Oregon Advisory Opinions April 23, 1985: OAG 85-7 (April 23, 1985)
Collection: Oregon Attorney General Opinions
Docket: OAG 85-7
Date: April 23, 1985
Advisory Opinion Text
OAG 85-7.
Department of Transportation Director Fred Miller asks questions about the department and commission's prerogatives independent of legislative direction to participate in a road improvement project which has been identified as a link in securing beneficial industrial development to a region and to the state. The improvement would be to a county road.(fn1)
Oregon Constitution Article IX, section 4 provides "[n]o money shall be drawn from the treasury, but in pursuance of appropriations made by law." Both the Oregon Supreme Court and this office have construed the purpose of this requirement as securing to the legislative department the exclusive power to determine how, when and for what purpose public funds shall be applied. Boyd v. Dunbar, 44 Or 380, 75 P 965 (1904); 32 Op Atty Gen 277, 280 (1965).
ORS 366.505(2) continuously appropriates the State Highway Fund, "only for purposes authorized by law" and the legislature biennially establishes an expenditure limit for the Oregon Transportation Department.(fn2) ORS 366.525 appropriates 20.07 percent of the Highway Fund "among the several counties for the purposes provided by law." The "purposes provided by law" or "authorized by law" are partially defined by Article IX, section 3a of the Oregon Constitution. That section provides that the major source of revenue accruing to the State Highway Fund:
". . . shall be used exclusively for the construction, reconstruction, improvement, repair, maintenance, operation and use of public highways, roads, streets and roadside rest areas in this state . . . ." See 33 Op Atty Gen 73 (1966).
Neither the Oregon Constitution, nor the specific statutory appropriations or expenditure limitations cited above, bar the department from expending its appropriation on a county road. So far as the constitution and these laws are concerned, it is within the discretion of the commission or department to improve a county road from resources appropriated to the commission. The commission presumably must find a valid state purpose in such improvement, rather than a merely local purpose, but the statutes contain no limitation on its discretion in this respect. The only limitation on the commission's authority is the requirement of ORS 366.775 (discussed infra ) that there be an appropriate agreement between the county and the state relating to the state's involvement in the improvement project.
One statute arguably can be read to require conclusions contrary to the above. ORS 366.540, part of the statutory scheme appropriating a portion of the Highway Fund to counties, provides:
"(1) Except as specifically provided under ORS 366.512, the appropriation made by ORS 366.525 shall constitute the entire appropriation to be made to the counties out of revenues accruing to the highway fund.
"(2) Upon satisfactory showing before the department by any county that the county has not sufficient funds with which to pay, when due, bonded indebtedness incurred for highway purposes, the department may certify to such fact. Pursuant to the certificate, a warrant shall be drawn in favor of the county against the highway fund in the amount set out in each certificate, which amount so advanced shall be deducted from the next payment due the county under ORS 366.525 to 366.540."(fn3) (Emphasis added.)
This statute arguably reflects legislative intent to preclude the commission from providing funds to improve a county road.(fn4) However, for the reasons explained below, we conclude that this is not the correct interpretation.
First, and fundamentally, only the legislature makes "appropriations." An expenditure by the Department of Transportation is not an appropriation, and of course such an expenditure from the department or commission appropriation on a county road is not an appropriation to a county. The expenditure is proper if made for reasons of state concern, if the commission determines that state interests are present.
Second, the legislative history of ORS 366.540 does not support a legislative intent to preclude the commission from providing funds to improve a county road. ORS 366.525 through 366.540 enacted as Oregon Laws 1933, chapter 428, have been amended six times.(fn5) The genesis of the words used in ORS 366.540(1) is in the original statute appropriating a portion of the State Highway Fund to counties in 1933. Oregon Laws 1933, chapter 428, section 4 provided:
"That beginning with July 1, 1933, and annually thereafter, there shall be and there hereby is appropriated out of the state highway fund the sum of $1,600,000, which said appropriation shall be distributed among the several counties of the state for the purposes now provided by law, which said sum shall be remitted by warrant of the secretary of state to the county treasurers of the several counties of the state in the proportion which said counties shared in the motor vehicle and transportation funds for the year 1931. The appropriation hereby made shall be remitted to the counties on the following dates and in the following amounts: A sum not less than $800,000 on July 1, 1933, and a sum not less than $800,000 on December 15, 1933, and on the fifteenth of July and fifteenth of December of each year thereafter. The appropriation herein provided for shall be in lieu of, and not in addition to, all other appropriations, distributions or allocations from funds accruing by virtue of the motor vehicle or transportation funds, and especially appropriations or dispositions of funds made in section 55-1316, Oregon Code 1930, as amended by chapter 118, Oregon Laws, 1931, known as the transportation fund, and the appropriation or disposition of funds made in section 55-1111, Oregon Code 1930, as amended by chapter 204, Oregon Laws, 1931, known as the motor vehicle fund, but shall not include appropriations made for or in connection with secondary highways; provided, that upon satisfactory showing before the highway commission by any county that such county has not sufficient funds with which to pay when due bonded indebtedness incurred for highway purposes, the highway commission may certify such fact to the secretary of state, who hereby is authorized, pursuant to such certificate, to draw a warrant in favor of such
county against the state highway fund, in the amount set out in said certificate, which amount so advanced shall be deducted from the next payment due such county under the provisions of this act." (Emphasis added.)
On its face, the 1933 Act provided that the 1933 appropriation was to be considered in lieu of and not in addition to other appropriations previously authorized by the legislature in the statutes cited. For example, section 55-1111, Oregon Code 1930, provided for a portion of money from vehicle license fees to be transferred to the county treasurers of the various counties of the state. Thus the language "in lieu of, and not in addition to" was intended to make clear that this appropriation replaced and impliedly repealed previous statutory appropriations. Perhaps this language also expressed a policy intent to assure that the appropriation contained in this statute would continue to be exclusive. More likely, subsequent legislatures probably have perpetuated the language through simple inaction after the prior statutory appropriations were repealed. The legislature cannot bind itself for the future beyond the biennium of its existence in any event, and the language does not limit the effect of later statutes which may appropriate funds and authorize their use for county roads.(fn6)
ORS 366.540 is addressed to legislative appropriations to counties; it does not limit the statutory authority of the commission or the department to make contracts designed to improve a highway that is also a county road. In short, both the department and the counties have been "appropriated" money from the State Highway Fund to improve public roads. There is no constitutional or statutory prohibition against either or both expending some portion of their respective appropriation on a county road. In fact, ORS 366.775(fn7) specifically authorizes the department to contract with a county, city, town or road district
Those terms and conditions may provide for payment of construction costs by the department.". . . for the construction, reconstruction, improvement, repair or maintenance of any road, highway or street, upon terms and conditions mutually agreed to by the contracting parties . . . ." (Emphasis added.)
II. Commission authority to accept reimbursement from a county for all or part of the cost covered by the commission for improving a county road.
Given the power of the commission to fund on its own an improvement to a county road (assuming the county with jurisdiction over the road contracts with the commission and gives it permission to do so) and the unquestioned capacity of the county to improve the road, the commission must necessarily have authority to agree with the county for the latter to contribute to the cost of the road improvement. In fact, ORS 366.775 so provides:
"The Department of Transportation may enter into an agreement with any county . . . for the . . . improvement . . . of any road . . . upon terms and conditions mutually agreed to by the contracting parties. . . ."
See also ORS 366.425, which authorizes counties, other public bodies and private persons and firms to deposit money in the State Treasury to pay for highway work to be done under the direction of the department.
So far as ORS 366.775 and the department are concerned, if the agreement provides for payment by the county, it also may provide for advance payment, for reimbursement as the work progresses, or for reimbursement over a period of years. So far as the county is concerned, it cannot incur any obligation to repay which would constitute a debt exceeding its debt limit under Oregon Constitution Article XI, section 10. The third question presented requires examination of the effect of that constitutional provision.
In 1969, the Attorney General was asked whether the State Highway Commission had authority to advance money from the Highway Fund to a county for county road purposes. The advance then would be paid back by deductions from the sums the county would be entitled to receive under ORS 366.525 to 366.540 in future years. The second question was whether a county had authority to pledge its future Highway Fund receipts to repay bonds, presumably to be used with the advance for road purposes. The answer given to both questions was no. 34 Op Atty Gen 476 (1969). The first two questions asked in this opinion are sufficiently different that the 1969 opinion has not been relevant to our discussion of them. The previous opinion, however, is directly relevant to the third question asked of us in this opinion.
The negative answer given to the first of the two questions posed in the 1969 opinion treated the proposed advance to the county as an appropriation not authorized by law, and one specifically prohibited by the "exclusive appropriation" language of ORS 366.540(1). The answer was supported by citation to special appropriation laws that specifically had authorized advances to cities and counties from their future Highway Fund appropriations. Or Laws 1949, ch 358; Or Laws 1965, ch 28 (both enacted in response to unusual weather damage to roads and bridges in the previous winter). Similarly, we concluded that the county was without power to pledge future Highway Fund distributions because of lack of statutory authority to do so. Finally, the opinion also pointed out that "the possibility of legislative change would leave the pledgor without funds to pay bonds or interest." 34 Op Atty Gen, supra at 481.
We view the situation presented here as meaningfully distinguishable from that presented to us in 1969. There, apparently, the funds were to be loaned to the county for the county's use as it saw fit. The commission and department did not exercise any oversight or approval of the projects to be financed, and the "loan" was not premised on a determination that there was a substantial state (as opposed to local) purpose to be served by use of the money for specified projects. We are no longer in full agreement with the rationale of that portion of our opinion,(fn8) although our ultimate answer may be correct. For present purposes, it is not necessary to reexamine the first of our answers in the 1969 opinion.
The second question asked in the 1969 opinion is directly on point, but we now reach a different conclusion. A county has authority to spend money for
county highway purposes, and the only limitation on it in doing so is the availability of budgeted funds and Oregon Constitution Article XI, section 10, which provides:
"No county shall create any debt or liabilities which shall singly or in the aggregate, with previous debts or liabilities, exceed the sum of $5,000; provided, however, counties may incur bonded indebtedness in excess of such $5,000 limitation to carry out purposes authorized by statute, such bonded indebtedness not to exceed limits fixed by statute."(fn9)
If the county is obliged to pay back the sums advanced to it by the department, that obligation ordinarily would be a debt subject to the debt limitation. Even a conditional obligation may be such a debt, if it gives rise to a potential charge against the general revenues of the county. See 42 Op Atty Gen 12 (1981). However, if the county has on hand sufficient unobligated funds for payment, no constitutional debt is created. Terry v. Multnomah County, 279 Or 127, 566 P2d 878 (1977). Additionally, as discussed below, the obligation is payable only out of a "special fund" and is not a charge against the general revenues of the county. No constitutional debt is created; the decisive question is whether the county could be required to rely on its taxing authority to pay the debt.
We understand that under the facts as presented, the county would be obliged to repay the sum spent by the department on its road only by deductions from the appropriations to which it would become entitled under ORS 366.525 to 366.540.(fn10) Under DeFazio v. WPPSS, 296 Or 550, 679 P2d 1316 (1984), that type of an obligation on the county's part would not be a debt for purposes of the debt limitation. In the DeFazio case, the obligation was to pay for electricity to be received, and even (as it turned out) for electricity not to be received; the payment was to come only from electric utility revenues. The Oregon Supreme Court held that the obligation was not a debt within the meaning of the constitutional debt limitation. Id. at 574. Although recognizing that a "debt" under a particular city charter could be something different from a "debt" under Oregon Constitution Article XI, sections 7 and 10, the court found the general principles derived from cases construing the constitutional debt limitations provisions to be applicable. The court concluded that the "special fund doctrine" was applicable as well. Id. at 571. The DeFazio decision quoted from Butler v. City of Ashland, 113 Or 174, 182-183, 232 P 655 (1925), with approval:
"The authorities are well-nigh unanimous, that where a contract creating an indebtedness provides for a special fund with which to meet the indebtedness as the same accrues, and no general liability is thereby created against the municipality, such an indebtedness is not within the constitutional inhibition against creating a debt in excess of a fixed amount.
". . . .
"The language of the special obligation note limits the liability of the city to the water revenues. The special obligation notes, therefore, do not constitute an indebtedness against the city within the meaning of Article XI, Section 5, of the Constitution of Oregon."
In DeFazio, supra, the court went on to point out that under the Oregon cases the special fund exception is not limited to self-liquidating projects, does
not require the entities furnishing the fund to be beneficiaries of the expenditure, and permits devoting a source of funds otherwise available for general governmental expenditures to payment of the obligation. The critical question is whether tax revenues are committed to payment of the obligation. If they are not, no debt is created for constitutional purposes. Id., 296 Or at 573-574.(fn11)
So far as a county is concerned, its revenues received under ORS 366.525 to 366.540 are not tax revenues. Their ultimate source is tax revenues collected by the state, some of which are collected from residents of the particular county. But no county tax on property, income or highway use would be required in order to pay the obligation. The revenue source is a sum of money to be received from the state, and it is irrelevant (except, of course, for the limitation to highway use by Oregon Constitution Article IX, section 3a)(fn12) from whence the state received the money. If revenues from that source decrease, or are cut off entirely by repeal of ORS 366.525 to 366.540, no obligation on the part of the county will arise to impose taxes to pay any part of the obligation.
We accordingly conclude that the answer to the third question is yes. A county may enter into an agreement for performance by the Department of Transportation of road work on its behalf, with the sums or a portion thereof expended by the department to be repaid by the county (with appropriate interest, if the agreement so provides) only by deductions from the Highway Fund distributions it would otherwise receive. Such an agreement would not create a debt subject to Oregon Constitution Article XI, section 9.
Footnotes:
1 ORS 368.001(1) defines a county road as:
". . . a public road under the jurisdiction of a county that has been designated as a county road under ORS 368.016."
2 Pursuant to Oregon Laws 1983, chapter 442, the legislature established for the biennium beginning July 1, 1983 a maximum limit for payment of "administrative expenses, construction, real property purchasing, maintenance, debt service, and travel information" from various sources and "other revenues" received by the Oregon Department of Transportation.
3 ORS 366.540 as shown in Volume 3 of the Oregon Revised Statutes contains a printing error, consisting of a repetition, within subsection (2) of a major portion of that subsection. The section is correctly set forth above. See Or Laws 1983, ch 363, § 3.
4 The relatively more recent legislative appropriation of a percentage of the Highway Fund to Oregon cities (ORS 366.785 to 366.820) does not contain any language similar to the admonition in ORS 366.540 that the appropriation made by ORS 366.525 (with the exception of funds from recreational vehicles as appropriated by ORS 366.512 and the further exception for an appropriation by warrant authorized by ORS 366.540(2)) constitutes the entire appropriation to be made out of the Highway Fund.
5 Or Laws 1937, ch 78; Or Laws 1939, ch 444; Or Laws 1941, ch 376; Or Laws 1947, ch 411; Or Laws 1967, ch 454; and Or Laws 1983, ch 363.
6 Nothing we have found which was written contemporaneously with the adoption of the predecessors to ORS 366.525 to 366.540 sheds much additional light on the specific legislative intent. However, what we have found underscores the literal effect of the language used. For example, in a publication entitled "Memorandum on Allocation of Motor User Taxes to the Counties of Oregon for Road Construction and Maintenance" submitted by the Association of Oregon Counties to the 1939 Legislative Interim Committee on the Distribution of Highway Revenues, the following history of motor user taxes for county roads was given:
"Early in the history of legislation imposing taxes or imposts on motor vehicle users, the right of the counties to share in such revenues was recognized by the Legislature.
"Chapter 174, Oregon Laws, 1911, established a Motor Vehicle Fund, into which fund revenues from automobile licenses were placed. Chapter 299, Oregon Laws, 1913, amended the original enactment to provide that the balance remaining in this fund on December 31 of each year should be transferred to the County Treasurers of the respective counties, in the proportion in which the motor users of each county contributed to that fund.
"This Motor Vehicle Fund was, by Chapter 194, Oregon Laws, 1917, appropriated in its entirety to the State for use in matching Federal Highway grants, but Chapter 399 of the Laws of 1919 provided that one-fourth of this fund should be distributed to the counties, to be used for bond retirement, contributions for preparing road beds and constructing bridges on state highways, or for general road improvement.
"The last cited statute also provided that the automobile licenses imposed by the act should be in lieu of all other taxes on motor vehicles and that such vehicles should be removed from the property tax rolls.
"Chapter 380, Oregon Laws, 1925, provided for certain fees and taxes to be paid by commercial vehicles operating on the highways of the state, and of the fund created thereby one-fourth was allocated to the counties for road construction.
"The allocation of the Motor License Fund to the Counties was increased from one-fourth to one-third of such fund by the provisions of Chapter 360, Oregon Laws, 1929.
"In 1933 the schedule of motor vehicle licenses was altered to provide for a flat fee of $5.00 by Chapter 434, Laws of 1933, which provided that all revenues from that source should accrue to the State Highway Fund, and in lieu of a distribution of one-third of the motor license fund and one-fourth of the motor transportation fees to the counties, it was provided by Chapter 428, Oregon Laws, 1933 that annually out of the State Highway Fund the sum of $1,600,000 should be distributed to the counties.
"Under the laws which were in effect from 1919 to 1933 the amount distributed to the counties had gradually increased until in 1931 this allocation amounted to $1,967,059, which in that year represented approximately 20% of the State Highway Fund. Had the former schedule of license fees remained in effect and the allocation to the counties continued on the former basis, it is estimated that in 1937 the counties would have received more than $2,500,000.
"The reduction of the allocation to the fixed amount of $1,600,000 constituted a reduction of nearly 20% in the amount distributed to the counties. However, considering the reduction in highway revenues at that time because of the reduced license fees and general business depression, this reduction was perhaps equitable, for the revenues of the Highway Commission in 1933 amount to approximately $8,000,000. But those revenues began to increase in 1934, and that year saw an increase of about $1,500,000. During the
next four years the annual increase over the preceding year amounted to $1,000,000 or more, with the result that in 1937 those revenues had reached the figure of $13,539,921. If the allocation of 1933 had been placed on a percentage basis instead of being fixed at a flat sum, the allocation to the counties would have increased in proportion to the revenues and in 1937 would have amounted to $2,607,986.
"Late in the year 1936, the newly organized Association of Oregon Counties, being aware of the steady increase in the revenues derived from motor user taxes and being faced with the problem of maintaining the county roads with greatly curtailed road budgets, requested from the Highway Commission an increased allocation of revenues. This request for an increase from $1,600,000 to $2,400,000 and was based on the increase in revenues of 50% since 1933. After some deliberation the Commission stated that it could not grant such an increase because of the need for matching Federal funds and its requirements for debt service, but that it would recommend to the legislature an allocation of $2,000,000 per year. This offer was accepted by the counties, it being agreed that the percentage basis of allocation would be adopted, the rate to be based upon the percentage of the estimated revenues of the Commission for 1937 which would produce $2,000,000. As a result Chapter 78, Oregon Laws, 1937, was enacted granting to the counties an allocation of an amount to be represented by 15.7% of the revenues of the Highway Commission, but in no event less than $2,000,000 annually." (Emphasis added.) Id. at pp 8-10.
7 ORS 190.110 is a general statute which would also authorize a county and the Department of Transportation to enter into a cooperative agreement for improvement of a public road. See also ORS 374.075 and 374.080, concerning cooperation on more specific road endeavors, and ORS 366.155(1)(k) concerning assistance to counties in road concerns.
8 Specifically, our reliance on prior legislation expressly authorizing the commission to advance money to counties and cities with repayment from future Highway Fund appropriations was misplaced. The fact that the legislature has twice chosen to mandate the "loaning" of money from the commission's Highway Fund appropriations in no way implies lack of commission authority, as a matter of discretion granted to it by other statutes, to finance improvement of a public road, which happens also to be a county road, when a state purpose is served. The same conclusion follows under the analogous provisions of ORS 367.700 to 367.750, which authorize state highway bond proceeds to be made available for local road purposes and specifically ( see ORS 367.710) permit repayment from future Highway Fund appropriations.
For the reasons identified in the text, we think our 1969 "appropriation" analysis is wrong. We do not now disagree with the ultimate conclusion reached in 1969 because we believe that the commission's authority to advance money to a county without commitment of the funds to a project of state concern is questionable.
9 Pursuant to the authority granted by the last clause of Article XI, section 10, the legislature has granted authority to counties to incur general obligation bonded indebtedness, with voter approval, not exceeding 2 percent of the true cash value of taxable property in the county. ORS 287.054. We assume that this authority is not relevant to the question presented. If a county did sell bonds under this provision, using the proceeds for highway purpose, we presume that it could use its highway fund receipts to pay for the bonds in lieu of levying the tax authorized by the voters for that purpose, even if it could not pledge those receipts for that purpose.
10 The department-county agreement could anticipate the possibility of statutory reorganization by also requiring repayment, in the alternative, out of funds appropriated from the Highway Fund for discretionary county road purposes, by any statutes enacted in lieu of or supplemental to ORS 366.525 to 366.540.
11 In other states, an obligation to pay solely from future state-shared tax revenues has been held to come within the "special fund doctrine" so that the obligation is not subject to a debt limitation. Switzer v. Phoenix, 86 Ariz 121, 341 P2d 427 (1959); Herbert v. Perry, 235 Ala 71, 177 So 561 (1937); Lyon v. Shelby County, 235 Ala 69, 177 So 306 (1937).
12 Use of funds constructively received under ORS 366.525 to 366.540 to repay an obligation incurred for a highway purpose is itself a highway purpose valid under Article IX, section 3a.