CONSTITUTIONAL LAW, BOND ISSUES BY SCHOOL DISTRICTS, ISSUANCE IN PARCELS DEPENDING UPON ASSESSED VALUATIONS DURING 10 YEAR PERIOD

CONSTITUTIONAL LAW, BOND ISSUES BY SCHOOL DISTRICTS, ISSUANCE IN PARCELS DEPENDING UPON ASSESSED VALUATIONS DURING 10 YEAR PERIOD.

 (1) A bond issue offered and sold in parcels during a 10 year period authorized by the electors depending upon increase in assessed valuation of the district would not be repugnant to section 5, Article VIII of the Constitution of Washington.

 (2) A state guarantee fund insuring payment of said bonds would not be repugnant to section 6, Article VIII of the constitution of Washington.

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                                                                   January 5, 1953 

Honorable Robert M. Ford
Representative
Legislative Building
Olympia, Washington                                                                                                              Cite as:  AGO 51-53 No. 453

 Dear Sir:

             Acknowledgment is made of the receipt of your request for an opinion of this office on whether the following proposed legislation would be constitutional, with special reference to sections 5 and 6, Article VIII of the Constitution of the State of Washington, in which you state:

             "'That authorization be made for general obligation bond issues to be voted at an election, and a total issueto be issued over a period of the following ten years against the estimated assessed valuation developing during that period; that thestate establish a guarantee fund backing such an issue in order to guarantee payment and thereby secure reasonable rates.'"

             Our conclusions are:

              [[Orig. Op. Page 2]]

            1. General obligation bond issues of school districts authorized by an election of the voters for a total issue to be offered and sold in parcels over a period of the following ten years against the estimated assessed valuation of the district developing during that period would not be repugnant to section 5, Article VIII of the Constitution of Washington.

             2. Legislation establishing a guarantee fund with the purpose of guaranteeing payment of said bonds and securing reasonable rates would not be repugnant to section 7, Article VIII of the constitution.

                                                                     ANALYSIS

             The Legislative Council's first proposition appears to be designed to permit issuance of bonds under an authorization granted by the electorate at various times depending upon whether the assessed values of the school district during said ten years are sufficient to permit said issuance within the five percent debt limitation.  We probably may take it for granted that if the amount authorized were issued immediately it would be in excess of the constitutional limitation.  The theory proposed is based on the idea that the bonds do not become an indebtedness until issued and sold so that if only sufficient bonds were issued and sold at any one time and remain safely within the limitation the balance could be withheld and issued at later times when the assessed valuation would have risen sufficiently to allow a higher indebtedness depending upon the rise in assessed values of the district.  It must also be contemplated that said assessed values could fall or remain static during the ten year period.

             So far as any such proposal having been made to this office is concerned, it is entirely novel.  However, the pertinent constitutional limitation found in section 6, Article VIII of the constitution of Washington is quoted in part as follows:

             "* * * nor in cases requiring such assent shall the total indebtedness at any time exceed five per centum on the value of the taxable property therein, to be ascertained by the last assessment for state, and county purposes previous to the incurring of such indebtedness; * * *"

             It will be noted that the above quoted portion bases the test upon the "indebtedness" of the municipality involved and while the vote of the electors is required to authorize such indebtedness there is no debt created until such time as the  [[Orig. Op. Page 3]] district becomes bound on a contract with the purchasers of the bonds upon their being issued and sold.  Prior to such issuance there is no offer or acceptance, hence no contract and no indebtedness established.  InSainer v. Thurston County, 181 Wash. 552, 44 P. (2d) 179, the supreme court pointed out at page 557 that the issuance of the bonds is authorized by the voters and the vote created a right to incur indebtedness.  The same language is used in State ex rel. Piper v. Pratt, 31 Wn. (2d) 725, 198 P. (2d) 814.  InGrant v. Evans, 160 Wash. 399, 295 Pac. 475, the court stated the vote as being at most "only a prerequisite to the exercise of the power by the county to issue the negotiable bonds" and by said vote an "assent" is obtained to the issuance and also to the incurring of the indebtedness.  Whether an indebtedness is created before an issuance of the bonds has been decided in the negative by our supreme court in various cases, including State ex. rel. Thorp v. Devin, 26 Wn. (2d) 333, 173 P. (2d) 994;State ex rel. School District No. 301 v. Clausen, 109 Wash. 37, 186 Pac. 319; andState ex rel. Clancy v. Columbia Irrigation District, 121 Wash. 79, 208 Pac. 27.  A study of Paine v. Port of Seattle, 70 Wash. 294, 126 Pac. 628, reveals that a similar proposal was discussed by the court without being considered invalid and is the only parallel situation we have found in the law of this state.  And, except for the provisions of RCW 28.51, and particularly RCW 28.51.080, (RRS 4943 and 4944) (which probably should be referred to and amended in relation to the proposed legislation) our court has seen nothing wrong with a bond issue being divided up into several portions, said portions being offered at later dates than the first offering, on the basis that there is no need to sell any more of the bonds at any one time than necessary to secure the funds required at that time, thus securing a saving of interest.  SeeState ex rel. Tacoma School District No. 10 v. Clausen, 126 Wash. 90, 217 Pac. 712.

             We would further suggest that provision be made insuring that the school district not be required to issue any bonds within said ten year period except when conditions allow their issuance within the five percent limitation, and permitting part of said issue not being offered at all if values during the period do not permit.

             It is therefore our opinion that an act providing that a school district may authorize, by the proper election of the voters, a stated bond issue which may be offered in parcels during the ten year period at such times as the assessed valuation developing during said period would allow issuances within the five percent constitutional limitation, would not be repugnant to section 5, Article VIII of the constitution of Washington.

              [[Orig. Op. Page 4]]

            The second proposition calls for legislation whereby the state may establish a guarantee fund to insure payment of the said bonds and you question whether the provision would be valid under Article VIII, section 5 of the constitution.

             School districts are merely segments of the sovereignty of the state itself and neither section 5 nor section 7 of Article VIII of the constitution, by its terms, prevents the state from assisting counties or other public municipal corporations.  A study of cases on these sections reveals that they have been construed to prohibit gifts of public monies except to relieve the poor and needy.  Such provisions have never been invoked in relation to payment based upon the obligation of contracts although the reasoning has at times been somewhat strained.  SeeSeattle and Lake Washington Waterway et al. v. Seattle Dock Company, 35 Wash. 503, 77 Pac. 845, andGruen v. State Tax Commission, 35 Wn. (2d) 1, 211 P. (2d) 651.

             Furthermore, and in addition to the fact that the aid, issuance or guarantee is for municipal corporations which are a part of the state itself, there is no credit granted to any individual and if ever called upon the state fund would not be a gift provided the legislative enactment would make it a loan reimbursable by the school district which has the authority to levy taxes above the five percent limit to secure performance of the obligation of its contract.

             We therefore find no objection under section 5, Article VIII of the Washington constitution to the establishment of such a guarantee fund by the state to provide a fund which may be called upon, under the proper restrictions and conditions, by school districts to insure payment of the bonds and interest above discussed.

 Very truly yours,
SMITH TROY
Attorney General 

1 PHILIP W. RICHARDSON
Assistant Attorney General