SCHOOLS--DISTRICTS--MORTGAGES--REAL PROPERTY

SCHOOLS--DISTRICTS--MORTGAGES--REAL PROPERTY

An individual school district cannot finance the acquisition of real property for school district purposes by borrowing funds from an institutional lender and securing payment of the obligation with a mortgage on the property acquired with the loan proceeds.

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                                                              September 12, 1990

Honorable Arthur D. Curtis
Clark County Prosecuting Attorney
1200 Franklin Street
P. O. Box 5000                                                                                                Cite as:     
Vancouver, WA  98668                                                                       AGO 1990 No. 8

Dear Mr. Curtis:

            You have requested our opinion on the authority of individual school districts to finance the purchase of real property.  We paraphrase your question as follows:

            Can an individual school district finance the acquisition of real property for school district purposes by borrowing funds from an institutional lender, and securing payment of the obligation with a purchase money security interest on the property such as a deed of trust or mortgage lien on the property acquired with the loan proceeds?

                                                                   Brief Answer

            An individual school district cannot finance the acquisition of real property for school district purposes by borrowing funds from an institutional lender and securing payment of the obligation with purchase money security interest on the property acquired with the loan proceeds.

                                                                       Analysis

            A school district is a municipal, or public, corporation created by the Legislature.  RCW 28A.58.010.  As such, it may exercise only such powers as the Legislature has granted in express words, or those necessary or fairly implied in, or incident to, powers expressly granted, or those essential to the declared objects and purposes of the district.  Noe v. Edmonds Sch. Dist. No. 15, 83 Wn.2d 97, 103, 515 P.2d 977 (1973).  Municipal corporations do not possess inherent power to borrow money.  Authority to do so must be found in appropriate legislative provisions.  Edwards v. Renton, 67 Wn.2d 598, 601, 409 P.2d 153 (1965).  The power to borrow will not be inferred or implied from the general statutory powers to contract or to incur indebtedness.  Edwards, 67 Wn.2d at 602.  School districts must strictly comply with statutory requirements governing the borrowing of funds and the accompanying incurrence of obligations.  SeeState ex rel. Tacoma Sch. Dist. No. 10 v. Clausen, 126 Wash. 90, 217 P. 712 (1923).  Therefore, to answer your question we must examine the statutes governing the powers of school districts to purchase real property and to incur debt.

            Several statutes address school district purchases of real property.  Chapter 28A.51 RCW authorizes the board of directors of any school district to borrow money and issue negotiable bonds for the purchase of sites for school buildings, playgrounds, and other facilities.  RCW 28A.51.010(2).  RCW 28A.58.550 authorizes school districts to execute executory conditional sales contracts for the purchase of any real property in connection with the exercise of any powers or duties school districts are authorized to exercise.  Purchase of property through issuance of bonds or by contract must not, without assent of the voters, result in total indebtedness in excess of the limitations authorized by chapter 39.36 RCW.  RCW 28A.51.010, 28A.58.550.  These statutes do not discuss the mortgaging of real property by school districts.

            The Legislature specifically addressed the topic of mortgaging real property in the context of school district associations.  RCW 28A.58.0401 provides:

            Anyassociation established by school districts pursuant to the Interlocal Cooperation Act, chapter 39.34 RCW for the purpose of jointly and cooperatively purchasing school supplies, materials and equipment, if otherwise authorized for school district purposes to purchase personal or real property,is hereby authorized, subject to rules and regulations of the state board of education,to mortgage, or convey a purchase money security interest in real or personal property of such association of every kind, character or description whatsoever, or any interest in such personal or real property:  Provided, That any such association shall be prohibited from causing any creditor of the association to acquire any rights against the property, properties or assets of any of its constituent school districts and any creditor of such association shall be entitled to look for payment of any obligation incurred by such association solely to the assets and properties of such association.
(Emphasis added.)

            Chapter 39.34 RCW, the Interlocal Cooperation Act, permits "public agencies" such as municipal corporations including school districts, to jointly exercise any powers which the individual public agencies would otherwise be authorized to exercise.  RCW 39.34.010-.170.  Any joint board created pursuant to chapter 39.34 RCW is authorized to accept loans of private funds in order to accomplish the purposes of the chapter, provided each of the participating public agencies is authorized by law to receive such funds.  RCW 39.34.070.

            Under 28A.58.0401 an association of school districts, but not individual school districts, may mortgage real property.  The legislative history pertaining to this measure indicates the Legislature intended to provide this power, which was not a power previously granted to school districts, and to limit the power to associations of school districts rather than extend it to individual school districts.

            RCW 28A.58.0401 was enacted in 1975.  Laws of 1975-76, 2nd Ex. Sess., ch. 23, § 1, p. 60.  RCW 28A.58.0401 was enacted in the Legislature as Engrossed Senate Bill No. 2994.  The Bill Report on Engrossed Senate Bill 2994 by the House Committee on Education dated February 5, 1976 defined the issue prompting the bill as follows:

            The school district cooperative purchasing organizations are currently unable to mortgage their property to secure a loan which would enable them to build necessary facilities.

            The report further stated that "the mortgaging ability is the sole intent of the bill."  The analysis for second reading contained in the House committee files stated the issue as follows:

            Cooperative purchasing associations between school districts have the authority to purchase real property on a real estate contract.  Financial institutions are reluctant to finance such buildings on a real estate contract because it is legally considered an investment and not a loan.  Such associations have no specific statutory authority to mortgage property to secure a loan and financial institutions will not accept a mortgage without an express authorizing statute.

These reports demonstrate the Legislature's understanding that school district associations were without power to mortgage property prior to the enactment of RCW 28A.58.0401

            Floor debate on the bill also supports this point.  It also demonstrates that RCW 28A.58.0401 did not extend the authority to mortgage property to individual school districts.

                                                            POINT OF INQUIRY

                        Senator Cunningham:  "Would Senator Woody yield to a question?  Senator Woody, I hope I know the answer but for the record, this bill does not give schools authority to go out and to mortgage existing properties that they have, only simply to acquire new properties and mortgage?

                        Senator Woody:  "This does not allow either one of the instances that you address yourself to.  Your question was framed, would a school district be permitted to do these things?  The answer is, this bill does not allow school districts to do anything.  This merely allows the association referred to in the bill and the measure to do those things.  The association is distinguished from the school districts.  It is just like another corporation or non-profit association."

3 Senate Journal, Forty-Fourth Legislature (1976) at 133.

                                                                     Conclusion

            Therefore, upon examination of the relevant statutes and legislative history, we conclude that the only obligations individual school districts may incur to finance the purchase of real property are the issuance of bonds pursuant to chapter 28A.51 RCW and the execution of an executory conditional sales contract pursuant to RCW 28A.58.550.  Individual school districts are not authorized to mortgage or otherwise execute purchase money security interests in real property.

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

                                                                                    Very truly yours,

                                                                                    KENNETH O. EIKENBERRY
                                                                                  Attorney General

                                                                                    NANCY THYGESEN DAY
                                                                                    Assistant Attorney General
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