Oregon Advisory Opinions January 01, 1950: OP 1322

Advisory Opinion Text

Electors of a school district have im­plied power to vote upon the question of whether or not proceeds of a bond sale shall be used for a different pur­pose, when no vested rights would be affected thereby.

The balance remaining in the hands of the county treasurer after the purpose of a bond issue has been accomplished, reverts to the general fund of the school district.

When the purpose of a bond issue has been accomplished, the school district does not have power to sell the balance of the bonds for a different purpose.

No. 1322 January 5,1950 Honorable Rex Putnam

Superintendent of Public Instruction Dear Sir: In your letter of December 27, 1949, you presented for our consid­eration two problems involving the use of proceeds from school bond issues:

I

Your first problem concerned the Roseburg school district No. 4, a first class district. At a bond election held on October 18, 1948, a bond issue of $895,000 was authorized and the full amount thereof has been issued and sold by the school board. The purpose of the issue, as stated on the notice of election and the ballot, was as follows:

"* * * for the purpose of constructing additions to the present high school building, Fullerton School, Riverside School and Eden-bower School, and equipping and furnishing the same, constructing a central heating plant for the Fullerton School and Senior High School, constructing a new building on the Benson School grounds for the purpose of an assembly hall and gymnasium, and for the purpose of additional equipment and furnish­ings for the Rose School".

Out of the proceeds from the sale of the bonds, the district has constructed the addition to the Fullerton school, the addition to the Riverside school, and equipped and furnished the same; con­structed a central heating plant for the Fullerton school and senior high school; constructed a new building on the Ben­son school ground, and purchased addi­tional equipment and furnishings for the Rose school. There still remains to be constructed an addition to the Eden-bower school and the additions to the high school building. You mentioned in your letter that the school board now finds that it is impracticable to build the additions to the high school building as originally planned, and they wish to con­vert the Fullerton school into a unit of the senior high school. A new site is being purchased by the board out of moneys at their disposal outside of the bond issue, and it desires to construct a new grade school building on the said site. You ask to be advised:

"* * * as to whether or not the school district board can change the plan and build a new Fullerton school on a different site provided the people of the district, voting at an election, ratify a change in plan to ac­complish the purpose of building said new school on a new site."

Section 111-1701, O. C. L. A., before its amendment by chapter 288, Oregon Laws 1949, provided as follows:

"The school districts of this state have power to contract a bonded indebtedness for the purpose of providing funds with which to acquire, to construct, to reconstruct, to im­prove, to repair, to equip, to furnish a school building or school buildings or additions thereto and to acquire all property, real and personal, appurtenant thereto or connected therewith, or to fund or refund outstanding indebtedness, or for any one or combination of two or more of such purposes, and to pro­vide for the payment of the same as herein­after set forth."

Section 111-1704, O. C. L. A., provides that the county treasurer shall register each bond issued under the provisions of the act and also that "he shall hold the proceeds of the sale of said bonds * * subject to the order of the district board to be used solely for the purpose for which said bonds * * * were issued".

The law requires that the proceeds of school bonds shall be used solely for the purposes for which they were issued, and this is the established rule in most jurisdictions: See Annotation, 124 A. L. R. 883. There is no question but that the bonds in the instant case were issued for purposes authorized by statute. While it was not necessary that the notice of bond election specifically set forth the items of expenditure which are to be made by the board from sale of the bonds, it appears where this procedure is followed the school board is restricted in its expenditures to the purposes enu­merated.

In King v. Independent School Dis­trict, Class A, No. 37 (Idaho), 272 P. 507, which involved the construction of a statute analogous to Sec. 111-1701, supra, the court said:

"The design of the statute was to provide that the voters should decide upon the issu­ance of bonds, not the items for which they should be expended. The statute in the first instance limits the purposes for which bonds may be issued by a district, and, secondly, no doubt, the board would be restricted in its expenditure of the money to the purposes enumerated in the notice. * * *" (Emphasis supplied) See also. Opinion of the Attorney Gen­eral, No. 1244, dated September 28, 1949, and addressed to the Honorable L. G. English, District Attorney, Lincoln County.

The school board in the instant case apparently recognizes the foregoing rule of law but now desires to submit to the voters of the district the proposition of using part of the proceeds of the bond sale for a purpose different from that for which the bonds were originally au­thorized. There is authority to the effect that where no vested rights have resulted from a vote to issue school bonds for specified purposes, a rescis­sion or modification may be had by a subsequent vote: 43 Am. Jur., Sec. 105, p. 356; 79 A. L. R. 438; Independent School District v. Rosenow, 185 Minn. 261, 240 N. W. 649, 79 A. L. R. 434; Hibbs v. Township of Adams (Ky.), 48 L. R. A. 535.

In the last cited case the court held that the voters of the township have the right to rescind a vote for a tax to build a schoolhouse; that such right existed by necessary implication from the power to vote the tax, unless some vested right had intervened. Similarly, in connection with the levying of taxes by school dis­tricts this office held in Opinions of the Attorney General, 1928-1930, p. 610, that a school district may reconsider and set aside its former action in voting taxes and publish a new budget at any time before the tax has been entered upon the tax rolls. In Opinions of the Attorney General, 1922-1924, p. 541, it was de­cided that until a schoolhouse was actually removed, it was possible for the voters of the school district to reconsider and set aside the former action of the district voting for removal of the school-house.

There is no express statutory provision empowering the voters of a school dis­trict to modify or rescind a previously authorized bond issue, or to vote upon the question of using the proceeds there­of for a purpose different from that originally voted upon; and, it is ele­mentary that a school district, being a creature of the legislature, can only act upon statutory authority, express or im­plied.

In Hopkins v. Howard, 131 Or. 448, 452, our supreme court commented upon school laws, as follows:

'* * * Between the provisions, which provide a limitation on authority, and those provisions, which impose duties, there seems to be wisely left a field which may be covered by implied powers so long as these implica­tions are not abused."

Applying these principles, if vested rights have intervened since the bonds were originally voted upon, no implied power of modification or rescission ex­ists. In the instant case the entire bond issue has been sold and the county treas­urer holds the proceeds of the issue subject to the order of the district board. We fail to see how a vote of the electors of the district authorizing a different use of the proceeds can affect the validity of the bond issue, in so far as the holders thereof are concerned.

In 43 Am. Jur., p. 306, Sec. 47, it is said:

"Subdivision bonds which are valid when issued are not rendered void by the mis­application of the money received from their sale * * *."

Citing: Cairo v. Zane, 149 U. S. 122, 37 L. ed. 673; Anderson County v. Beal. 113 U. S. 227, 28 L. ed. 966.

The school district board is required by law to ascertain and levy annually a direct ad valorem tax on all the taxable property in the school district sufficient to pay interest on the bonds which may become due as well as an amount suf­ficient to retire all bonds as they mature: Section 111-1705, O. C. L. A. Funds de­rived from the tax levy are to be kept by the county treasurer in a separate fund which is irrevocably pledged to be used solely for the payment of said bonds and interest thereon. In the event the board fails or refuses to levy the necessary tax, it is the duty of the county court to do so: Section 111-1706, O. C. L. A.

Section 111-1222, O. C. L. A., as amended by chapter 37, Oregon Laws 1949, empowers the boards of directors of first class school districts to lease and build schoolhouses. This power may be exercised by the board without a vote of the electors of the district: Opinions of the Attorney General, 1922-1924, p. 712; 1926-1928, p. 111. However, the issuance of school bonds is a proposition which must be submitted to the voters of the district, and when a majority vote is received the school board is duty bound to expend the proceeds in accord­ance with the provisions contained in the notice of election, unless authoriza­tion is received from the voters to use the proceeds for a different purpose.

Responding to your inquiry, it is our opinion that the electors of a school dis­trict of the first class have implied power to vote upon the question of whether or not the proceeds of a bond sale shall be used for a purpose other than that pre­viously authorized by the original vote on the bonds, where no vested rights would be affected thereby. The proceeds from sale of bonds must of course, in any event, be used for the purposes specified in and authorized by Sec. 111-1701, O. C. L. A. Accordingly, we answer your ques­tion in the affirmative.

II

Your second problem was as follows: "* * * Canyonville School District No. 8 [a second class district] sometime back had a bond issue and I notice that the bond issue stated that the proceeds therefrom were to construct, equip, and furnish a school build­ing'. The school district sold all but $5,000 of this bond issue that had been authorized and has accomplished the purpose for which the bond issue was voted. However, they have $3,500 left over from the sale, plus authority to issue an additional $5,000 worth of bonds under the terms of the original election au­thorization. Can the school board by a vote of the people use the $3,500 in cash that was left over from the original sale of bonds and sell the balance of $5,000 in bonds origi­nally authorized and use any or all of the money to construct and complete boys' and girls' dressing rooms as an addition to the gymnasium which is a separate building from the one contemplated and built under the bond issue?"

Unlike your first problem, the school district in the instant case has accom­plished the purpose for which the bond issue was voted, and $3,500 remains in the hands of the county treasurer from the sale of said bonds. It appears to us that disposition of this fund is gov­erned by Sec. 110-1211, O. C. L. A., a part of the local budget law, which provides as follows:

"Subject to the provisions * * * in any law of this state relating to municipal corpo­rations, when the necessity for maintaining any estimate or fund of the municipal cor­poration has ceased to exist and a balance re­mains in said estimate or fund, the levying board shall so declare by ordinance or other order and upon such declaration such balance shall forthwith be transferred to the general fund of the municipal corporation, if there be such a general fund, unless other provisions have been made in the original creation in the estimate or fund in which there shall be a balance."

There is no statute, other than the foregoing, governing the disposition of school bond funds when the purpose thereof has been accomplished. There­fore, the balance remaining in the hands of the county treasurer after the pur­pose of the bond issue has been accom­plished, reverts to the school district board, which is the "levying board" mentioned in Sec. 110-1211, supra, and should by appropriate order of the board "forthwith be transferred" to the gen­eral fund of the school district: See Opinions of the Attorney General, 1946­1948, p. 77; 1930-1932, p. 574. However, it should be remembered that a school board of a second class school district can not repair or build schoolhouses without being authorized by a majority vote of the legal voters present at a legally called school meeting: Section 111-1014, O. C. L. A., as amended by chapter 352, Oregon Laws 1947. Ac­cordingly, the expenditure of the said sum of $3,500 for the purpose above mentioned, must be authorized by the voters of the district.

It is my opinion that the instant school board does not have power to sell the balance of the bonds where the purpose of the issue has been accomplished. The bonds were authorized to be issued for a particular purpose, and it is the duty of a school board to issue the same as soon as practicable: Opinions of the Attorney General, 1946-1948, p. 244. However, where the purpose of the bond issue has been finally accomplished, it is our belief that the power of the school board to sell the same ceases. There is no express authority given by the stat­utes for the voters of the school district to authorize the sale of bonds for a different purpose in an instance of this kind, nor do we feel that that power exists by necessary implication. Any doubt as to the authority of a political subdivision to issue bonds is resolved against its existence: 43 Am. Jur., "Pub­lic Securities and Obligations", Sec. 38, p. 300. If the school district desires to issue additional bonds for lawful purposes, it has authority to call a bond election and proceed anew under the provisions of title 111, chapter 17, O. C. L. A. It is well settled that the provisions of a statute authorizing the issue of bonds by a political subdivision must be strictly pursued: 43 Am. Jur., p. 305.

Responding to your inquiry, the school board may, of course, sell the remainder of said bonds within a reasonable time and use the proceeds thereof for equip­ment of the building or for the other purposes specified in the bond election notice. However, in our opinion, the said school board may not, even by vote of the electors of the district, legally sell the balance of the bonds for a different purpose, for the reason that that power does not exist either by express statu­tory provision or necessary implication.

GEORGE NEUNER, Attorney General, By Cecil H. Quesseth, Assistant.

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