SCHOOL DISTRICTS ‑- LEVIES FOR PAYMENT OF BONDS.
(1) A school district may not levy an excess tax levy in an amount greater than is required for payment of principal and interest due on school district bonds in the particular year for which the levy is made.
(2) A school district may not increase the excess tax levy in order to exercise an option to redeem bonds prior to the fixed date of maturity.
(3) A surplus in the bond redemption fund should be used to retire bonds which are subject to redemption. If not so used, it must be considered in determining the amount of excess tax levy when the next budget is prepared.
(4) The board of county commissioners does not have authority to fix the excess tax levy for the bond redemption fund at a different amount than the amount certified by appropriate authorities.
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November 26, 1958
Honorable James J. Solan
Grays Harbor County
Aberdeen, Washington Cite as: AGO 57-58 No. 230
Attention: L. Edward Brown, Deputy
This letter is written in answer to your request for an opinion on several questions relating to the levy of taxes for payment of principal and interest on school district bonds. We paraphrase your questions as follows:
(1) May an excess tax levy in an amount greater than is required to pay principal and interest due on school district bonds in a particular year be levied on the taxable property in the district?
(2) When school district bonds are sold so as to mature at stated intervals subject to the option of the district to redeem any or all bonds at any time after five years, can the district increase the excess tax levy in order to exercise its option and redeem the bonds prior to the fixed date of maturity?
[[Orig. Op. Page 2]]
(3) In determining the amount of money to be raised by an excess tax levy in any particular year, must the officials determining the levy take into consideration the surplus in the school district fund already available for redemption of these particular bonds?
(4) Does the board of county commissioners have authority to fix the levy for the bond redemption fund at a different amount than the amount certified to the board by the appropriate authorities?
We answer questions (1), (2) and (4) in the negative and question (3) in the affirmative.
For the purposes of this opinion we assume that the bonds involved were issued subsequent to the year 1923 and that they are being paid by levies in excess of the forty mill levy limitation.
In answering your first question we are met by a conflict in the statutes. The basic provisions of our law governing school district bonds are found in chapter 97, Laws of 1909, (cf. RCW 28.51.130 and 28.51.140). As last amended by section 1, chapter 20, Laws of 1923, the statutes provided for (1) a levy by the county commissioners of annual taxes to pay the principal and interest on school district bonds based on a rather complicated formula, (2) the creation of a sinking fund (bond redemption fund) into which the proceeds of the levies would be paid, (3) the investment of the surplus in the sinking fund by the county treasurer at the request of the board of directors in designated securities that mature prior to the maturity of the school district bonds, and (4) the redemption of outstanding bonds by the county treasurer at the request of the board of directors of the district. The amendatory act was signed by the governor on February 21, 1923.
On March 20, 1923, the governor signed chapter 151, Laws of 1923. The pertinent provisions of that act are as follows:
"Hereafter all bonds, including refunding bonds, issued under lawful authority by any . . . school district, . . . shall be serial in form and maturity and numbered from one upward consecutively. . . . The various annual maturities shall commence with the second year after the date of issue of such bonds and shall (as nearly as practicable) be in such amounts as will, together with the interest on all outstanding bonds, be met by an equal annual tax levy for the payment of said bonds and interest: . . ." (Section 1)
[[Orig. Op. Page 3]]
"The officials now or hereafter charged by law with the duty of levying taxes for the payment of said bonds and interest shall, in the manner provided by law, make an annual levy sufficient to meet the annual or semi-annual payments of principal and interest on said bonds maturing as herein provided." (Sec. 2)
"Bonds issued under this act shall never be issued to run for a longer period than thirty years from the date of the issue and shall, as near as practicable, be issued for a period which will be equivalent to the life of the improvement to be acquired by the use of the bonds." (Sec. 5)
"All acts and parts of acts in conflict herewith, are hereby repealed: Provided, that this act shall not affect the validity nor the procedure necessary for the payment and redemption of any bonds heretofore issued and sold by any such municipal corporation, or any bonds authorized under existing laws, a part of which have been sold." (Sec. 7)
Chapter 151, Laws of 1923, being a later enactment and expressly repealing the conflicting portions of any prior act, is clearly controlling in so far as it may conflict with section 1, chapter 20, Laws of 1923.
Under section 2, chapter 151, Laws of 1923, the levy authorized by the legislature for the payment of principal and interest on school district bonds is a levy "sufficient to meet the annual or semi-annual payments of principal and interest on said bonds maturing as herein provided." Section 1 of the same act clearly specifies that the maturity schedule shall commence with the second year after issue and "shall (as nearly as practicable) be in such amounts as will, together with interest on all outstanding bonds, be met by an equal annual tax levy for the payment of said bonds and interest."
A school district is a municipal corporation. As such, it has only such power to tax as is granted by the legislature. Pacific Etc. Ass'n v. Pierce County, 27 Wn. (2d) 347, 178 P. (2d) 351. The legislative grant of authority to levy taxes for payment of principal and interest on school district bonds is clearly limited by the statutes quoted above to the amount required to meet the interest and principal according to the maturity schedule under which the bonds were issued. See AGO, Division of Municipal Corporations, May 11, 1949 [[Opinion No. 49-51-36]].
We conclude, therefore, that an excess tax levy in an amount greater than is required to pay the principal and interest on school district bonds as they mature cannot be made.
Your second question is the same as the first except that the bonds with which we are concerned contain a provision under which the district may exercise [[Orig. Op. Page 4]] an option to redeem outstanding bonds prior to the specific maturity date after the expiration of five years from the date of issue.
School district bonds to be paid from excess tax levies must be approved by the electors of the district. Article 7, section 2, Washington State Constitution and RCW 28.51.010. The proposition which is approved by the electors must state the time the bonds are to run and indicate that they will be paid by tax levies in excess of the forty mill levy limitation. RCW 28.51.020, Yakima v. Taxpayers Etc., 45 Wn. (2d) 824, 278 P. (2d) 777. Thus, when the voters approve the issuance of bonds, they also approve the imposition of an excess tax levy to retire the bonds over the period of time the bonds are to run.
The period of time over which bonds are to mature is often an important factor to an elector because it will determine the amount of the annual excess tax levy. An elector may be willing to pay a sum of money over a twenty year period that he is unwilling to pay over a shorter period of time.
In our opinion, the reason the option provision is included in school district bonds is to allow a redemption should funds become available through some fortuitous event or to refund the bonds under the provisions of RCW 28.51.180.
We find nothing in the statutes which either expressly or impliedly authorizes a school district to increase the annual levy for the purpose of redeeming bonds prior to the specific maturity dates. We cannot imply such authority for the reasons stated in our answer to question (1) and for the additional reason that to do so would render nugatory the salient provisions of RCW 28.51.020 allowing the electors of the district to consider the maturity schedule in determining whether or not to authorize the issuance of bonds.
Your third question concerns the consideration of an existing surplus in the bond redemption fund in fixing the levy for payment of principal and interest on bonds in any particular year.
It is patent that if the annual excess tax levy for the payment of principal and interest on school district bonds has been fixed in the manner provided by statute, the only surplus that will exist in the bond redemption fund is the normal surplus required to protect against delinquent payment of taxes. While such a surplus may be considered in determining the annual levy, its continued existence is essential to protect the financial integrity of the district.
Assuming, however, that for some reason a surplus of a larger nature exists, the surplus funds should be used either to exercise the district's option to redeem bonds prior to maturity or to reduce the annual levy for payment of outstanding principal and interest on school district bonds.
Section 4, chapter 88, Laws of 1911 (cf. RCW 28.51.210) provides as follows:
[[Orig. Op. Page 5]]
". . . Whenever the amount of any sinking fund created under the provisions of this act shall equal the amount, principal and interest of any bond then due, or subject under the pleasure or option of said school district to be paid or redeemed, it shall be the duty of the county treasurer of the county in which the school district issuing such bonds is located, to publish a notice in the official newspaper of the county, if such a one there be, and if not, then in a newspaper of general circulation, that the said county treasurer will within thirty (30) days from the date of such notice, redeem and pay any such bond then redeemable or payable, giving priority according to the date of issue numerically, . . ."
The above statute clearly authorizes the use of a surplus in the bond redemption fund to retire bonds which the district may have an option to redeem prior to the specific maturity date.
If the surplus funds are not so used, the surplus will exist when the next ensuing budget is prepared because taxes levied for the bond redemption fund can be used only for that purpose. We previously noted that in the absence of legislative authority cash surpluses are deemed to be a violation of the public policy of this state. In the case of Pacific Etc. Ass'n v. Pierce County, supra, our supreme court ruled on the authority of a port district to build cash surpluses. Under the then existing statutes a port district levied and collected its taxes in the manner provided by law for the levy and collection of taxes in school districts of the first class. The court held (1) that the intent of the statute was to have port districts follow school district budget law, (2) that school district budget law required the consideration of surpluses in determining the amount to be levied, (3) that a levy in excess of the needs of the district was illegal, and (4) that taxpayers injured by the excessive taxation could recover the illegally collected taxes.
In a previous opinion of this office we held that if the necessary funds become available from another source after an excess tax levy has been approved by the voters, the levy should not be made. AGO 53-55 No. 178 [[to J. E. Duree, Prosecuting Attorney, Pacific County on December 3, 1953]].
We conclude, therefore, that if a surplus exists at the time the budget is prepared for the annual levy of taxes, it is the duty of the proper officers to take such surplus into consideration in determining the amount of the annual excess tax levy for the payment of principal and interest on school district bonds.
Your final question concerns the authority of the board of county commissioners to fix the levy for payment of principal and interest on school district bonds at a different amount than certified to the board of county commissioners by the appropriate authorities.
[[Orig. Op. Page 6]]
In an opinion to the prosecuting attorney of King County dated October 3, 1950, we held that the board of county commissioners acts in a ministerial capacity in levying taxes for first class school districts and cannot question the need of the amounts certified to it by the board of directors of the district. We enclose a copy of that opinion for your further information.
Second and third class school districts prepare budgets under different statutes than do first class districts. However, once again we are met by a conflict in the statutes.
Section 1, chapter 28, Laws of 1933 (cf. RCW 28.63.100 ‑ 28.63.160) provides that the board of directors of each school district of the second and third class shall prepare an annual budget and submit the same to the county superintendent of schools for review and revision by the county reviewing committee. The county reviewing committee is authorized to "finally fix and determine the amount" of the budget. The statute provides that the budget is then filed with the county auditor for the board of county commissioners and that the board of county commissioners
". . . shall levy a tax on all the taxable property in the local district sufficient to raise the money to meet the necessary expenditures shown by such budget, after deducting the estimated revenues from state and county funds and other miscellaneous sources, together with such cash on hand as has not been voted or allocated for other purposes or is not needed to keep the district free from an interest bearing warrant basis: . . ."
The above act specifically repeals all acts or parts of acts in conflict herewith (section 16, chapter 28, Laws of 1933).
Section 76, chapter 130, Laws Extraordinary Session of 1925, is an earlier statute and in many particulars directly conflicts with section 1, chapter 28, Laws of 1933. The earlier enactment reads as follows:
"It shall be the duty of the board of directors of each school district of the second or third class, on or before the first day of September in each year, to make and file with the county superintendent of schools an estimate or budget in detail of the amount of funds which will be required by their district for all purposes, except interest and/or sinking fund debt or bond redemption and/or non high school district tax purposes, for the ensuing fiscal year, andit shall be the duty of the county superintendent of schools to carefully examine such estimates and, if any thereof are not in proper form or the estimated amount is in excess of the limit of tax levy allowed by law, to cause the board of directors making such estimate to file a corrected estimate in proper form and, on [[Orig. Op. Page 7]] or before the first Monday in October in each year, compute and endorse on such estimates the amounts required by the respective districts for interest and/or sinking fund debt or bond redemption and/or non high school district tax purposes, if any, and file all such estimates with the clerk of the board of county commissioners for the purpose of levying district taxes." (Emphasis supplied.)
In our opinion, however, there is no direct conflict between that portion of section 76 dealing with the duty of the county superintendent to compute and endorse on the budget the amounts required for "interest and/or sinking fund debt or bond redemption . . . purposes" and the later enactment. The two statutes can be construed together and according to the information made available to us, have been so construed by the county superintendents throughout the years.
It thus appears that under the statutes the county superintendent of schools is required to compute the amount necessary in a particular year for payment of principal and interest on school district bonds and endorse the amount on the budget. The county budget reviewing committee determines the level of district need by determining the amount of the budget. It then becomes the duty of the county commissioners to levy a tax sufficient to meet the expenditures after deducting certain designated revenues and surpluses. This, of course, leaves no element of discretion in the board of county commissioners because it is a mere mathematical computation. In substance and effect, the board of county commissioners has no greater control over the levy for second and third class districts than it does over the levy for first class school districts.
We conclude, therefore, that the board of county commissioners acts in a ministerial capacity in levying taxes for school districts of all classes, and that it does not have authority to question the need of the amounts certified to it by the county budget review committee and county superintendent for second and third class districts or by the board of directors for first class school districts.
We trust that the foregoing opinion will be of assistance to you.
Very truly yours,
JOHN J. O'CONNELL
ELVIN J. VANDEBERG
Assistant Attorney General