ISSUE OF WARRANTS BY SCHOOL DISTRICT OVER ITS DEBT LIMIT

ISSUE OF WARRANTS BY SCHOOL DISTRICT OVER ITS DEBT LIMIT

A county auditor may not safely issue warrants of a school district after it has exceeded its constitutional debt limitation.

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                                                                     July 8, 1952

Honorable Robert S. Campbell, Jr.
Prosecuting Attorney
Grant County
Ephrata, Washington                                                                                                              Cite as:  AGO 51-53 No. 345

Dear Sir:

            Receipt is acknowledged of your letter of June 30, 1952, in which you request our opinion on the following matter:

            "Should a County Auditor issue a warrant under the following circumstances?  A school district has issued warrants for items provided for in the budget.  Part of the anticipated revenue was $280,000 Federal aid, of which approximately $50,000 has been received.  There is no definite commitment as to the balance.  If the Auditor issues the warrants authorized by the district, the school district will then have exceeded their 1 1/2% warrant limit and also its 5% limit on both warrants and bonds."

            It is our conclusion that the county auditor should not issue a warrant where the district indebtedness had exceeded the one and one‑half percent warrant limit and also the five percent limit on both bonds and warrants.

                                                                     ANALYSIS

            Section 6, Article VIII of the Constitution provides in part:

             [[Orig. Op. Page 2]]

            "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 per centum 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 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, 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: * * * "

            This section of the constitution expressly places a limit upon the amount of indebtedness which a school district may incur.  InStanley v. McGeorge, 17 Wash. 8, our supreme court held that where a school district had exceeded its constitutional debt limit, the school directors were under no obligation to continue to operate the school.  The court there found that the combination of the warrant indebtedness outstanding, together with the bonded indebtedness, carried the district beyond its debt limit and declined to issue a writ of mandamus to require the directors to carry on operations.

            There is a line of cases in this state that a municipality may continue to issue warrants notwithstanding the constitutional debt limitation for the purpose of carrying on itsnecessary governmental activities.  Among such cases areGladwin v. Ames, 30 Wash. 608; Rummens v. Evans, 168 Wash. 527; Patterson v. Edmonds, 72 Wash. 88 and State ex rel. Taro v. Everett, 101 Wash. 561.  However, it is the apparent holding of our supreme court inStanley v. McGeorge, supra, that the operation of a school is not such a mandatory requirement as to make it necessary for its governing board to continue to incur indebtedness after the constitutional debt limitation has been reached.  Whether our supreme court would still follow Stanley v. McGeorge, it is difficult to say.  But, at any rate, the case has not been overruled.  InRaynor v. King County, 2 Wn. (2d) 199, 97 P. (2d) 696, our supreme court discussed exhaustively the question of how a municipality operates after its constitutional debt limit has been reached and plainly indicated that warrant indebtedness  [[Orig. Op. Page 3]] must be counted in determining whether the constitutional debt limit has been exceeded.  The court there held that obligations for necessities could exceed the constitutional debt limit but those which were not necessities violated the constitutional limitation.  The court there held that in determining whether the constitutional debt limit has been reached, certain off-sets may be taken into consideration.  In summarizing the court said:

            "Since the decision in the case of State ex rel. Barton v. Hopkins, 14 Wash. 59, 44 Pac. 134, 550, we have held that certain cash assets may be deducted from the outstanding indebtedness for the purpose of determining whether or not a county or city has exceeded its one and one‑half per cent debt limit.  In the case last above cited, and in the following cases:  Seymour v. Ellensburg, 81 Wash. 365, 142 Pac. 875; Tabb v. Funk, 170 Wash. 545, 17 P. (2d) 18,Dearling v. Funk, 177 Wash. 349, 32 P. (2d) 548, we not only limited the offset to cash assets, but limited the cash assets to cash on hand, marketable securities, taxes levied and uncollected, and interest on such taxes.  In other words, the asset, to be used as an offset, must be cash or its equivalent."

            Your letter states that the budget was based upon anticipated revenue to be received from the federal government, but that only a portion of it has been received and there is no definite commitment as to the balance.  It is doubtful that this can be considered cash or its equivalent.  Consequently, it appears that the debt limitation has now been exceeded.  In the case ofState ex rel. Troy v. Yelle, 36 Wn. (2d) 192, 217 P. (2d) 337, our supreme court held that the term "debt" as it is used in sections 1, 2 and 3 of Article VIII of the constitution, refers only to borrowed money and not to warrant indebtedness.  Sections 1, 2 and 3 relate to state debts and the holding is arrived at by a discussion of other sections of the constitution pertaining to state indebtedness.  It is, therefore, uncertain whether the court would extend that holding to section 6, Article VIII, pertaining to municipal debts, and hold that warrant indebtedness does not bring a municipality within the debt limit prescribed by section 6, Article VIII of the constitution.  Of course, if the rule of that case were applied, warrant indebtedness would be disregarded.

             [[Orig. Op. Page 4]]

            Many of the cases relative to debt limitations have referred to the issuance of warrants as the creation of a debt.  However, we believe that the constitutional debt limitation relates to the creation of obligation rather than the issuance of the warrants.

            "* * * A city warrant is nothing more than a device for liquidating an existing municipal indebtedness or a certificate of indebtedness, which is neither intended to nor does create any new debt. 2 Dillon, Municipal Corporations (5th ed.), § 851; McQuillin, Municipal Corporations, § 2241 * * * "Washington-Oregon Corporation v. Chehalis, 76 Wash. 442, 451, 136 Pac. 681.

            If the district has, in fact, exceeded its debt limitation its act in doing so is ultra vires and no valid obligation exists.  Consequently, a warrant should not be issued to evidence an invalid indebtedness.  The matter of when the district passed its debt limit is to be determined by when it incurred obligations in excess of the debt limit rather than the day upon which the auditor is called upon to issue warrants.  The status of obligations which a district attempts to incur after passing its debt limit is so doubtful that we do not feel the auditor would be justified in issuing warrants upon obligations so incurred unless protected by a court decision.

            Since the operation of schools is a matter of vital importance, it is entirely possible that the courts might take the view at this time that the same rule should be applied to the operations of a school district, as is applied to the necessary operations of a city and would overrule Stanley v. McGeorge, 17 Wash. 8.  However, we do not believe that the auditor may safely continue to issue warrants for indebtedness in excess of the constitutional debt limit unless the matter shall have been passed upon by a court.  It is our suggestion that arrangements should be made to submit the matter at an early date to the superior court.

Very truly yours,

SMITH TROY
Attorney General

LYLE L. IVERSEN
Assistant Attorney General