannot themselves issue revenue anticipation notes pursuant to chapter 39.50 RCW.6/

             We have been unable to locate any other statute which grants educational service districts the authority to issue revenue anticipation notes.  For example, chapter 48.62 RCW, the statute authorizing joint insurance pools, does not include provisions  [[Orig. Op. Page 6]] that authorize educational service districts to issue revenue anticipation notes.  Indeed, several of its provisions evidence acute awareness on the part of the legislative drafters of the possibility that the participating entities might not have adequate resources in a given fiscal period to pay all claims.7/

            Nonetheless, the statute does not, either implicitly or explicitly, authorize the creation by the joint undertaking of the kind of separate financing mechanism contemplated by your question.

            You have asked whether a separate entity created pursuant to theInterlocal Cooperation Act, that includes educational service districts, can issue revenue anticipation notes.  In our judgment the answer to this question must be no.  Each participating agency must have the power to do individually what it agrees to do jointly.  RCW 39.34.030(1) provides in part:

            Any power or powers, privileges or authority exercised or capable of exercise by a public agency of this state may be exercised and enjoyed jointly with any other public agency of this state having the power or powers, privilege or authority . . . .

            TheInterlocal Cooperation Act does not authorize the exercise of any new substantive powers by a public agency.  As we said in AGO 1988 No. 19:

            Interlocal agreements, however, do not confer any additional substantive authority on counties.  A county may not use aninterlocal agreement to do that which would otherwise be prohibited by law . . . .  In other words, a county may not use aninterlocal agreement as a means of making its tax revenues, collected pursuant to RCW 82.46.010 for county capital improvements, available to others for construction of capital improvements that are not intended to further county purposes.  Our answer to your first question, therefore, does not depend on the presence or absence of aninterlocal agreement.

AGO 1988 No. 19 at 5.  See also AGO 1990 No. 4 at 7; AGO 1969 No. 8 at 5.

             [[Orig. Op. Page 7]]

            Since educational service districts do not have the authority to issue revenue anticipation notes, we conclude that a separate entity created by school districts and educational service districts does not have this authority.  An educational service district cannot add to its statutory authority simply by entering into an agreement to form a separate entity pursuant to the Interlocal Cooperation Act.

            In addition, there is nothing in the Interlocal Cooperation Act which grants authority to a separate entity created under the Act above and beyond the power of the public agencies that agree to form the entity.  We note that RCW 39.34.070 provides:

            Any joint board created pursuant to the provisions of this chapter is hereby authorized to accept loans or grants of federal, state or private funds in order to accomplish the purposes of this chapter provided each of the participating public agencies is authorized by law to receive such funds.

            This statute does not authorize a separate entity, that includes educational service districts, to issue revenue anticipation notes.  This is because RCW 39.34.070 does not apply to a separate legal entity created pursuant to theInterlocal Cooperation Act.  RCW 39.34.070 pertains to "any joint board."  There is a difference between an interlocal agreement creating a separate entity and an agreement creating a joint board.  This difference is clearly established in RCW 39.34.030 which sets out the requirements for agreements between public agencies.  The statute provides in part:

                        (4)  In the event that the agreement does not establish a separate legal entity to conduct the joint or cooperative undertaking, the agreement shall, in addition to items (a), (c), (d), (e) and (f) enumerated in subdivision (3) hereof, contain the following:

                        (a)Provision for an administrator or a joint board responsible for administering the joint or cooperative undertaking.  In the case ofa joint board, public agencies party to the agreement shall be represented;

                       . . . .

RCW 39.34.030(4)(a) (emphasis added).

            Under RCW 39.34.030(4)(a) if the agreement does not create a separate legal entity, it must provide for a joint board.  Thus, the reference in RCW 39.34.070 to a joint board applies to a  [[Orig. Op. Page 8]] situation when no separate legal entity has been created.  The statute does not grant additional power to a separate legal entity.

            It is also important to note that RCW 39.34.070 does not confer additional authority on public agencies, that agree to form a joint board.  RCW 39.34.070 only authorizes a joint board to receive funds "provided each of the participating public agencies is authorized by law to receive such funds."  In this case an educational service district is not authorized to receive funds from revenue anticipation notes because it is not authorized to issue such notes.  Therefore, RCW 39.34.070 would not authorize the issuance of revenue anticipation notes, even if the school districts and educational service districts had created a joint board instead of a separate entity.

            For all of these reasons we answer your second question in the negative.  For that reason we do not need to, and therefore do not, address your third question.

            We trust the foregoing will have been of assistance to you.

Yours very truly,

KENNETH O. EIKENBERRY
Attorney General

WILLIAM L. WILLIAMS
Senior Assistant Attorney General