AGO 1969 No. 14 - Sep 18 1969
DISTRICTS - SCHOOLS - BONDS - DEBT LIMITATION - BONDING CAPACITY OF SCHOOL DISTRICTS.
(1) Under § 1, chapter 142, Laws of 1969, which establishes the bonding capacity of a school district as being a certain percentage of the "value of the taxable property in such district," the measuring property value is the actual "true and fair" value in money of the property in the district as contrasted with the assessed valuation of such property.
(2) In the case of a school district located in a county for which the assessment ratio used by the county assessor for property tax purposes has been and is presently 25% of the true value of the taxable property, the combined effect of (a) § 1, chapter 142, Laws of 1969, and (b) the decision of the state supreme court in Carkonen, et al. v. Williams, et al., ____ Wn.2d ____ [[76 Wn.2d 617]](September 4, 1969), and accompanying order of the state department of revenue requiring use of a 50% assessment ration as of January 1, 1970, will be to increase such district's bonding capacity by a multiple of four.
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September 18, 1969
Honorable Frank Foley
State Senator, 49th District
Olympia, Washington 98501
Cite as: AGO 1969 No. 14
This is written in response to your recent request for the opinion of this office on two questions concerning the bonding capacity of school districts. We understand these questions to have arisen in connection with a study in which the legislative budget committee is currently engaged with regard to the bonding capacity of taxing districts under chapter 142, Laws of 1969.
We paraphrase your two questions as follows:
(1) In determining the bonding capacity of a school district under § 1, chapter 142, Laws of 1969, what meaning is to be given the phrase "value of the taxable property" as used therein?
[[Orig. Op. Page 2]]
(2) In the case of a school district located in a county for which the assessment ratio used by the county assessor for property tax purposes has been and is presently 25% of the true value of the taxable property, by what multiple will the district's authorized bonding capacity be increased in the future by reason of a combination of (a) § 1, chapter 142, Laws of 1969, and (b) the decision of the state supreme court in Carkonen, et al. v. Williams, et al., ____ Wn.2d ____ [[76 Wn. Wn.2d 617]](40868 9/4/69), together with the action of the state department of revenue, taken in compliance therewith, requiring all county assessors to raise their assessment ratio to 50% as of January 1, 1970?
We answer these questions in the manner set forth in our analysis.
By § 1, chapter 142, Laws of 1969, the property value base to be used in computing the bonding capacity of school districts was changed from assessed valuation to "the value of the taxable property in the district as ascertained by the last assessment roll for county and state purposes." This section, with the old statutory language1/ deleted and new language underscored, reads as follows:
"The board of directors of any school district may borrow money and issue negotiable coupon bonds . . .
"Neither the amount of money borrowed nor bonds issued therefor shall exceed five percent of the ((
assessed-valuation)) value of the taxable property in such district, as (( shown))ascertained by the last assessment roll for county and state purposes previous to the incurring of such indebtedness, except that in cities incorporated under special charter the (( valuation)) ascertainment shall be (( taken)) made from the last assessment for city purposes: PROVIDED, That any school district may become indebted to a larger amount but not exceedingan additional five percent (( additional)) of actual value, determined as herein provided for [[Orig. Op. Page 3]] capital outlays."2/
In order to grasp the significance of this amendment, the distinction which has existed in the past between the statutory and constitutional debt limitations of a school district and certain other municipalities must be understood. This distinction was explained in AGO 1967 No. 34, copy enclosed, as follows:
"Under Article VIII, § 6, Amendment 27, of the state constitution the maximum debt limitation of school districts is fixed at, and may not exceed ten (10) percent '. . . of the value of the taxable property therein to be ascertained by the assessment for state and county purposes previous to the incurring of such indebtedness.' (Emphasis supplied.)
"In 1917, in the case ofHansen v. Hoquiam, 95 Wash. 132, 163 Pac. 391 (1917), the supreme court had occasion to pass upon the scope and meaning of the limitation contained in Article VIII, § 6. The court concluded that theconstitutional debt limitation of municipal corporations (including school districts) was to be computed on the basis of the value of thetaxable property in the district -not the assessed valuation of the taxable property in the district. TheHansen case was filed on February 28, 1917.
"The legislature reacted promptly to the court's decision. On March 15, 1917, the governor signed chapter 143, Laws of 1917, under which the legislature reduced the permissible debt limitation of taxing districts by providing the debt limit was to be computed on the basis of assessed rather than on the actual value of the taxable property in the taxing district. Section 1, chapter 143, as amended, is codified as [[Orig. Op. Page 4]] RCW 39.36.020. See,State ex rel. School District No. 102 v. Clausen, 116 Wash. 432, 199 Pac. 752 (1921). The action of the legislature in fixing the lower debt limitation for taxing districts in this state was clearly within the power of our lawmakers. See,Henderson v. Tumwater, 46 Wn.2d 758, 285 P.2d 119 (1955). See, also, AGO 65-66 No. 123, page 4, footnote 3.
"Thus, for many years school districts, when incurring indebtedness and issuing general obligation bonds for any authorized school district purpose, have been limited by RCW 39.36.020 [see, also, RCW 28.51.010] to a maximum indebtedness of ten percent of the assessed value of the taxable property in the district."3/
From this it will be seen that the effect and evident purpose of the amendment to RCW 28.58.010 by § 1, chapter 142, Laws of 1969,supra, was to abolish this distinction between the statutory and constitutional debt limits of school districts to the end that from and after the effective date (March 25, 1969) of the act, the debt limitation of school districts is to be determined on the basis of the actual value as contrasted to the assessed value of the property in the district. Your first question inquires as to the meaning to be attached to this new measuring value.
Under RCW 84.40.030, which relates to the listing of taxable property, "actual value" is to be taken as meaning, simply, the "true and fair value of the property in money." See, also,Mason County Overtaxed, Inc. v. Mason County, 62 Wn.2d 677, 384 P.2d 352 (1963), wherein our court addressed itself to this statute as follows:
"The purpose of the foregoing statute [RCW 84.40.030] is clear; it enjoins the assessor to determine the true and fair value of the property in money. Expressed otherwise, he shall make his assessment upon the market value. Market value means the amount of money which a purchaser willing, but not obliged, to buy would pay an owner willing, but not obliged, to sell, taking into consideration all uses to which the property is adapted and might in reason be applied. Ozette R. Co. v. [[Orig. Op. Page 5]] Grays Harbor Cy., 16 Wn.2d 459, 113 P.2d 893."
This, we believe, sufficiently answers your first question and leads us to a consideration of your second question.
By this question, you have posed the following problem (as we have paraphrased it):
In the case of a school district located in a county for which the assessment ratio used by the county assessor for property tax purposes has been and is presently 25% of the true value of the taxable property, by what multiple will the district's authorized bonding capacity be increased in the future by reason of a combination of (a) § 1, chapter 142, Laws of 1969, and (b) the decision of the state supreme court in Carkonen, et al. v. Williams, et al., ____ Wn.2d ____ [[76 Wn.2d 617]](40868 9/4/69, together with the action of the state department of revenue, taken in compliance therewith, requiring all county assessors to raise their assessment ratio to 50% as of January 1, 1970?
In our opinion, the combination of the foregoing factors will result in the bonding capacity of the school district in question being increased by a multiple offour. We base this conclusion upon the following reasoning:
(a) Under the law in effect prior to the enactment of chapter 142, Laws of 1969, the total indebtedness which a school district was authorized to incur, including bonded indebtedness, was limited to 10% of the assessed valuation of the taxable property in the district.
(b) However, as already noted, the amendment contained in the 1969 act has changed this limitation from 10% of assessed value to 10% of the actual value of the taxable property in the district to be "ascertained by the last assessment rolls for county and state purposes."
This enactment, by and of itself, has increased the bonding capacity of school districts by at least a multiple of two based upon a conservative viewpoint that the assessors' tax rolls must be conclusively presumed to reflect that the property in a particular district has been assessed at 50% of true and fair value, as required by law (RCW 84.40.030; Article VII, § 2, [[Orig. Op. Page 6]] Amendment 17, Washington State Constitution).4/
On the other hand, if this presumption is not regarded as conclusive to the end that the ratio actually used by the particular county assessor in assessing property in his county may be used (for example 25%, as contemplated by your question) the bonding capacity of school districts in that county would be multiplied by a larger number (4 X 25% = true and fair value) in consequence of the legislative enactment.
However, even assuming the correctness of the first of these views,5/ the greater multiple will unquestionably become applicable in the near future, in consequence of the second of the two considered factors specified in your question. We shall now proceed to explain this in some detail.
We start by again noting that the conservative view of the effect of chapter 142, Laws of 1969, is based on the "conclusive" presumption that property in a county is assessed for tax purposes at 50% of its actual value by the assessor as required both by RCW 84.40.030 and by Article VII, § 2, (Amendment 17), of our state constitution. However, it is a matter of common knowledge that the ratio actually used in any county has not exceeded 25% of actual value.
This practice of assessors using a ratio less than that prescribed by the constitution was brought to the attention [[Orig. Op. Page 7]] of the state supreme court inState ex rel. Barlow v. Kinnear, 70 Wn.2d 482, 423 P.2d 937 (1967), andCarkonen et al. v. Williams, et al., supra. In each of these cases, particularly in Carkonen, the court laid to rest any doubt concerning the meaning of the constitutional requirement as it relates to property tax assessment. The court has expressly held that the constitutional ratio of 50% is mandatory and assessors are required to comply therewith.
In recognition of these court decisions, the state department of revenue has adopted a rule, effective August 25, 1969,6/ which provides, in part, as follows:
". . . under this constitutional provision, [Article VII, § 2, Amendment 17] all assessors are required to apply a 50% assessment ratio to their determination of true and fair value in order to arrive at the assessed value for purposes of property taxation. This change must be accomplished in sufficient time so as to be effective for 1970 assessments, and shall be made in conjunction with the preparation of the 1970 assessment rolls.
"Because of the necessity that this change be made uniformly throughout the state, no exceptions will be allowed with respect to this requirement. In order to insure that each county accomplishes this change, personnel of the Property Tax Division of the Department of Revenue will be utilized to monitor the program of the assessors in effecting such change. In those cases where the department determines that the requirements of this rule are not being complied with, appropriate legal action will be taken by the department so as to assure compliance." (Emphasis supplied.)
It was little more than a week after the adoption of the rule that the supreme court filed its written opinion in the Carkonen case. From a review of that decision it is apparent that the department, in promulgating the rule, had correctly construed its duty under State ex rel. Barlow v. Kinnear and the preopinion order filed inCarkonen. The court in its opinion stated:
"As we have noted, the evidence revealed and the trial court so found -indeed it is common knowledge -that the practice of disparate [[Orig. Op. Page 8]] underassessing at the county level is and has been statewide and one indulged in for many years if not, in fact, a carry-over of sorts from territorial days. Although the practice of underassessment, and the inability to effectively bring about a uniform compliance with the constitutionally required assessment ratio, have in a large part contributed to the imbroglio of the state's tax structure, nevertheless,the trial court conceived, and we concur, that an abrupt and retroactive application and enforcement of the appropriate assessment ratio would serve no immediate and useful purpose. Accordingly, the trial court fashioned that portion of its judgment requiring compliance with the 50 per cent assessment ratio prospectively.
"As our preopinion order indicated, we affirm the trial court's action in this respect. We would modify our order and the trial court's judgment only to the extent that all counties involved be required to place all taxable property on the assessment rolls at the prescribed assessment ratio 'as of January 1, 1970,' rather than 'not later than January 1, 1970.' The purpose of this minor modification is to permit assessors to conform to prevailing statutory provisions relating to completion of assessment rolls, i.e., RCW 84.40.020 and RCW 84.40.040." (Emphasis supplied.)
The court in concluding expressly directed, in part, that:
". . . The Department of Revenue, as a present party to this action, is to effect state wide compliance with pertinent portions of this opinion."
State wide [[Statewide]]compliance with that part of the decision requiring assessors to assess property for tax purposes at the constitutional rate of 50% has been undertaken by the department of revenue by the adoption of the rule set forth above. The rule and the court's decision contemplate that such assessment ratio will be used in the preparation of the 1970 assessment rolls on which taxes in 1971 will be collected.
Thus, when the 1970 assessment rolls are completed, property will be assessed for tax purposes in every county in the state at the required 50% of its actual value. The significance [[Orig. Op. Page 9]] of this fact, in terms of the bonding capacity of a school district in which property has heretofore been actually assessed at 25% is readily apparent the bonding capacity will be quadrupled.7/
We trust the foregoing will be of assistance to you. In the event you desire any further assistance from this office in completing the study you have undertaken, please advise.
Very truly yours,
ROBERT J. DORAN
Deputy Attorney General
*** FOOTNOTES ***
1/Cf., RCW 29.51.010.
2/See, also, § 3 of this 1969 amendatory act, amending RCW 39.36.020 with respect to the bonding capacity of other types of taxing districts. At this time it is not necessary to determine what effect, if any, this section haas had on any special statutes governing the debt limitation of other taxing districts. However, as your study progresses, we will be happy to advise you on any questions you may have on this subject.
3/See, also, AGO 1967 No. 19, copy enclosed.
4/Some support for this approach is found in Hansen v. Hoquiam, 95 Wash. 132, 163 Pac. 391 (1917). However, in theHansen case the record before the court established that the assessor had in fact used the 50% ratio.
5/We shall assume this view to be correct for the purposes of this opinion simply because the basis for the disagreement which presently exists regarding the effect of chapter 142, Laws of 1969, will become academic, as we will discuss later in this opinion, when the 1970 assessments are made. Furthermore, while we do not agree with the conservative construction of the law and would utilize the other method set forth above in determining the bonding capacity of a school district under chapter 142 we must recognize that as of this date school districts are, as a practical matter, bound thereby. The conservative view of the act is one held by reputable bond counsel, at least, prior to the decision of the supreme court in Carkonen v. Williams,supra.
6/This rule was adopted in anticipation of the full text of the Carkonen decision following the issuance on April 7, 1969, of a preopinion order.
7/Of course, if the ratio presently being used by the assessor is less than 25%, then the increase in the bonding capacity will be greater; for example, if the assessment ratio is 20%, the district's bonding capacity would be increased five times. In this context, it should be noted that the assessment ratio we are speaking of is that ratio applied by the assessor tohis determinations of true and fair value. We are not speaking of the department of revenue's "indicated ratio," which is generally less than the ratio applied by the assessor, simply because of the fact that, generally, the assessor does not havecurrent true and fair values determined for all properties in the county.