DISTRICTS ‑- SCHOOLS ‑- CONTRACTS ‑- EXECUTION OF A CONDITIONAL SALES CONTRACT WITHOUT APPROVAL OF VOTERS

DISTRICTS ‑- SCHOOLS ‑- CONTRACTS ‑- EXECUTION OF A CONDITIONAL SALES CONTRACT WITHOUT APPROVAL OF VOTERS.

A school district may enter into a conditional sales contract, pursuant to chapter 62, Laws of 1965 (RCW 28.58.550), without approval of the voters of the district so long as the contract price, added to existing debt within that class of debt which, under Article VIII, § 6, and RCW 39.36.020, may be incurred without voter approval does not exceed one and one‑half percent of the assessed value of the taxable property in the district.

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                                                               December 22, 1966

Honorable Louis Bruno
State Superintendent of
Public Instruction
Old Capitol Building
Olympia, Washington

                                                                                                              Cite as: AGO 65-66 No. 123

Dear Sir:

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

            Under what circumstances may a school district enter into a conditional sales contract, pursuant to chapter 62, Laws of 1965, without approval of the voters of the district?

            We answer your question in the manner set forth in our analysis.

                                                                     ANALYSIS

            The 1965 legislature granted to all classes of school districts the power to enter into conditional sales contracts.1/   This was accomplished with the enactment of chapter 62, Laws of 1965.

             [[Orig. Op. Page 2]]

            The act (codified as RCW 28.58.550) provides as follows:

            "Any school district may execute an executory conditional sales contract with any other municipal corporation, the state or any of its political subdivisions, the government of the United States or any private party for the purchase of any real or personal property, or property rights, in connection with the exercise of any powers or duties which they now or hereafter are authorized to exercise,if the entire amount of the purchase price specified in such contract does not result in a total indebtedness in excess of one and one‑half percent of the assessed valuation of the taxable property in such school district:  PROVIDED, That if such a proposed contract would result in a total indebtedness in excess of one and one‑half percent of the assessed valuation of the taxable property of such school district, as the case may be, a proposition in regard to whether or not such a contract may be executed shall be submitted to the voters for approval or rejection in the same manner that bond issues for capital purposes are submitted to the voters:  PROVIDED FURTHER, That any school district may jointly execute contracts authorized by this section."  (Emphasis supplied.)

            Our function here is to determine the meaning of "total indebtedness."  In so doing, our task is to ascertain and give effect to the intent of the legislature.  See,Connick v. Chehalis, 53 Wn.2d 288, 333 P.2d 647 (1958); King County Etc. Ass'n v. State Etc. Bd., 54 Wn.2d 1, 336 P.2d 387 (1959).  In arriving at legislative intent, we may consider previous legislation on the same subject and, as well, such facts as may be judicially noted by the court, which may have prompted the legislature to enact the statute.  City of Seattle v. Reed, 6 Wn.2d 186, 107 P.2d 239 (1940).

            From a reading of the statute, it is apparent that the legislature was aware of, and intended the statute to be construed in the light of Article VIII, § 6 (Amendment 27) of  [[Orig. Op. Page 3]] the state constitution.2/   This provision establishes the debt limitation for taxing districts, including school districts, and reads as follows:

            "No county, city, town, school district, or other municipal corporation shall for any purpose become indebted in any manner to an amount exceeding one and one‑half percentum of the taxable property in such county, city, town, school district, or other municipal corporation, without the assent of three‑fifths of the voters therein voting at an election to be held for that purpose, nor in cases requiring such assent shall the total indebtedness at any time exceed five percentum 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, except that in incorporated cities the assessment shall be taken from the last assessment for city purposes:  Provided, That no part of the indebtedness allowed in this section shall be incurred for any purpose other than strictly county, city, town, school district, or other municipal purposes:  Provided further, That (a) any city or town, with such assent, may be allowed to become indebted to a larger amount, but not exceeding five percentum additional for supplying such city or town with water, artificial light, and sewers, when the works for supplying such water, light, and sewers shall be owned and controlled by the municipality and (b) any school district with such assent, may be allowed to become indebted to a larger amount but not exceeding five percentum additional for capital outlays."

             [[Orig. Op. Page 4]]

            The supreme court of this state has held on many occasions that Article VIII, § 6 (Amendment 27),supra, creates two separate classes or limitations of indebtedness.3/   See,State ex rel. Barton v. Hopkins, 14 Wash. 59, 44 Pac. 134 (1896);Hazeltine v. Blake, 26 Wash. 231, 66 Pac. 394 (1901); State ex rel. Strahorn v. Blake, 26 Wash. 237, 66 Pac. 396 (1901);State ex rel. Olympia v. Holmes, 81 Wash. 403, 142 Pac. 1148 (1914).  Reading Article VIII, § 6 (Amendment 27), supra, in connection with RCW 39.36.020 (see footnote 3), supra, these two classes of indebtedness may be described as follows:

            Class A Indebtedness:

            That indebtedness which may be incurred by the governing body of the municipality without the approval of the electors (by three‑fifths vote), not to exceed one and one‑half percent of the assessed valuation of the taxable property in the district.

            Class B Indebtedness:

            That indebtedness in excess of one and one‑half percent of the assessed valuation of the taxable property of the municipality authorized by a three‑fifths approving vote of the electors thereof‑-provided in the case of school districts that the total indebtedness shall not exceed ten percent of the assessed valuation of the taxable property for the purposes stated in RCW 39.36.020.

             [[Orig. Op. Page 5]]

            We may presume that the legislature was aware of the court decisions (cited above) establishing this classification of indebtedness when it enacted chapter 62, Laws of 1965 (RCW 28.58.550), supra.  See,In re Levy, 23 Wn.2d 607, 161 P.2d 651 (1945); Graffell v. Honeysuckle, 30 Wn.2d 390, 191 P.2d 858 (1948).  Similarly, we may also presume that the legislature was aware of the fact that in theHazeltine case,supra, the court held that a city might constitutionally contract debt without a vote of the people irrespective of its total existing indebtedness so long as the amount of its debt within the first class of debt would not thereby exceed the limit of one and one‑half percent of the value of taxable property (and, of course, so long as the indebtedness when added to all existing indebtedness did not exceed the maximum which may be incurred with or without the three‑fifths approving vote).

            While school districts have always possessed the power to incur both classes of indebtedness provided for by Article VIII, § 6, (Amendment 27),supra, the boards of directors‑- unlike the governing bodies of cities and counties‑-have never had the authority to incur any such debt through the issuance of bonds without the approval of the voters of the district.

            However, the distinction between the two classes of indebtedness has nevertheless been recognized by the legislature.  RCW 28.51.020 provides, in pertinent part, as follows:

            "The question whether bonds shall be issued, as provided in RCW 28.51.010, shall be determined at an election to be held in the manner prescribed by law for holding annual school elections.  Notice therefor shall state the amount of bonds proposed to be issued, time they are to run, and purpose for which the money is to be used.  The ballots must contain the words 'Bonds, yes,' or 'Bonds, no.'  If a majority of the votes cast at such election are 'Bonds, yes,' the board of directors must issue such bonds:  Provided, That the amount of bonds to be issued, together with any outstanding indebtedness of the district, exceeds one and one‑half percent of the taxable property in said district, then three‑fifths of the votes cast at such election must be 'Bonds, yes,' before the  [[Orig. Op. Page 6]] board of directors are authorized to issue said bonds. . . ."4/

             Against this background, we now return to your specific question; i.e., under what circumstances may a school district enter into a conditional sales contract, pursuant to chapter 62, Laws of 1965 (RCW 28.58.550),supra, without approval of the voters of the district?  As we have noted, the answer to this question hinges on the meaning of the statutory phrase "total indebtedness."  The issue is whether the measuring "total indebtedness," for purposes of determining whether the contract must be approved by the voters is (a) the total ofall of the indebtedness of the district‑-class A debt plus class B debt‑-or (b) the total only of that class of indebtedness which may be incurred by a school district without the approval of three‑fifths of the voters; i.e., class A indebtedness, as above described.

            Prior to 1965, due to the budgetary requirements of RCW 28.58.130, we advised that a school district did not have the power to enter into a conditional sales contract unless the entire amount of the contract price was budgeted for the year the contract was executed.5/   See, AGO 57-58 No. 136.

             [[Orig. Op. Page 7]]

            The legislature at its 1965 session apparently recognized the effect of this opinion and sought to increase the purchasing authority of school districts.  See [1965] House Journal 248, 639, 2085 for the legislative history of H.B. 175, which when enacted became RCW 28.58.550, supra.  This express legislative purpose should be given effect if possible.  State v. Clausen, 63 Wash. 535, 116 Pac. 7 (1911).

            Were the measuring "total indebtness" [[total indebtedness]]as used in this 1965 statute taken to mean the aggregate of all debt‑-class B as well as class A‑-it is evident that no school district would be able to enter into any conditional sales contract without approval of three‑fifths of its electors unless, by chance, its total existing indebtedness no matter how incurred, was less than one and one‑half percent of the assessed valuation of the taxable property located therein.  In view of the fact that virtually every school district in the state which has been in existence for any time currently has bonded debt in excess of this amount‑-a fact of which we are certain the legislature was aware‑-it follows that were this interpretation to be adopted the utility of the new enactment would, for all practical purposes, be frustrated.

            We do not believe that this is what the legislature intended.  Instead, on the basis of the foregoing, it is our opinion that the measuring phrase "total indebtedness" must be taken to mean the total indebtedness (contract or otherwise) which may be incurred without voter approval under RCW 39.36.020 and Article VIII, § 6, Amendment 27, supra, i.e., debt within the limit of one and one‑half percent of the assessed valuation of the taxable property in the district.  From this it follows that under authority of this statute a school district may enter into a conditional sales contract without a vote of the people so long as the contract price, added to existing class A debt only, does not exceed one and one‑half percent of the assessed valuation of the taxable property in the school district.

            Whether or not a particular district has any portion of its class A debt capacity available at this time can only be determined by an examination of the fiscal records of the district.  In making this determination the following statement made by the court inHazeltine v. Blake, supra, may be helpful:

             [[Orig. Op. Page 8]]

            ". . . whether an indebtedness incurred with the assent of the voters of a municipality was to be treated as an indebtedness belonging to its first or second limitation must be determined by the intent which is made to appear by the ratification of the proposition submitted, and that this intent must be gathered from the form of the proposition interpreted in the light of the facts existing at the time of the submission. . . ." (26 Wash. at p. 234.)

            It should also be noted that most, if not all, school district indebtedness incurred by school districts for many years has been on the basis of voter approval of propositions to issue bonds payable out of excess tax levies.  Such bonds not only must be validated by three‑fifths (sixty percent) of the voters voting on the proposition but, in addition, the total number of persons voting on the proposition must constitute not less than forty percent of the total number of votes cast in the district at the last state general election.  RCW 84.52.056; cf. Article VII, § 2, Amendment 17.  See, also,Henderson v. Tumwater, 46 Wn.2d 758, 285 P.2d 119 (1955).

            This fact would appear to give rise to the presumption in any such case that the district has not used or intended to use its class A debt.6/   However, it should be noted and emphasized that in no event may the total of the class A and class B types of indebtedness, when added together, exceed ten percent of the assessed valuation of the taxable property in the district.  See, RCW 39.60.020,supra, and Article VIII, § 6 (Amendment 27),supra.

             [[Orig. Op. Page 9]]