MUNICIPAL CORPORATIONS ‑- SEWER DISTRICT ‑- POWERS ‑- SURPLUS REVENUE FINANCING ‑- CAPITAL ADDITIONS

AGO 1955 No. 175 - Dec 16 1955

Attorney General Don Eastvold

MUNICIPAL CORPORATIONS ‑- SEWER DISTRICT ‑- POWERS ‑- SURPLUS REVENUE FINANCING ‑- CAPITAL ADDITIONS

A sewer district is not empowered by the legislature, either expressly or by implication, to make payments from surplus revenues to construct an extension of the district's sewer system.

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December 16, 1955

Honorable Cliff Yelle
State Auditor
Legislative Building
Olympia, Washington
Attention: !ttMr. A. E. Hankins
Chief Examiner Cite as: AGO 55-57 No. 175

Dear Sir:

With particular reference to a current problem confronting the Bryn MawrLake Ridge Sewer District (King County) as outlined in a letter received by you from counsel for the district, you have requested our opinion on the following general questions:

1. Is the payment of surplus revenues of a sewer district to construct an extension of the district's sewer system within the powers granted expressly or by implication to sewer districts?

2. Does such expenditure of a district's surplus revenue constitute the lending of credit by a sewer district for the benefit of certain property owners in violation of § 7, Article VIII, of the state constitution?

The first question is answered in the negative, and therefore the second question does not require an expression of our opinion.

[[Orig. Op. Page 2]]

ANALYSIS

The questions submitted for opinion arise from the following facts:

The Bryn Mawr-Lake Ridge Sewer District (King County) formulated a comprehensive plan for a system of sewers in accordance with RCW 56.08.020. Improvements constituting a partial implementation of the comprehensive plan were constructed from the proceeds of a revenue bond issue in the amount of approximately $525,000.00. The bonded indebtedness has been reduced at the present time to approximately $400,000.00. However, the district has accumulated surplus revenue apparently resulting from the fact that the rates and charges collected from existing users of the district's sewer system exceed the current cost of operation and maintenance in addition to principal amortization payments and current interest charges on the district's outstanding revenue bonds. The commissioners of the district now regard it as necessary and proper to construct a new sewer line as a further implementation of the initial comprehensive plan. They propose to finance this capital improvement by collecting a voluntary connection charge from individuals who are presently in a position to make use of the new facility when constructed. These connection charges will amount in the aggregate to approximately two-thirds of the cost of the betterment. It is proposed that the remaining third of the cost be furnished by the district itself from its presently accumulated surplus revenues. It is anticipated by the commissioners that, as additional persons locate along the proposed sewer line, voluntary connection charges will also be collected from such new customers so that ultimately, when a point of full use is reached, the total of the connection charges will then have exceeded the cost of the improvement.se In the meantime, monthly sewerage rates in accordance with the existing rate schedule will be charged to individuals who connect with the line when completed as well as to additional newcomers who will connect from time to time in the future. The commissioners do not desire to initiate action directed toward the establishment of a utility local improvement district under the provisions of RCW 56.20.010et seq.

1. Sewer districts are created pursuant to the provisions of RCW Title 56. When so created, such districts become municipal corporations of the state. Baker v. Lake City Sewer District, 30 Wn. (2d) 510, 516, 191 P. (2d) 844 (1948). Regarding the powers to be exercised by a sewer district, McQuillin, Municipal Corporations, § 31.07, states:

[[Orig. Op. Page 3]]

"The powers of a sewer district are usually defined by the statute creating the district, and such district will have such powers as are expressly or by necessary implication conferred upon it."

InChristie v. The Port of Olympia, 27 Wn. (2d) 534, 179 P. (2d) 294 (1947), the court said:

"* * * this court approved the following statement of the legal principle involved:

"'A municipal corporation is limited in its powers to those granted in express words, or to those necessarily or fairly implied in or incident to the powers expressly granted, and also to those essential to the declared objects and purposes of the corporation. 1 Dillon, Mun. Corp. (4th ed.), § 89.'"

And inState ex rel. Huggins v. Bridges, 97 Wash. 553, 166 Pac. 780 (1917), the court said, with reference to municipal powers:

"* * * The principle to be applied, therefore, is that a doubtful power is a power denied."

Applying this principle, or test, to the instant question, we have reached the conclusion that a sewer district is not empowered by the legislature, either expressly or by implication, to make payments from surplus revenues to construct an extension of the district's sewer system.

First, RCW Title 56 grants no such power to a sewer district in express words. There is, of course, express power to construct additions and betterments. RCW 56.16.030 and RCW 56.08.010. However, an examination of RCW Title 56 [[Title 56 RCW]]fails to disclose any express power either (1) to accumulate revenues in the first place for any object, or (2) to expend surplus revenues, should they in fact exist, for capital betterments.

Second, we are convinced that the power to expend surplus revenues for additional capital betterments is not, in the language of Dillon, necessarily to be implied from the express power to construct extensions granted by RCW 56.08.010. [[Orig. Op. Page 4]] It cannot be said that surplus revenue financing is necessary for such construction when the legislature has expressly provided that betterments may be constructed in any of the following ways:

(a) Issuance of additional revenue bonds (RCW 56.16.030).

(b) Issuance of general obligation bonds to be retired from annual tax levies (RCW 56.16.040).

The mere fact that financing from surplus revenues may be convenient, or indeed, in conformity with good business judgment cannot be regarded as a reason for concluding that such financing is impliedly authorized. The fact that alternative methods are expressly authorized seems to provide a wholly sufficient answer to a contention that financing from surplus revenues may be "fairly implied" from the express power to undertake the construction of betterments.

Third, it would appear that surplus revenue financing cannot be necessarily or fairly implied from the district's express grant of authority to collect and regulate the rates and charges for its sewerage service. RCW 56.08.010. Presumably it is the exercise of this latter power which must account for the factual existence of surplus revenues in the first place. However, RCW Title 56 is not silent as to the general purposes for which such rates and charges are to be collected. RCW 56.16.090 states:

"Charges to be adequate. When revenue bonds are issued the commissioners shall provide for revenue by fixing rates and charges for furnishing sewerage disposal service to those receiving the service. The rates and charges are to be fixed as deemed necessary by the commissioners, so that uniform changes will be made for the same class of service. The rates shall be made on a monthly basis. The total revenue shall be so estimated as to be sufficient to take care of cost of maintenance, operation, interest and principal amortization requirements, and other charges."

[[Orig. Op. Page 5]]

The last sentence of this provision clearly indicates that revenues are to be collected by the sewer district from its customers with a view toward making provision for three distinct expenses of a sewer district: (1) Cost of maintenance; (2) cost of operation; and (3) cost of meeting interest charges and principal amortization requirement of the revenue bonds. Stated another way, the statute appears to indicate that revenues collected by the district may be expended for these three general purposes. Nowhere in this section, dealing specifically with the expenses to be considered by the district in providing for revenues, nor indeed in the entire sewer district title, is any indication given by the legislature that rates and charges may be imposed in an amount sufficient to provide for surplus funds for additional implementation of the original comprehensive scheme. Assuming that an existing surplus has in fact developed, the mere existence of such a surplus does not constitute a legal justification for expending the same for the construction of capital additions. This would be an entirely different purpose from the three enumerated in the statute.

It may well be that the expenditure of surplus funds in the manner proposed would be desirable for everyone concerned. However, it is the opinion of this office that the question is one for the legislature, and that as the law now stands, sufficient legislative sanction for such expenditure is lacking.

2. Having determined that there is no statutory authority, either express or implied, which will justify the expenditure of a sewer district's surplus revenues for the purpose of constructing capital improvements as additions to the original comprehensive plan, we do not reach the question whether or not such expenditures, if authorized, would constitute a lending of credit in violation of § 7, Article VIII, of the state constitution.

Very truly yours,

DON EASTVOLD
Attorney General

J. CALVIN SIMPSON
Assistant Attorney General