OFFICES AND OFFICERS ‑- COUNTY ‑- COMMISSIONERS ‑- AUTHORITY TO TRANSFER FUNDS ON A TEMPORARY LOAN BASIS FROM ONE SOLVENT FUND TO ANOTHER SOLVENT FUND ‑- DURATION OF LOAN ‑- CHARGING OF INTEREST
(1) County funds which are neither transferable without limitation nor not transferable at all may be loaned on a temporary basis to a solvent fund.
(2) The responsibility for making the loan is that of the Board of County Commissioners rather than the County Treasurer.
(3) Insolvency of the borrowing fund, in the sense of no assured income within the control of the governmental body to which the fund belongs, would preclude the loan being legally made.
(4) The permissive duration of a loan from one county operating fund to another may extend beyond the county fiscal period but must not be a permanent transfer.
(5) The County Commissioners must charge a stated interest rate per annum to the borrowing or benefited fund.
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May 18, 1961
Honorable Charles O. Carroll
County City Building
Cite as: AGO 61-62 No. 29
By letter previously acknowledged you have requested an opinion of this office on several questions relating to the temporary loan of funds from one operating fund of a county to another such fund. Specifically your questions are as follows:
"1. May the County Treasurer by resolution of the County Board of Commissioners and/or decision of the County Finance Committee transfer idle or available funds on a temporary loan basis from one solvent operating fund of the County to another solvent operating fund?
"2. If such action is permissible, is the responsibility shared by the Board of County Commissioners [[Orig. Op. Page 2]] and the County Treasurer or is the responsibility borne solely by the Board of County Commissioners?
"3. What difference would the temporary insolvency of the borrowing fund make?
"4. Could the duration of the loan continue beyond the County fiscal period?
"5. May the Board of County Commissioners charge a stated interest rate per annum to the borrowing or benefited fund?"
We answer your questions as set forth in our analysis.
At the outset, it should be noted that express statutory authority exists for the making of certain county inter-fund transfers. See for example, RCW 36.33.060, authorizing transfers from a county current expense fund to a county salary fund; RCW 36.33.040, authorizing transfers from a county cumulative reserve fund to a county current expense fund under certain circumstances; and RCW 36.33.210, authorizing the transfer of any surplus in a county election reserve fund to a county current expense fund. It appears beyond doubt that the transfers thus authorized may be made on a permanent basis without any necessity that the amount transferred be later re‑transferred to the fund from which it came. We assume that you are aware of those statutes and are not here concerned with the validity of fund transfers made pursuant thereto.
On the other hand, in the case of certain special funds, it appears questionable whether a transfer from such funds may be made on any basis, whether as a permanent transfer or as a temporary loan.
The general rule on this point, as set forth in 42 Am.Jur., Public Funds, § 79, is as follows:
". . . when a special fund is raised for a particular purpose under legislative authority by a special tax or bond issue or the like, or money is appropriated for a specified purpose, it cannot be used for any other purposeeither permanently or temporarily until the purpose for which it was intended has been fully accomplished. . . ." (Emphasis supplied.)
[[Orig. Op. Page 3]]
Some doubt has been cast upon the scope of the applicability of this doctrine in Washington by our court's disposition of the case of Von Herberg v. Seattle, 157 Wash. 141, 288 Pac. 646 (1930). In that case the court, in a 6-3 decision, upheld the validity of a temporary loan from a special city utility fund to another such special fund. The majority opinion relied on several earlier Washington cases (Griffin v. Tacoma, 49 Wash. 524, 95 Pac. 1107 (1908);Scott v. Tacoma, 81 Wash. 178, 142 Pac. 467 (1914); andSeymour v. Ellensburg, 81 Wash. 365, 142 Pac. 875 (1914)) wherein temporary loans fromgeneral funds to solvent special funds had been upheld. It contained no citation of authority in support of the proposition that the monies of a special fund might be transferred, even on a temporary basis. Judge Tolman, writing a vigorous dissent, did not fail to note this omission, stating:
"No case is called to our attention, none is cited by the majority, and I doubt if any authority can be found, which holds that money held in trust for bond and warrant holders in a special fund can be, even temporarily, diverted or loaned to another special fund. . . ." (p. 158)
In addition to the point thus emphatically made in the dissent, the majority opinion itself cast further doubt as to the credit to be given to its observations relating to the validity of temporary loans from special funds. After purporting to uphold the transfer in question, the majority then went on to rule that in any event the plaintiff, Von Herberg, had not sufficient standing or interest in the matter to challenge the transfer. Consequently it might well be argued that the statements made by the majority purporting to uphold the transfer were essentially in the nature ofdicta.
In view of the uncertainty above described, relative to the status in this state of special funds with regard to the transferability of monies therein even on a temporary loan basis, we believe it virtually impossible to state categorically a rule of general applicability governing this situation, much less to guess with any precision how our court would be likely to rule in the case of any particular special fund. We can only suggest that where a particular fund has been raised and earmarked for a special purpose, it may well be that in accordance with the weight of authority from other jurisdictions, our court would now rule that even a temporary transfer loan would not be permissible.
With regard to funds which are neither (1) funds made transferable by statute without limitation, nor (2) special funds which [[Orig. Op. Page 4]] may not be transferred at all, we believe that the key to your first, third and fifth questions (above quoted) lies in § 3, chapter 76, Laws of 1909 (cf. RCW 43.09.210) which reads as follows:
"Separate accounts shall be kept for every appropriation or fund made by a taxing body or legislative, showing date and manner of each payment made out of the funds provided by such appropriation, the name, address and vocation of each person, organization, corporation or association, to whom paid, and for what purpose paid. Separate accounts shall be kept for each department, public improvement, undertaking, institution and public service industry under the jurisdiction of every taxing body, and of the state, and all service rendered by, or property transferred from, one department, public improvement, undertaking, institution or public service industry to another, shall be paid for at its true and full value by the department, public improvement, undertaking, institution or public service industry receiving the same, and no department, public improvement, undertaking, institution or public service industry shall benefit in any financial manner whatever by an appropriation or fund made for the support of another department, public improvement, undertaking, institution or public service industry. All unexpended balances or appropriations shall be transferred to the fund from which appropriated whenever the account with an appropriation is closed."
We have discovered no decisions of the Washington court interpreting or applying this statute. However, the statute has upon several occasions been interpreted by this office.
Most recently, in AGO 59-60 No. 22, dated March 10, 1959, to the Honorable Cliff Yelle, State Auditor, we concluded that it clearly prohibits transfers between appropriations made for different departments of a taxing body (in this case a city). Earlier, in AGO 53-55 No. 349, dated December 1, 1954, also to the Honorable Cliff Yelle, State Auditor, we expressed the view that the statute does not prohibit a transfer of surplus funds from a public service industry to a municipal general fund. In neither of these two opinions were we concerned with a mere temporary loan of funds as distinguished from a permanent transfer.
[[Orig. Op. Page 5]]
However, in a considerably earlier opinion, dated November 29, 1916, to the State Bureau of Inspection and Supervision of Public Offices [[1915-16 OAG 379]], a copy of which is herein enclosed, we did consider the matter of temporary loans, as well as permanent transfers. As you will note, that opinion essentially dealt with the financial relationship between one municipally owned public service industry and another. With regard to the transfer of funds, we concluded as follows:
(1) Regarding apermanent transfer from a general fund to the fund of a municipally owned public service industry:
". . . The mere loaning of moneys from the general fund to a solvent municipally owned public service industry has been held not to be the incurring of a debt: Scott v. Tacoma, 81 Wash. 178. The appropriation of money, however, from the general fund,which is not to be returned and is not a loan, is clearly prohibited by the provisions of section 8348, supra [cf. RCW 43.09.210, supra]." (Emphasis supplied.) (pp. 4-5)
(2) Regarding atemporary loan from one fund to another:
"We find no provision of the statute which directly prohibits the loaning of moneys by one municipally owned utility to another. . . ." (p. 3)
However, it will be noted that we then observed:
". . . The mere fact, however, that the statute does not expressly prohibit such loans does not warrant the conclusion that they can be legally made. It is a question that might perhaps depend upon the particular circumstances in each case. . . ."
Then, after a review of certain factors which we deemed significant to a determination of the question in a particular case, we declined to express an opinion on the unqualified question which was presented, but rather said:
". . . We will state, however, that we are convinced that such a loan could not be made under any circumstances to an insolvent utility and the current rate of interestwould have to be charged under any circumstances, as a loan without interest [[Orig. Op. Page 6]] would, we think, constitute an appropriation of the funds of one utility for the financial benefit of another utility, which would be contrary to the express provisions of section 8348,supra [cf. RCW 43.09.210, supra]." (Emphasis supplied.) (p. 4)
The significance of the solvency of the fund to which a loan is to be made, we believe, stems from the views expressed by our court in Griffin v. Tacoma, supra. The Griffin case, ante‑dating the enactment of § 3, chapter 76, Laws of 1909 (cf. RCW 43.09.210) supra, was of course not concerned with an interpretation of that statute. Rather, the court in that case was concerned with a provision of the charter of the City of Tacoma which read in pertinent part as follows:
"'. . .No fund shall be diverted from the purpose for which it was originally assessed or collected or voted by the people without the proposition therefor is submitted to a vote of the people and authorized by at least a majority vote at either a special or general election. . . .'" (p. 528)
The court held that a temporary loan to a solvent fund would not constitute such a diversion as was prohibited by this charter provision, reasoning as follows on page 529:
". . . The word 'diverted' is used in the sense of turning permanently from its purpose, the equivalent of appropriation for some other use. A temporary transfer from the general fund to another fundwith an assured income is not an appropriation or diversion. With its outstanding credit against the other fund, the assets of the general fund remain the same, and its power to accomplish general municipal purposes has not been decreased. The city controls both funds, and it is under the legal obligation to see that the general fund is seasonably reimbursed from the source of supply to the special one. Of course the city authorities must exercise common business sense in making such transfer. As a personal loan of magnitude is not ordinarily made to an individual who is insolvent, so a city should not transfer its general fund moneys as temporary loans to other funds that have not assured and certain sources of income, the collection of which is under the control of the city itself. . . ." (Emphasis supplied.)
[[Orig. Op. Page 7]]
Thus the solvency of the borrowing fund was thought to be significant in order to assure that the loan would be repaid so that a permanent diversion would not occur. The test of solvency set forth was whether the borrowing fund had an assured income.
The court inGriffin v. Tacoma, supra, also established another principle relative to the validity of temporary loans, which was later followed by the court inScott v. Tacoma, supra; Seymour v. Ellensburg, supra; and, lastly, inVon Herberg v. Seattle, supra. In response to a contention that a loan from one municipal fund to another would constitute the incurrence of a municipal debt within the meaning of Article VIII, § 6, of the Washington State Constitution (as amended by Amendment 27), the court in the Griffin case concluded:
". . . the transfer from one fund to the other creates no indebtedness against the city. It is a mere temporary loan to a fund, with an assured income, whose sources of supply are entirely under the control of the city. The city's general funds are not thereby in fact reduced, inasmuch as the credit of the general fund for the temporary transfer is the equivalent of cash as a working asset, and no new debt of the city arises." (p. 530)
Summarizing what we have said thus far, in relation to the questions which you have posed‑-and with regard to only those funds which are neither (a) transferable without limitation nor (b) not transferable at all, even on a temporary basis‑-it is our opinion that:
(1) In response to your first question, a temporary loan to a solvent fund may be made;
(2) In response to your third question, insolvency of the borrowing fund, in the sense of no assured income within the control of the governmental body to which the fund belongs, would preclude the loan being legally made;
(3) In response to your fifth question, not only may the lending fund charge interest on the loan, but in all probability itmust do so in order that the loan not constitute a gift of the use of the loaned funds in violation of RCW 43.09.210,supra.
We turn next to a consideration of your second and fourth questions. Assuming a temporary loan to a solvent fund is permissible, you have asked (1) whether the responsibility for the loan is to be borne by the Board of County Commissioners and the County [[Orig. Op. Page 8]] Treasurer or by the Board of County Commissioners alone; and (2) whether the duration of such a loan can continue beyond the County fiscal period?
With regard to the first of these two questions, if such a temporary loan as we have concluded would be proper is to be made, the responsibility for making the loan would seem to be the responsibility of the Board of County Commissioners, by virtue of RCW 36.32.120 (6) which vests the several boards of county commissioners with "the care of the county property and the management of the county funds and business . . ." (Emphasis supplied.) The actual mechanics of the transfer, of course, are to be effectuated by the County Treasurer, but beyond doubt he can only act in this regard under the proper direction of the Board of County Commissioners. His function thus would, we believe, be merely a ministerial function of much the same nature as is the function of the County Auditor in paying a claim made against a county pursuant to the direction of the Board of County Commissioners. SeeState ex rel. Becker v. Wiley, 16 Wn. (2d) 340, 133 P. (2d) 507 (1943), and cases therein. In this connection the County Treasurer might well have the power to challenge the propriety of a particular fund transfer ordered by the Board of County Commissioners, on the grounds that the Commissioners were exceeding their authority in directing the transfer in question, but the basic responsibility for determining whether or not a particular transfer was to be made would seem clearly to rest with the Commissioners themselves.
Finally, with regard to the permissible duration of a loan from one county operating fund to another, we find nothing in the law which would preclude the duration of such a loan from continuing beyond the county fiscal period. However, the duration of a particular loan might well be significant in another connection; namely, that the court in passing upon the validity of a particular transaction might be inclined to view a long-term loan as being in reality a permanent transfer effectuated without any real intention of repayment, just as in the case of a "temporary loan" to an insolvent fund.
We trust that the foregoing will be of assistance to you.
Very truly yours,
JOHN J. O'CONNELL
PHILIP H. AUSTIN
Assistant Attorney General