REDEMPTION OF STATE WARRANTS

REDEMPTION OF STATE WARRANTS

A special session of the legislature is not required to provide for redemption of interest bearing general fund warrants.

The legislature could provide for the issuance of general obligation bonds for investment by other state funds to redeem outstanding state warrants without submission of the proposition to a vote of the people, irrespective of the amount of the issue.

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                                                                   May 16, 1950

His Excellency
Arthur B. Langlie
Governor of the State of Washington
Olympia, Washington                                                                                                              Cite as:  AGO 49-51 No. 277

Dear Sir:

            Receipt is acknowledged of your letter of May 8, 1950, which reads as follows:

            "Referring to the recent decision of the Supreme Court in State ex rel. Troy v. Yelle, 136 Wash. Dec. 178, [[36 Wn.2d 192]]I would appreciate your opinion on the following questions:

            "1. If the legislature should be called into special session, will it be incumbent upon it to provide ways and means to redeem the unpaid and unpayable interest-bearing general fund warrants the outstanding?

            "2. In view of the court's analysis and discussion of State ex rel. Winston v. Rogers, 21 Wash. 206, does the legislature have authority to provide for the issuance of general obligation bonds for the funding of the outstanding interest-bearing warrants without submitting the proposition to a vote of the people, it being understood that the issue will exceed $400,000?  In connection with this question would it make any difference if such bonds were not to be sold in the open market but purchased as investments for moneys in the permanent state funds?"

             [[Orig. Op. Page 2]]

            Our conclusions upon the questions propounded may be summarized as follows:

            1. There is no positive requirement that a special session of the legislature provide ways and means to redeem unpaid and unpayable interest-bearing general fund warrants then outstanding.

            2. The legislature does have authority to provide for the issuance of general obligation bonds in excess of $400,000 for the funding of outstanding interest bearing warrants without submitting the proposition to a vote of the people if the bonds are to be purchased exclusively by other funds in the state treasury.

                                                                     ANALYSIS

            The Supreme Court in the recent case of State ex rel. Troy v. Yelle, 136 Wash. Dec. 178, [[36 Wn.2d 192]]determined that the provisions of sections 1, 2 and 3 of Article VIII of the State 178, determined that the provisions of sections 1, 2 and 3 of Article VIII of the State Constitution, limiting the amount of indebtedness which the state may incur are applicable only to obligations incurred by the borrowing of money.  The court said:

            "It is our interpretation that 'debt,' within the purview of Art. VIII, §§ 1, 2 and 3, is borrowed money and not warrant obligations for the payment of the current expenses of the state government such as services rendered and materials furnished."

            The court, in arriving at its conclusion, pointed out that the Constitution apparently contemplated that all current expenses would not be paid within the fiscal period in which incurred in view of Article VII, Section 8, of the Constitution, which reads:

            "Whenever the expenses of any fiscal year shall exceed the income, the legislature may provide for levying a tax for the ensuing fiscal year, sufficient, with other sources of income to pay the deficiency, as well as the estimated expenses of the ensuing fiscal year."

            The court in discussing the intention of the framers of the Constitution in writing section 8, Article VII, said:

            "* * * The constitution evidences their intention that the next legislature should provide for the immediate payment of that indebtedness from current revenues (Washington constitution, Art. VII, § 8), and, to prevent  [[Orig. Op. Page 3]] the postponement of the day of reckoning and the shifting of ultimate payment to another generation of taxpayers by borrowing money to meet such deficits, they have limited the amount of the debt that could be incurred for that purpose of $400.000.  * * *"

            The court then makes the statement:

            "* * * The court assumes that the next legislature will perform its constitutional duty of making provision for the payment of any warrants which may be unpaid and unpayable at the end of the current biennium."

            The court did not indicate that warrants would be void if their redemption was not provided for by the next ensuing session of the legislature, nor did it use any language that would infer any enforceable obligation upon the legislature to provide ways and means to redeem the unpaid warrants at a special session.  The court pointed out that the makers of the constitution apparently intended that current expenses should be paid from current revenues rather than from borrowings, and in our opinion, the duty which the court assumed would be carried out by the legislature is that of making provision for the payment of any warrants which may be unpaid and unpayable at the end of the current biennium by means other than borrowing.  It is our opinion that the court did not make it incumbent upon a special session to provide ways and means to redeem the unpaid and unpayable interest bearing general fund warrants then outstanding.

            In the case ofState ex rel. Winston v. Rogers, 21 Wash. 206, 57 Pac. 801, our Supreme Court approved the issuance of general obligation bonds of the state in excess of $400,000 for sale to the permanent school fund the proceeds of which were to be paid into the general fund for the redemption of outstanding general fund indebtednesses.  In that case the Supreme Court held that there was no increase in the indebtedness of the state.  It said:

            "* * * it is not necessary to go further now than to state the proposition that when the bond in the sum of $5,000 is delivered to the state treasurer the sum of $5,000 is placed in the general fund of the state.  Thus there is no increase of the indebtedness of the state, or of its liability, when this view is adopted."

             [[Orig. Op. Page 4]]

            In the recent case ofState ex rel. Troy v. Yelle, 136 Wash. Dec. 178, [[36 Wn.2d 192]]our Supreme Court explained that case a little further saying:

            "While the opinion inState ex rel. Winston v. Rogers, supra, had to do only with the bond which increased the indebtedness from $400,000 to $405,000, it is obvious that there was no limit except the amount of the general fund warrant indebtedness and the amount in the permanent school fund available for investment under the terms of the 1899 act.  A bonded indebtedness of $405,000 or $1,250,000 or any amount in excess of $400,000, could be justified, it seems to us, only on the theory (adopted in Oklahoma under similar constitutional provisions) that the warrants did not constitute a debt within the purview of the constitution and, therefore, the bonds which were issued to refund the warrants did not constitute a debt within the purview of the constitution, being merely a change in the form of the state's obligations."

            Thus, it will be seen that under the holding in the case of State ex rel. Winston v. Rogers, 21 Wash. 206, money borrowed from one treasury fund by another and used to pay off an existing obligation is not subject to the state's constitutional debt limit.  In the recent case the court did not disturb the rule of State ex rel. Winston v. Rogers, supra, with respect to intra-treasury borrowing, but made it clear that any borrowing of money by the treasury would create a debt within the meaning of the Constitution.  The identical statute which was involved in the case of State ex rel. Winston v. Rogers, supra, is still in effect as chapter 34, Laws of 1899 (Rem. Rev. Stat. 5540).  This section reads:

            "Whenever there shall be in the hands of the state treasurer, belonging to the state permanent school fund, money to the amount of five thousand dollars, or more, of which no investment can be made in the securities now or hereafter authorized by law, and the state shall have an outstanding general fund warrant indebtedness in amount equal to or greater than the amount of five thousand dollars ($5,000), the governor of the state and the state auditor are hereby authorized, and it shall be their duty, to issue the bonds of the state of Washington in amount equal to  [[Orig. Op. Page 5]] that amount, and sell and deliver such bonds to the state treasurer for the account of the state permanent school fund at the face or par value thereof."

            It will be noted that the statute as it reads applies only when no investment can be made in the securities authorized by law.  We are advised that the permanent school fund is now almost fully invested and there are adequate authorized investments available.  If that statute should be revised to eliminate that limitation, we see no reason why money of the permanent school fund and of those other funds, which by law can be invested only in the same manner as the permanent school fund, could not be invested in state bonds to be issued in accordance with the statute quoted.

Very truly yours,

SMITH TROY
Attorney General

LYLE L. IVERSEN
Assistant Attorney General