SCHOOLS ‑- (LEASES) BOARD OF DIRECTORS POWERS (SCHOOL DISTRICT) PURCHASE BY "LEASE‑GIFT" ARRANGEMENT BINDING BOARD BEYOND ONE YEAR.
School district may not purchase equipment by leasing it for a term of years and receiving at the expiration of the lease as gift‑-rentals being equivalent to normal purchase price unless all rentals are budgeted in first budget year.
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February 11, 1955
Honorable John Panesko
Chehalis, Washington Cite as: AGO 55-57 No. 21
You have requested our opinion concerning the following question:
Can a school district legally purchase equipment for its industrial arts shops by leasing it for a period of years, with the total rental equivalent to the normal purchase price, receiving it as a gift at the expiration of the lease?
Our conclusion is in the negative unless all rents due under the lease are budgeted in the budget year in which the lease was entered; or unless the terms of the lease or renewal do not exceed one year.
By virtue of RCW 28.58.100 (5) the board of directors of every school district is empowered to lease personal property for the district. Inasmuch as the type of lease under consideration here is for a term of years, serious difficulties arise. RCW 28.58.130 provides that it shall be unlawful for any board of directors to contract indebtedness in any one year in excess of the aggregate amount set forth and approved in the district's final budget.
Clearly, if rent under the lease is to be budgeted for payment in any year [[Orig. Op. Page 2]] except the one in which the lease was entered, the lease is in violation of the statute and void.
On the other hand, if all rents for the total lease period are provided for in the budget of the year in which the lease was entered, such violation does not arise and the lease is enforceable barring invalidity occasioned by RCW 39.36.020. If this procedure is followed, it appears that the district might just as well have purchased the equipment outright.
We wish to add however that if the term of the lease were reduced to be no longer than a budget year, RCW 28.58.130 would not apply. In such a case, a lease not exceeding one year with an option to release during each year, with an option to purchase at any time during any renewal period when the rentals become equivalent to the normal purchase price would not violate the statutes mentioned. Inasmuch as no board of directors would be bound beyond one year, we believe such procedure is not objectionable and could apply to all types of property capable of being leased. This is probably the procedure to which you referred and is commonly known as a "lease‑purchase" arrangement. The opinion you probably have in mind is one rendered September 12, 1939, to the Superintendent of Public Instruction, a copy of which is enclosed for your information.
We hope the foregoing analysis proves helpful to you.
Very truly yours,
RICHARD L. NORMAN
Assistant Attorney General