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AGLO 1975 No. 63 - July 17, 1975
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Slade Gorton | 1969-1980 | Attorney General of Washington

TAXATION ‑- COUNTIES ‑- CITIES AND TOWNS ‑- FUNDS ‑- STATE ‑- LEGISLATURE ‑- DIVISION OF CERTAIN LOCAL EXCISE TAX REVENUES

Extent to which the 1975 legislature may constitutionally divert proceeds derived from local motor vehicle excise taxes under RCW 35.58.273, et seq., from the taxing municipality for other purposes.

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                                                                    July 17, 1975

Honorable John Bagnariol
Chairman, House Ways and Means Committee
House Office Building
Olympia, Washington 98504                                                                                                               Cite as:  AGLO 1975 No. 63

Dear Sir:

            By recent letter you have made reference to AGLO 1973 No. 31 [[to R. Frank Atwood, State Senator on February 28, 1973 an Informal Opinion, AIR-73531]]and to a related memorandum opinion dated June 30, 1975, which was written by Senior Assistant Attorney General Robert F. Hauth to Mr. Robert Fitchitt, House Ways and Means Committee Staff Director, regarding mass transit assistance.  You have asked at this time for our "official" opinion on the basic question considered in Mr. Hauth's memorandum opinion; namely,

            "'Are local motor vehicle excise tax moneys which have not been appropriated for the 1975-77 biennium available for appropriation for other purposes than for distribution to municipalities for mass transit assistance?'"

            We answer this question in the manner set forth in our analysis.

                                                                     ANALYSIS

            In AGLO 1973 No. 31 [[to R. Frank Atwood, State Senator on February 28, 1973 an Informal Opinion, AIR-73531]], which was written to then State Senator R. Frank Atwood on February 28, 1973, this office considered several questions regarding the use and distribution of certain motor vehicle excise taxes imposed by designated municipalities1/ and collected by the state for local public transportation under RCW 35.58.273, et seq., which originated as a part of chapter 255, Laws of 1969, Ex. Sess.

            At the time that opinion was written, the applicable statutes called for the revenues involved to be collected by the auditor of the county in which the tax imposing municipality is situated.  The auditor was then to remit the proceeds collected to the state where they were to be  [[Orig. Op. Page 2]] paid into the motor vehicle excise fund.  See, RCW 35.58.276 and 35.58.277.  Thereafter, under RCW 82.44.150, those moneys ‑ along with state motor vehicle excise tax revenues in that fund ‑ were to be transferred to the state school equalization fund from which, in turn, they were to be distributed in accordance with a statutory formula set forth therein. Among the elements of that formula were the following provisions with respect to the particular revenues with which we were there specifically concerned:

            ". . .

            "(c) The amount required to remit to a municipality the proceeds of the tax authorized under RCW 35.58.273 shall be remitted to the municipality levying such tax.

            ". . .

            "(6) The amount required under subsection (2)(c) of this section to be remitted by the state treasurer to the treasurer of any municipality levying such tax shall not exceed in any one calendar year the amount of locally generated tax revenues other than the excise tax imposed under RCW 35.58.273, which shall have been budgeted by such municipality to be collected in such year for any public transportation purposes including but not limited to operating costs, capital costs and debt service on general obligation or revenue bonds issued for such purposes."2/

            In simplest terms, what we said in AGLO 1973 No. 31, in answer to the questions posed, was that while this substantive distribution formula was, by its express terms, mandatory, the legislature could limit or restrict the amounts to be distributed thereunder by making an appropriation of a lesser amount.  By itself, however, such an appropriation would not have the effect of freeing up any remaining distributable revenues for other uses.  On the other hand, we then explained that the legislature could free up any such nonappropriated residue for other uses either by (a) an express amendment to RCW 82.44.150 (the distribution formula statute), or (b) an implied amendment thereto in the form, possibly,  [[Orig. Op. Page 3]] of a further appropriation of the remaining amount (or a designated portion thereof) for such other purposes as might be specified in such appropriation.3/

             [[Orig. Op. Page 4]]   Thereafter, while neither of these two suggested approaches was followed to the letter, their essential objective was accomplished through the enactment of chapter 136, Laws of 1973, 1st Ex. Sess., § 7 of which provided, in material part, as follows:

            "During the two fiscal years from July 1, 1973 to June 30, 1975, no municipality as defined in RCW 35.58.272 which has been authorized to levy a special excise tax pursuant to RCW 35.58.273 may levy an amount in each of such fiscal years greater than the maximum amount established pursuant to the following formula:

            "For each of the fiscal years 1973-74 and 1974-75 the total amount of such special excise taxes levied by all municipalities shall be $6,000,000 per year and each municipality may levy not to exceed the proportion of such total amount for which the municipality qualifies proportionately with all other qualifying municipalities under RCW 35.58.273 and RCW 82.44.150 for local mass transit assistance purposes. . . ."

            By thus limiting the local motor vehicle excise tax during the 1973-75 biennium,4/ the legislature effectively increased the yield to the state from the state motor vehicle excise tax imposed by RCW 82.44.020 within the limits of a taxing municipality.  Accord, RCW 35.58.273, quoted on page 2 of AGLO 1973 No. 31, which provides, in material part, as follows:

            "On or after July 1, 1971, any municipality is authorized to levy and collect a special excise tax not exceeding one percent on the fair market value of every motor vehicle owned by a resident of such municipality for the privilege of using such motor vehicle provided that in no event shall the tax be less than one dollar and, subject to the provisions of subsection (2) of RCW 82.44.150,the amount of such tax shall be credited against the amount of the excise tax levied by the state under RCW 82.44.020: . . ."  (Emphasis supplied.)

             [[Orig. Op. Page 5]]   Then, by its passage of chapter 54, Laws of 1974, 1st Ex. Sess., the legislature abolished the motor vehicle excise tax fund and, by a set of rather complex amendments, caused the locally generated motor vehicle excise tax revenues with which we were concerned in AGLO 1973 No. 31 to become a part of the state general fund.  The essence of Mr. Hauth's more recent memorandum opinion of June 30, 1975, to which you have also referred, was an examination of that 1974 act and a consideration of its impact upon the conclusions reached in our earlier opinion ‑ on the basis of which he advised as follows:

            "In summary, it is my opinion that any and all funds in the general fund of the state, representing proceeds of the special motor vehicle excise taxes imposed by cities and remitted to the general fund under Chapter 54, Laws of 1974, 1st Ex. Sess., which are not distributed to municipalities during the next ensuing biennium are now available to be appropriated for other purposes; provided, however, that such appropriation or use does not impair the ability of any municipality to fulfill debt service or other lawful requirements of bond covenants in bonds issued pursuant to the statutes in question prior to the enactment of such amendatory act."

            For reasons which we will explain below, we are in basic agreement with, and hereby officially confirm, this informal opinion to your staff director, Mr. Fitchett ‑ but with emphasis on the qualifying proviso with respect to bond requirements for reasons which we will also explain.  First, however, it appears to us that some clarification is presently in order in view of your apparent reading of certain earlier language in Mr. Hauth's memorandum as meaning that the conclusions which he reached were the result of an implied amendment, by chapter 54, Laws of 1974, 1st Ex. Sess., supra, of the existing provisions of RCW 82.44.150(2)(c) or (6), supra.5/

             [[Orig. Op. Page 6]]   In actuality, there has as yet been enacted no amendment, express or implied, which has had the effect of diverting any portion of the locally imposed special motor vehicle excise taxes in question to purposes other than local mass transit assistance.  The legislative action which has taken place is more subtle than that.  What the legislature has done, by the series of 1974 amendments discussed in Mr. Hauth's memorandum, is to commingle the subject funds with all others in the state's general fund.  By so doing, it has created the possibility of a diversion in the future by the simple act of making a general fund appropriation of the revenues in question for some other specified purpose than that of local public transportation under RCW 35.58.273, et seq., and RCW 82.44.150, supra.  Conceivably, all that might now be required for such a diversion would be an exhaustion of the general fund by all such other appropriations, thus implying a legislative intention to leave no part of the fund available for distribution to municipalities.

            However, we reiterate, it is not the opinion of this office that a diversion to purposes other than local mass transit assistance has already taken place, either by reason of any substantive amendments yet adopted or by any expression of legislative intent in the recently enacted 1975-77 appropriations act ‑ chapter 269, Laws of 1975, 1st Ex. Sess.  What the legislaturehas accomplished by chapter 54, Laws of 1974, 1st Ex. Sess., is merely to now make it possible for the special excise taxes in question to be utilized for purposes other than local mass transit assistance by an appropriation of those revenues from the general fund as opposed to an appropriation from the state school equalization fund as before.  Moreover, while the above discussion of the impact of this legislation includes a recognition of the possibility that this could be done by a nonspecific general fund appropriation item, we would strongly suggest that if the legislature desires to pursue this budgetary alternative it should, in order to manifest its intention as clearly as possible, cause any such appropriation to include an express directive that it is to be funded from so much of the  [[Orig. Op. Page 7]] general fund as is derived from ". . . motor vehicle excise taxes imposed pursuant to RCW 35.58.273-35.58.279 . . ."  Since the concept of statutory amendment by implication is predicated upon the existence of an irreconcilable conflict between the amended and the amendatory acts,6/ the inclusion of such a specific identification of the funding source in any appropriation designed to have the effect of freeing the subject funds for other uses would be most helpful in establishing the existence of a clear conflict between RCW 82.44.150, supra, and the appropriation in question should the matter thereafter be litigated in the courts.

            Hopefully, the above will serve to clarify in your mind what Mr. Hauth was attempting to convey in his June 30, 1975, memorandum opinion to your staff director.  Now, however, we must go on to explain the underlying basis for our agreement with the ultimate conclusion which he there reached; namely, that except to the extent necessary to avoid an impairment of

            ". . . the ability of any municipality to fulfill debt service or other lawful requirements of bond covenants in bonds issued pursuant to the statutes in question prior to the enactment of such [1974] amendatory act

            the legislature is now free to appropriate for other purposes

            ". . . any and all funds in the general fund of the state, representing proceeds of the special motor vehicle excise taxes imposed by cities and remitted to the general fund under chapter 54, Laws of 1974, 1st Ex. Sess., which are not distributed to municipalities during the next ensuing biennium . . ."

            First, let us explain the qualification.  At the time AGLO 1973 No. 31 was written, no municipality had yet issued any bonds for which it had pledged any of its special motor vehicle excise tax revenues in accordance with the authority granted by RCW 35.58.279, which provides that:

            "All taxes levied and collected under RCW 35.58.273 shall be credited to a special fund in the treasury of the municipality imposing such tax.  Such taxes shall be levied and used solely for the purpose of paying all or any part of the cost of acquiring, constructing, equipping or operating a publicly owned mass transportation system, or contracting for the services thereof, or  [[Orig. Op. Page 8]] to pay or secure the payment of all or part of the principal of or interest on any general obligation bonds or revenue bonds issued for public transportation capital purposes and until withdrawn for use, the moneys accumulated in such fund or funds may be invested by the treasurer of such municipality in the manner authorized by the legislative body of the municipality.

            "If any of the revenue from any such special excise tax shall have been pledged by any municipality to secure the payment of any bonds as herein authorized, then as long as that pledge shall be in effect the legislature shall not withdraw from the municipality the authority to levy and collect the tax.  Upon the effective date of this 1969 act any municipality is authorized to pledge that the tax authorized by RCW 35.58.273 shall be levied, collected and applied as provided in this 1969 act to pay or secure the payment of any bonds issued by such municipality after such effective date for authorized public transportation purposes."

            Since then, however, we understand the Municipality of Metropolitan Seattle (Metro) has, in fact, issued a substantial amount in bonds to finance public transportation improvements and operations for which it has pledged those taxes.  Therefore, in recognition of the contractual relationship which arises between a taxing authority and the holders of bonds for the payment of which a particular tax source has been pledged,7/ it follows that regardless of whatever else it may do with respect to the 1975-77 biennium, the legislature will be constitutionally required to allow the distribution to this municipality under RCW 82.44.150,supra, of a sufficient amount of money from this fund source to avoid an impairment of its ability to fulfill its debt service or other lawful requirements arising from bond covenants contained in bonds previously issued pursuant to the statutes here in question ‑ an issue to which we will turn in more detail below.

            The essential basis for Mr. Hauth's conclusions, and for our agreement therewith, however, is that except to this extent the legislature is free by an act passed in the requisite form and manner to make any changes in its prior laws which are  [[Orig. Op. Page 9]] not prohibited by the constitution8/ and nothing in the constitution would prohibit a diversion of the revenues in question to other purposes once the bondholders' rights have been adequately provided for.

            Although not expressly verbalized, this, likewise, was the basis for our final conclusion in AGLO 1973 No. 31; i.e., that those locally generated excise tax revenues which were distributable but, because of a limiting appropriation, were not distributed to municipalities under the express provisions of RCW 82.44.150 could be appropriated for other governmental purposes ‑ either pursuant to an express or an implied amendment to that statute.  Cf., § 7, chapter 136, Laws of 1973, 1st Ex. Sess., supra.  Then, because no bonds for which the revenues were pledged had yet been issued, no qualification upon our answer was necessary because no persons yet existed who had contractual rights as to the funds which could not constitutionally be impaired.  Now, because bondshave been issued by "Metro" of Seattle, the legislature's ability to accomplish this result through a withdrawal of some portion of the local taxing power ‑ as it did in 1973 by § 7, chapter 136, supra ‑ is restricted.  See, so much of RCW 35.58.279, supra, as expressly provides that:

            "If any of the revenue from any such special excise tax shall have been pledged by any municipality to secure the payment of any bonds as herein authorized, then as long as that pledge shall be in effect the legislature shall not withdraw from the municipality the authority to levy and collect the tax.  Upon the effective date of this 1969 act any municipality is authorized to pledge that the tax authorized by RCW 35.58.273 shall be levied, collected and applied as provided in this 1969 act to pay or secure the payment of any bonds issued by such municipality after such effective date for authorized public transportation purposes."

             [[Orig. Op. Page 10]] Both because of this statute and by reason of the "impairment of contract" clauses of our state and federal constitutions, as discussed in Ruano v. Spellman, supra, the legislature can no longer withdraw or limit the authority of Metro to levy the subject local motor vehicle excise tax.  See, letter opinion dated November 30, 1974, from Mr. James R. Ellis, attorney for Metro, to King County Councilman, Edward Heavey, copy enclosed.  Nor, according to Mr. Ellis' interpretation of the applicable bond covenants as communicated to us since the issuance of Mr. Hauth's memorandum opinion of June 30, 1975, can the legislature now divert any portion of the proceeds of that tax to which Metro is entitled under RCW 35.58.273 and RCW 82.44.150(5) from that municipality so long as its bonds remain outstanding.  In essence, it is Mr. Ellis' position ‑ with which we agree ‑ that the bondholders involved have been promised by those covenants not merely that Metro will continue to levy the tax in accordance with RCW 35.58.273 during the life of the bonds but that the proceeds of the tax will at all such times continue to serve as security for the bonds.9/   Any other interpretation of the bond covenants, it seems to us, would amount to overly technical "hair splitting" which we would not expect a court to accept if the issue were ever to be litigated ‑  [[Orig. Op. Page 11]] as it no doubt would be if a diversion from Metro were to occur.10/

            On the other hand it is our understanding that no other municipalities (some seventeen in number) which are currently imposing the tax in question under RCW 35.58.273 have yet issued any bonds pursuant to RCW 35.58.279.  Therefore, insofar as these municipalities are concerned, there is now neither a constitutional nor a statutory bar to prevent the legislature from diverting any of the tax proceeds thus collected from them to other designated governmental purposes.

            Nor, by the same token, obviously, would either the constitutional "impairment of contract" clauses or RCW 35.58.279 prevent the legislature from withdrawing or restricting the special taxing authority under RCW 35.58.273 in the case of all other municipalities (as defined in RCW 35.58.272) which have not yet issued any bonds for which the subject tax revenues have been pledged.  Because the special excise tax which municipalities are now authorized to levy under RCW 35.58.273  [[Orig. Op. Page 12]] constitutes a credit against the state motor vehicle excise tax, it will, again ‑ as noted earlier ‑ readily be seen that any such action by the legislature would automatically have the effect of increasing the state's revenues from its own tax without any necessity for a diversion in the manner above explained.

            It is hoped that the foregoing explanation of our views with regard to this significant question of state fiscal resource allocation will be of some assistance to you.11/

             Very truly yours,

SLADE GORTON
Attorney General

PHILIP H. AUSTIN
Deputy Attorney General

                                                         ***   FOOTNOTES   ***

1/See, RCW 35.58.272, as amended by § 1, chapter 270, Laws of 1975, 1st Ex. Sess.

2/Accord, RCW 82.44.150(5), as amended by § 5, chapter 54, Laws of 1974, 1st Ex. Sess.

3/Repeated for ease of reference, the full text of AGLO 1973 No. 31 [[to R. Frank Atwood, State Senator on February 28, 1973 an Informal Opinion, AIR-73531]], insofar as it set forth the foregoing three conclusions, read as follows:

            "(1) The provisions of RCW 35.58.273-35.58.279 together with RCW 82.44.150(2)(c) and (6), as presently in effect, require the state treasurer to distribute all revenues derived from motor vehicle excise taxes levied by cities under these statutes to the cities by which such taxes were imposed, subject only to a requirement that any such distribution be matched, dollar for dollar, by other local revenues collected by the particular city for public transportation purposes.

            "(2) The amounts of such local motor vehicle excise tax revenues to be returned to the cities by which they were imposed would be effectively limited for the period of the next ensuing biennium by a provision in the 1973-75 biennial state appropriations act 'appropriating' a lesser amount than would otherwise be distributable under the statutory formula set forth in those statutes.

            "(3) A provision in the biennial state appropriations act 'appropriating' a lesser amount than would otherwise be distributable under the statutory formula set forth in RCW 82.44.150, although effectively 'impounding' in the state school equalization fund the balance of such revenues otherwise distributable, would not free such unappropriated balance for transfer to the general fund or otherwise allow its use for any governmental purposes other than distribution at some future date to the municipalities entitled thereto.  However, the legislature could provide for alternative uses of such unappropriated balances either by expressly amending RCW 82.44.150, supra, or, possibly, by the less constitutionally safe procedure of an implied amendment.  Such an implied amendment could be effected on a permanent basis by a conflicting general statute or, for the 1973-75 biennium only, by an additional provision in the appropriation act (i.e., in addition to the appropriation language presently contained in § 45 of Senate Bill 2104)."

4/Section 7, chapter 136, supra, has since been expressly repealed by § 28(2), chapter 270, Laws of 1975, 1st Ex. Sess.

5/We note, particularly, your stated expression of confusion on the point as set forth on page 2 of your letter:

            "The 1973 opinion clearly states that in order to free these revenues for other governmental purposes an express or implied amendment of the statutes cited above is required.  I refer to page 12 of that opinion which states in conclusion:

            "(3) . . .However, the legislature could provide for alternative uses of such unappropriated balances either by expressly amending RCW 82.44.150, supra, or, possibly, by the less constitutionally safe procedure of an implied amendment.  (Emphasis supplied).

            "If this amendment has already been enacted, as the June 30 memorandum implies, would your office please specify exactly what legislative action was taken which leads to this conclusion."

6/See, e.g., Tacoma v. Cavanaugh, 45 Wn.2d 500, 503, 275 P.2d 933 (1954).

7/See, Ruano v. Spellman, 82 Wn.2d 820, 505 P.2d 447 (1973), together with the "impairment of contract" clauses of Article I, § 10 of the United States Constitution and Article I, § 23 of the Washington Constitution.

8/See, e.g., Clark v. Dwyer, 56 Wn.2d 425, 431, 353 P.2d 941 (1960), where it is explained that:

            ". . . the state constitution is not a grant, but a restriction on the law-making power, and the power of the legislature to enact all reasonable laws is unrestrained except where, either expressly or by fair inference, it is prohibited by the state and federal constitutions. . . ."

9/See, in particular, the following paragraph of the bond covenants, as quoted on page 2 of Mr. Ellis' letter opinion, supra:

            "The legislature of the State of Washington has provided by RCW 35.58.279 that so long as the Municipality shall have pledged to levy and collect the special motor vehicle excise tax authorized by Ch. 35.58 RCW [[chapter 35.58 RCW]]to secure the payment of the bonds, the legislature shall not withdraw from the Municipality the authority to levy and collect such tax, and such pledge is hereby irrevocably made by the Municipality."

10/We note, in this regard, the following provisions of § 193, chapter 269, Laws of 1975, 1st Ex. Sess., the omnibus appropriation act for the 1975-77 biennium:

            "If any municipality, which shall have pledged the revenue from the special excise tax authorized by RCW 35.58.273 to secure the payment of all or any part of the principal of or interest on any general obligation bonds or revenue bonds issued pursuant to RCW 35.58.279, does not receive state transit assistance sufficient to meet such bond obligations, there is hereby appropriated from the general fund the sum of $3,000,000, or so much thereof as shall be necessary, to the state treasurer who shall distribute to each such municipality a sum equal to such bond obligation."

            In view of the foregoing analysis, however, we would seriously question whether this appropriation itemby itself would be sufficient to meet the requirements of Metro's bondholders during the biennium.

11/In principle, we should add, there is likewise no constitutional reason, save for any involving bondholders, why essentially the same overall approach could not be taken by the legislature with respect to such other statutorily earmarked tax sources as those noted in the final paragraph of your letter; i.e., the state levy for support of common schools imposed by RCW 84.52.065, or the travel trailers' and campers' excise tax imposed by chapter 82.50 RCW for distribution to school districts or other municipalities.

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