Oregon Advisory Opinions May 12, 1989: OAG 89-10 (May 12, 1989)
Collection: Oregon Attorney General Opinions
Docket: OAG 89-10
Date: May 12, 1989
Advisory Opinion Text
OAG 89-10.
The requestor asks three questions relating to the definition of "operating expenses" under the constitutional and statutory amendments recently put in place by voter approval of Ballot Measure 2.(fn1)
Ballot Measure 2, approved by the voters on November 8, 1988, amended Article VIII, section 2 of the Oregon Constitution to allow the State Land Board to use income from Common School Fund investments to pay "the operating expenses of the State Land Board in exercising its powers and duties under subsection (2) of section 5 of this Article." SJR 1 (1987).(fn2) Article VIII, section 2 now provides, in relevant part:
The phrase "operating expenses" was new in this context. Before the amendment, the principal of the fund was the source of the moneys needed for such purposes:(2) All revenues derived from the sources mentioned in subsection (1) of this section shall become a part of the Common School Fund. The State Land Board may expend moneys in the Common School Fund to carry out its powers and duties under subsection (2) of section 5 of this Article. Unexpended moneys in the Common School Fund shall be invested as the Legislative Assembly shall provide by law and shall not be subject to the limitations of section 6, Article XI of this Constitution. The State Land Board may apply, as it considers appropriate, income derived from the investment of the Common School Fund to the operating expenses of the State Land Board in exercising its powers and duties under subsection (2) of section 5 of this Article. The remainder of the income derived from the investment of the Common School Fund shall be applied to the support of primary and secondary education as prescribed by law.
Former Or Const Art VIII, sec 2(2).The State Land Board may expend moneys in the Common School Fund to carry out its powers and duties under subsection (2) of section 5 of this Article.
In construing constitutional provisions enacted by the voters, we must look primarily to the words of the enactment. Northwest Natural Gas Co. v. Frank, 293 Or 374, 381, 648 P2d 1284 (1982). Voters' pamphlet materials also may be valuable. See Rogers v. Lane County, 307 Or 534, 771 P2d 254 (1989) (argument in favor of measure); Lipscomb v. State Bd. of Higher Ed., 305 Or 472, 481--482, 486, 753 P2d 939 (1988) (explanation by committee of legislators). Materials unavailable to the voters at large, however, are unreliable guides to the electorate's intent. Northwest Natural Gas Co. v. Frank, supra, 293 Or at 381.
Measure 2 did not define "operating expenses." The official ballot measure explanation stated only that the amendment "[a]llows State Land Board to apply, as it considers appropriate, income from Common School Fund investments to expenses of managing state lands." Official 1988 General Voters' Pamphlet for November 8, 1988, Election at 7.
Thus, neither the language of the enactment nor the Voters' Pamphlet helps significantly here. In the absence of any evidence to the contrary, we assume that the voters used the term "operating expenses" in its ordinary sense to mean
BLACK'S LAW DICTIONARY 518 (5th ed 1979). This definition excludes acquisition of an "income producing property" such as an asset of the Common School Fund. See 46 Op Atty Gen 195 (1989).(fn3)[t]he cost of operating an income producing property, such as rent, wages, utilities, and similar day to day expenses, as well as taxes, insurance, and a reserve for depreciation.
Our construction of Measure 2 is consistent with the apparent legislative understanding of the concept of operating expenses, as illustrated by ORS 273.115. Before adoption of Measure 2, ORS 273.115 provided:
The necessary expenses of the division, including but not limited to the salaries of the director and employes of the division and of rentals under ORS 276.412, if required, shall be paid out of the Common School Fund. The division may use so much of the Common School Fund as is necessary for:
(1) The acquisition of lands, easements, and all other interests in real property.
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(2) Improvement, operation, and maintenance of property, crops, timber, fixtures and appurtenances whether granted or otherwise acquired at any time.
This statute thus distinguished between the "necessary expenses of the division" and the "acquisition of * * * all * * * interests in real property." That distinction indicated that real property purchases are not operating expenses.(3) Operations required of the division by law.
When the voters approved Measure 2, an act took effect deleting the statutory references to "[t]he necessary expenses of the division" and to "[o]perations required of the division by law." ORS 273.115 now reads:
The division may use so much of the Common School Fund as is necessary for:
(1) The acquisition of lands, easements, and all other interests in real property.
Or Laws 1987, ch 760, sec 3. The deletion of the reference to division expenses reinforces the distinction between real property purchases and operating expenses.(2) Improvement, operation and maintenance of property, crops, timber, fixtures and appurtenances whether granted or otherwise acquired at any time."
Our construction of Measure 2, therefore, preserves the desired harmony between Article VIII, section 2(2) and the statutes enacted pursuant thereto.
We interpret the current law to require that operating expenses be paid only with income from fund investment.(fn4) Article VIII, section 2, as amended, provides that "[t]he State Land Board may apply, as it considers appropriate, income derived from the investment of the Common School Fund to the operating expenses of the State Land Board in exercising its powers and duties under subsection (2) of section 5 of this Article." Also, the official Voters' Pamphlet explanation for Measure 2 says that the amendment "[a]llows State Land Board to apply, as it considers appropriate, income from Common School Fund investments to expenses of managing state lands." Official 1988 General Voters' Pamphlet for November 8, 1988, Election at 7. The division's analysis of SJR 1 and associated bills indicates that the intent behind the legislation was to make fund income, not principal, the sole funding source for operating expenses:
Division of State Lands, Legislative Analysis, Senate Joint Resolution 1, Senate Bill 167, Senate Bill 168 at Section Bill Analysis" 1 (May 1987); see also "Legislative Analysis" at 4, 7 and 9.
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Paragraph 1 of SJR 1 further amends this provision of the constitution to shift the source of funds used to pay administrative expenses of the State Land Board. The constitution currently provides the Land Board 'may expend moneys in the Common School Fund to carry out its powers and duties.' Senate Joint Resolution 1 would insert language specifying that these expenses be paid from interest earned on fund investments.
This interpretation is consistent with the purpose behind the legislation:
Id. at 4.The basic purpose of the proposed legislation is to increase the principal and earning potential of the fund and, in the long-term, increase Common School Fund support to the schools and school children of Oregon.
This interpretation also is consistent with the current version of ORS 273.115, which (as noted supra ) was amended at the time Measure 2 passed to delete "necessary expenses" from the list of costs to which the division may apply Common School Fund principal. Or Laws 1987, ch 760, sec 3.
Because SJR 1 and SB 168 were adopted at the same time, they should be read together. For the reasons stated above we conclude that the governing constitutional and statutory provisions permit the payment of operating expenses only from Common School Fund income.(fn5)
As stated above, real property purchases, such as the acquisition of forest land, are not operating expenses. ORS 273.115 as amended plainly exhibits the legislature's expectation that the division would use Common School Fund
principal, not income, for acquisition of real property, including investment lands.
The division has begun construction of an office building. Of the building's three floors, two will be leased to other tenants and one used to house the division. Accordingly, we conclude that the proportion of the land and construction costs attributable to the portion of the building that DSL will occupy must be treated as "operating expenses" payable from interest earned on investment of the Common School Fund. The remaining costs must be paid from the principal of the fund.
Two floors of the division's new office building will be rented to other tenants as an investment for the Common School Fund. Therefore, the cost of construction must be paid using fund principal.
Because the floor that will house the division will serve an entirely different purpose, its cost must be treated differently. We turn to that issue.
As described above, before the approval of Measure 2, ORS 273.115 included "rentals under ORS 276.412" within the definition of "necessary expenses of the division." ORS 276.412 addresses rental payments for quarters occupied in state buildings by state agencies. The deletion of those expenses from ORS 273.115 upon approval of Measure 2 indicates that such expenses are "operating expenses" under Measure 2. Accordingly, it appears that the legislature intended that the division's office rental payments be deducted from Common School Fund interest as "operating expenses."
We assume that the division has determined that acquiring land and constructing its own office space is more cost effective than leasing. The issue, then, is whether the costs of buying land and building office space may be treated the same as the rental payments they would replace.
We focus our analysis on ORS 273.115(1), under which the division must use Common School Fund principal to pay for "[t]he acquisition of lands * * * and all other interests in real property." On its face, the statute supports the argument that the division must pay for any purchase of real property from Common School Fund principal. Nonetheless, the circumstances of the statute's enactment persuade us to reject that argument.
The language in question originally was enacted in 1969. See Or Laws 1969, ch 338, sec 2. At that time, Common School Fund principal was the only lawful source for payment of operating expenses and purchases of real property. Accordingly, in providing for the purchase of real property with Common School Fund principal, the legislature had no cause to distinguish between purchases for investment and purchases as a substitute for rental payments or other operating expenses. Moreover, the 1969 amendments were designed to implement a 1968 constitutional amendment that authorized the
division to use the Common School Fund for improving state lands to increase their productivity. Minutes, House Ways and Means Committee (SB 421), April 25, 1969, at 158. Thus, there is no basis from which to conclude that the legislature intended to require all real property purchases to come from Common School Fund principal whether or not a specific purchase actually was an operating expense.
We find it more consistent with the legislative intent to conclude that the statutory reference to acquisition of "real property" is limited to acquisition of real property for Common School Fund investment purposes. As already noted, amendments to ORS 273.115 upon passage of Ballot Measure 2 deleted "necessary expenses of the division" and "[o]perations required of the division by law" from the permissible uses of the Common School Fund. Those amendments convince us that the legislature intended the division to use interest on Common School Fund investments for all division operating expenses, even when those expenses take the form of a purchase of real property.
We previously reached a similar conclusion when asked whether money in the Oregon War Veterans' Fund (veterans' fund) could be expended to acquire or construct a building to house the Department of Veterans' Affairs. See 39 Op Atty Gen 695 (1979). Similar to the provision applicable to the division, Article XI-A of the Oregon Constitution authorizes use of the veterans' fund to pay expenses incurred in carrying out "[t]he duties of the Director of Veterans' Affairs." We noted that among those duties is the duty to provide facilities for carrying out veterans' programs. Because ORS 406.060 specifically authorized the director to use the services and facilities of any state agency in the course of administration of veterans' service programs, and ORS 406.080 authorized use of the Oregon War Veterans' Bond Sinking Fund (part of the veterans' fund) to cover administrative costs, the Department of Veterans' Affairs long had used the sinking fund to pay its rents. We concluded that authority to use the fund to pay office rents also extended to acquiring or constructing an office building:
39 Op Atty Gen at 698 (emphasis added).The fact that such financing would involve a capital expenditure does not alter our opinion. We fail to perceive a significant difference justifying the payment of rent from the veterans' fund for securing office space, but not the outright acquisition of a building for office space, particularly where it is previously determined that the renting of office space is, in the long run, more expensive and less efficient than procuring the outright ownership of an office building.
We believe that the same conclusion applies as to the portion of the new building that will house the division. Even though the primary purpose for the building is the production of income for the Common School Fund, the sole purpose of one floor of the building is to displace an "operating expense" (the division's office rental payments). Thus, the proportion of the land and construction costs attributable to that latter purpose must be treated as
"operating expenses" payable from interest on Common School Fund investments.(fn6) The remaining costs must be paid from fund principal.
Footnotes:
1 Senate Joint Resolution 1 referred a constitutional amendment to the voters as Ballot Measure 2. Oregon Laws 1987, SJR 1. The legislature passed, and the governor signed, two acts (SB 167 and SB 168) which were to take effect upon voter approval of Measure 2. Oregon Laws 1987, ch 759 and 760.
2 Article VIII, section 5(2) of the Oregon Constitution provides:
(2) The board shall manage lands under its jurisdiction with the object of obtaining the greatest benefit for the people of this state, consistent with the conservation of this resource under sound techniques of land management.
3 "Operating expenses" appears in 12 statutes relating to state agencies, public corporations and commissions and political subdivisions. See ORS 263.280; 284.680; 341.005(7); 354.145(2)(b); 407.565; 410.110; 423.100; 430.170; 463.360; 468.075; 731.272; and 778.060. Although the phrase usually is not defined, those few statutory definitions that do exist parallel the common and ordinary meaning. ORS 731.272(4), relating to the director of the Department of Insurance and Finance, requires an annual report including "[a] statement of the operating expenses of the department under the Insurance Code, including salaries, transportation, communication, printing, office supplies, fixed charges and miscellaneous expenses." ORS 778.060, relating to the Port of Portland, states in relevant part, "As used in this section 'operating expenses' means the maintenance of plant, structures and equipment and such dredging as may be required to preserve or restore at or to its artificial depth a channel previously excavated by the port." ORS 341.005(7), relating to community college districts, provides that "'[o]perating expenses' means the sum of the expenditures of a community college district for administration, instruction, necessary student services, operation and maintenance of plant and fixed charges, as determined in accordance with the rules of the State Board of Education." ORS 354.145(2)(b), relating to public broadcasting, provides that "[a]s used in this paragraph, 'operating expenses' means technical, programming, administrative and maintenance expenses, including reasonable building and equipment reserves, but does not include capital outlay for the initial plant and equipment."
4 In 30 Op Atty Gen 162, 164 (1961), discussing investment of the Common School Fund, we stated:
We use the term "investment" in the same sense here.To invest means "[t]o lay out (money or capital) in business with the view of obtaining an income or profit; to convert into some form of wealth other than money, as securities or real estate, with the expectation of dividends, rentals, etc." Websters' New International Dictionary, 2d ed.
5 The State Land Board's authority to decide to pay operating expenses from Common School Fund interest is derived entirely from Article VIII, section 2(2), of the Oregon Constitution, which we view as self-executing. This conclusion is consistent with our analysis in 42 Op Atty Gen 260 (1982). Further, the implementing legislation for the new constitutional provision recognizes that the new language of section 2(2) grants the State Land Board direct authority to spend income on operating expenses. ORS 273.105(2)(b), as amended in 1987, lists as one of the categories of money that must be credited to the Distributable Income Account:
Oregon Laws 1987, ch 760, sec 2 (emphasis added). Therefore, the legislature may not require the State Land Board to obtain legislative authorization before spending Common School Fund moneys derived from constitutional sources.(b) So much of the interest income and dividends derived from investments of the Common School Fund as remains after payment of the expenses of the State Land Board authorized to be paid under subsection (2), section 2, Article VIII of the Oregon Constitution."
6 The division has informed us that, under the building contract, progress payments are being made to the contractors as construction reaches stages of completion defined in the contract. The division plans to amortize these construction costs over 12 years. We see nothing in Article VIII, section 2 or ORS 273.115 that would prevent the division from spreading the costs of its new office space over time. This result would appear to be consistent with our analysis above, in which we analogize those costs to monthly office rental payments.
If the single floor becomes insufficient for the division's needs in the future, and the division wishes to obtain an additional floor or floors for its own use, various issues may arise. Among these issues is the application of the board's duty under Article VIII, section 2, of the Oregon Constitution, which compels maximization of return to the Common School Fund, and the possible requirement that the Common School Fund principal be reimbursed for the costs, or the value, of the additional portion of the building being used by the division for office space. We express no opinion at this time on these or other issues, and recommend that the division seek our legal advice if the situation arises.