DISTRICTS ‑- FIRE PROTECTION ‑- GENERAL OBLIGATION BONDS ‑- AUTHORIZED PURPOSES AND METHOD OF ISSUANCE AND SALE

DISTRICTS ‑- FIRE PROTECTION ‑- GENERAL OBLIGATION BONDS ‑- AUTHORIZED PURPOSES AND METHOD OF ISSUANCE AND SALE

(1) A fire protection district authorized by the electors to issue general obligation bonds to finance replacement of equipment on a need basis may issue only a portion of the authorized bonds and delay the issuance of the remainder for a reasonable period of time until the need for replacement of additional equipment actually arises.

(2) The general obligation bonds so authorized may be sold privately without a public offering at the discretion of the board of fire commissioners if it determines that such a private sale would be in the best interest of the district.

                                                              - - - - - - - - - - - - -

                                                                  March 22, 1961

Honorable John Hancock
Prosecuting Attorney
Okanogan County
Hancock Building
Okanogan, Washington

                                                                                                                Cite as:  AGO 61-62 No. 19

Dear Sir:

            By letter, previously acknowledged, you have requested an opinion of this office on questions which we paraphrase as follows:

            (1) May a fire protection district obtain authority from the electors residing therein to issue general obligation bonds for the purpose of financing the replacement of equipment on a need basis whereby only a portion of the total authorized bond issue will actually be immediately issued, with issuance of the remainder being delayed for a period of years until a presently anticipated future need for additional replacement equipment actually arises?

            (2) In the event the issuance of general obligation bonds in the manner and for the purpose aforesaid is authorized, may the bonds when issued be sold privately to a bank without a public offering?

             [[Orig. Op. Page 2]]

            We answer both questions in the affirmative, subject to certain qualifications as set forth in our analysis.

                                                                     ANALYSIS

            Pursuant to RCW 52.16.080 a fire protection district may, with the approval of the qualified electors residing therein as provided in RCW 52.16.090:

            ". . . incur general indebtedness for capital purposeswhich shall include replacements of equipment which may be damaged or lost and for the purpose of refunding outstanding coupon warrants issued for capital purposes only, not to exceed an amount, together with any outstanding general obligation indebtedness, equal to three per cent of the assessed valuation of the taxable property within such district and to issue general obligation bonds evidencing such indebtedness on the terms and provisions hereinafter set forth, the principle and interest thereof to be payable from annual tax levies to be made in excess of the forty mill tax limitation."  (Emphasis supplied.)

            At the outset, before considering your specific queries relative to the timing and manner of actual issuance of the bonds once a particular bond issue has been approved by the voters, we believe it necessary first to pass upon the basic question of whether the replacement of worn out or obsolete equipment (which we surmise from your letter is essentially what would be involved in the instant case) is a capital purpose for which general obligation bonds may be issued at all.

            RCW 52.16.080,supra, was originally enacted as § 3, chapter 24, Laws of 1951, 2nd Ex. Sess.  In its original form, the statute merely authorized fire protection districts to incur general indebtedness for capital purposes through the issuance of general obligation bonds, but did not contain the additional phrase "which shall include replacements of equipment which may be damaged or lost."  This phrase was added by amendatory legislation in 1953, § 48 chapter 176, Laws of 1953.

            Between the time of the original enactment in 1951 and the amendment of 1953, this office twice was called upon to rule on the question of whether a fire protection district had authority to  [[Orig. Op. Page 3]] issue general obligation bonds for equipment replacement purposes generally.  See AGO 51-53 No. 318, dated May 29, 1952, to the Legislative Council, and AGO 51-53 No. 370, dated August 8, 1952, to the Honorable Hugh H. Evans, Spokane County Prosecuting Attorney, copies of which are enclosed herewith.

            In the first of these two opinions the attention of the writer thereof was directed not to RCW 52.16.080 (as it then read without any qualification of the phrase "capital purposes"), but rather to RCW 84.52.056 (§ 1, chapter 176, Laws of 1941, as last amended by § 4, chapter 23, Laws of 1951, 2nd Ex. Sess.), which then read and still reads in pertinent part as follows:

            "Any municipal corporation otherwise authorized by law to issue general obligation bonds for capital purposes, may, at an election duly held after giving notice thereof as required by law, authorize the issuance of general obligation bonds for capital purposes only, which shall not include the replacement of equipment, and provide for the payment of the principal and interest of such bonds by annual levies in excess of the tax limitation contained in RCW 84.52.050 to 84.52.056, inclusive. . . ." (Emphasis supplied.)

            By virtue of the qualifying phrase above underlined, this office concluded that the proceeds derived by a fire protection district from the sale of general obligation bonds could not be used to purchase replacement equipment.

            However, in the second of these two opinions (AGO 51-53 No. 370,supra), the question of whether a fire protection district could issue general obligation bonds for the purpose of acquiring replacement equipment was expressly phrased in terms of RCW 52.16.080.  Noting that this latter statute contained no language qualifying the scope of the phrase "capital purposes" we concluded that general obligation bonds could be issued by a fire protection district for equipment replacement purposes.  In thus concluding we reasoned (1) that RCW 52.16.080, was a special statute applying to fire protection districts only and granting to them broader powers than were granted to municipal corporations generally by RCW 84.52.056, supra, and (2) that in the absence of express qualification the phrase "capital purposes" was broad enough to include replacement of equipment.

             [[Orig. Op. Page 4]]

            Viewed against this background, the subsequent (1953) action of the legislature, amending RCW 52.16.080, so as to add to the phrase "capital purposes" the additional phrase "which shall include replacements of equipment which may be damaged or lost" might be viewed as being either (1) an attempt to make it clear that fire protection districts were intended to have authority to issue general obligation bonds for the purpose of financing equipment replacements generally, or, conversely, (2) an attempt to limit the use of general obligation bonds by fire protection districts, in the case of replacement equipment, to the replacement of such equipment as was damaged or lost, in a strict sense and as distinguished from "worn out" or "becoming obsolete."

            Though we recognize the possibility of the second of these two views being taken, we are inclined to believe that the true intent of the 1953 legislature, in amending RCW 52.16.080 as above noted, was to make it clear that fire protection districts, as distinguished from those municipal corporations governed by the more restrictive general statute (RCW 84.52.056, supra), are to have authority to issue general obligation bonds, backed by tax levies in excess of the 40 mill limit, for capital purposesincluding replacements of equipment generally,where such replacements are necessary.  The phrase "which may be damaged or lost" we believe, was inserted only by way of emphasizing the factor of necessity, and not with the intent of limiting the applicability of this method of financing necessary equipment replacements to cases where equipment is damaged or lost by a sudden and unanticipated occurrence rather than by normal wear, deterioration, or obsolescence.

            This conclusion appears to be in line with the construction given to the statute by those most closely connected with its administration, namely, the various boards of fire commissioners of the many fire protection districts organized and operating in this state.  We are advised by the State Auditor's office, Division of Municipal Corporations, which has by virtue of RCW 43.09.260 the duty of examining the financial affairs of all types of municipal corporations in this state, that on numerous occasions since 1953 fire protection districts, under the direction of their respective boards of fire commissioners, have without question, upon the approval of their qualified electors, issued general obligation bonds in order to finance the replacement of worn or obsolete equipment.  The existence of such an administrative construction, over a period of years without further amendatory action by the legislature, while not conclusive  [[Orig. Op. Page 5]] is at least persuasive that the construction is in accordance with the true intent of the legislature.  State ex rel. Cowles v. Schively, 63 Wash. 103, 114 Pac. 901 (1911); Regan v. School District No. 25, 44 Wash. 523, 87 Pac. 828 (1906).

            We turn next to a consideration of whether, the board of fire commissioners of a fire protection district, having obtained the approval of their electors to issue general obligation bonds in a specified amount for equipment replacement purposes, may immediately issue only a portion of the total authorized issue, delaying issuance of the remainder until a presently anticipated future need for additional replacement equipment actually arises.  The significant statute relative to this question is RCW 52.16.100 which, referring to general obligation bonds issued by a fire protection district for capital purposes, provides as follows:

            "Bonds shall beserial in form and maturity and numbered from one up consecutively.  They shall bear interest at a rate of not to exceed six percent per annum, payable semiannually from date of said bonds until the principal thereof is paid with interest coupons evidencing such interest to be attached thereto.  The first annual maturity shall be two years from the date of issue of said bonds and the various annual maturities shall be as nearly as practicable in such amounts as will, together with the interest on all outstanding bonds, be met by equal annual tax levies for the payment of the principal and interest of said bonds.  Bonds issued under this act may not run for more than twenty years from the date of issue and except for bond No. 1, may only be in multiples of one hundred dollars."  (Emphasis supplied.)

            A substantially similar statute (§ 1, chapter 151, Laws of 1923) was before the Washington court inState ex rel. Tacoma School District No. 10 v. Clausen, 126 Wash. 90, 217 Pac. 712 (1923).  There a writ of mandate was sought to compel the state auditor to accept and pay for certain bonds according to the terms of the bid of the state therefor.  Among the objections made by the state auditor to the validity of the bond issue in question was that the relator school district, though it has obtained approval from its electors to issue bonds in the total amount of $2,400,000, had in fact determined to presently issue only a portion of a total authorized issue. The court, noting that the bonds were acquired by statute to be "serial in form and maturity" concluded on page 99, as follows:

             [[Orig. Op. Page 6]]

            ". . . Since, therefore, the bonds must be issued serially, we see no valid objection to the school district issuing them as it may have need of the money, and thus avoid the payment of interest upon funds which it cannot use. . . ."

            While this observation should probably be characterized as dicta, (because the court ultimately had held the bond issue in question to be invalid on other grounds), the general principle enunciated appears to be in line with the great weight of authority from other jurisdictions.  The rule is stated in 15 McQuillin, Municipal Corporations, § 43.49, as follows:

            "Bonds approved by the electorate need not be issued at any one time or in one installment.  In the absence of a provision requiring them to be issued at a particular time, a municipality may issue voted bonds as needed within a reasonable time, and it is established that a reasonable delay in issuing bonds voted at an election does not bar their issuance when need arises.  No rule can be laid down as to within what time bonds must be issued after they have been voted for or their issuance directed by the council, it being generally held that the matter rest in the sound discretion of municipal authorities. . . ."

            See also, 43 Am.Jur., Public Securities and Obligations, § 121; 135 A.L.R. 768, and cases discussed therein.  For a local illustration of what has been held by our own court to be an unreasonable delay in the issuance of bonds, seeBremerton Municipal League v. Bremerton, 13 Wn. (2d) 238, 124 P. (2d) 798 (1942).  There an ordinance authorizing a bond issue was held invalid upon a showing that eleven years had elapsed between the time the ordinance had been approved by the voters and the time of the first serious attempt by the municipality to act thereunder, during which time the population make‑up of the municipality had changed substantially.

            Thus, it is our conclusion that where a fire protection district bond issue for capital purposes has been approved by the electors, actual issuance of a portion of the total authorized issue may be delayed until a presently contemplated need for additional replacement equipment actually arises, with the qualification or warning that a substantial change in conditions between the time of the bond election and the time of issuance may be held to invalidate the delayed portion of the bond issue.

             [[Orig. Op. Page 7]]

            Finally, you have asked whether, in the event the issuance of general obligation bonds in the manner and for the purpose previously discussed is authorized, such bonds when issued may be sold privately to a bank without a public offering.  The statutory provision which we deem to be governing on this point is RCW 52.16.110, which provides as follows:

            "Such bonds shall be signed by the chairman of the board of fire commissioners and attested by the secretary of said board under the seal of the district and the interest coupons to be attached thereto shall be signed with the facsimile signatures of said officials.  Said bonds shall be sold in such manner as the board of fire commissioners shall deem to be for the best interest of the district and at a price not less than par."  (Emphasis supplied.)

            In an opinion dated February 1, 1928, to the Honorable C. W. Clausen, Supervisor of Municipal Corporations [[1927-28 OAG 508]], a copy of which is herein enclosed, this office, construing an identically worded statute (Rem. Comp. Stat., § 9490) ruled as follows:

            "This, we think, vests a discretion in the city authorities broad enough to authorize the sale of bonds without advertising for bids.  The general rule is that where a statute specified the method of sale, it must be followed implicitly but where the statute merely authorizes in general terms the sale or disposal of bonds the corporate authorities may exercise a latitude of discretion.  2 Dillon, Mun. Corps., p. 1399; O'Neill v. Yellowstone Irr. Dist., 121 Pac. (Mont.) 283. . . ."

            Further reliance was placed upon the case of Washington-Oregon Corporation v. Chehalis, 76 Wash. 442, 136 Pac. 681 (1913) wherein our court, construing this same statute (now codified as RCW 80.40.080 and providing in pertinent part that, "the bonds shall be sold in such manner as the corporate authorities shall deem for the best interest of the city or town") held that under the quoted statutory language, the bonds might be delivered to a contractor in payment for the construction of the plant for which the bonds were issued.  The ruling of the court was stated on page 447 as follows:

             [[Orig. Op. Page 8]]

            ". . . If the statute required the bonds to be sold in any particular manner, no sale, unless in the manner provided in the statute, would be valid.  But our statute contains no requirement of this character.  It provides only for the sale of the bonds in such manner as the corporate authorities shall deem best, thus vesting in them a discretion as to the method of sale or disposal. . . ."

            Consequently, in view of the similarly worded statutory grant of authority appearing in RCW 52.16.110, supra, it is our conclusion that general obligation bonds issued by a fire protection district for capital purposes may be sold privately, without a public offering, at the discretion of the board of fire commissioners, if, in their opinion, such a private sale would be in the best interest of the district.  It should be noted, however, that RCW 52.16.110 supra, while vesting the board of fire commissioners with discretion as to the manner of sale of bonds, requires that the bonds be sold "at a price not less than par."

            We trust that the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

PHILIP H. AUSTIN
Assistant Attorney General