10 Or. Tax 295 | Or. T.C. | 1986
Decision for plaintiffs rendered September 23, 1986.
1. Pursuant to ORS
The Department of Revenue moved to intervene, which motion was allowed. Cross-motions for summary judgment were then filed by all the parties. Oral arguments on the motions were heard September 2, 1986.
2. Plaintiffs' complaint alleges that defendant's tax levies for the years 1984-1985 and 1985-1986, as well as the proposed levy for 1986-1987, violate Article XI, section 11, of the Oregon Constitution. However ORS
In order to understand the nature of plaintiffs' complaint and the issues it raises, it is necessary to briefly consider the constitutional and statutory provisions which constitute the body of law in this area.
Constitutional Limitations. By a 1916 amendment to the Oregon Constitution, section 11 of Article XI limited the amount of tax revenue that could be raised in any year by a tax levying body to the total amount levied in the preceding year, plus six percent. In 1932, section 11 was further amended to allow a tax levying body to impose a levy in any year not in excess of the amount levied by it in one of the three years immediately preceding, plus six percent.
"Taxing bodies were authorized to levy special taxes in *297
any one year providing legal voters gave their sanction. However, by the 1916 and 1932 constitutional provisions such special tax levy could not be included in the tax base for future levies." School Dist. 1, Mult. Co. v. Bingham et al,
204 Or. 601 ,605 ,283 P.2d 670 ,284 P.2d 779 (1955).
3. Increased population, inflation and other economic factors resulted in taxing units having to resort to annual special elections. In order to avoid the necessity of holding such elections, Article XI, section 11 was amended to provide for two methods of determining a tax base. One method was the previous constitutional provision limiting growth to the highest levy during the preceding triennium, plus six percent. The other method authorized a majority of the legal voters to establish a new tax base. It was specifically provided in section 11(3)(a) that the tax base upon which a six percent limitation applied shall not apply to "[t]hat portion of any tax levied which is for the payment of bonded indebtedness or interest thereon." Thus, for purposes of constitutional limitations, tax levies for the payment of bonded indebtedness are treated separately from tax levies for normal operating expenses.
Operating Levies. The local budget law (ORS chapter 294) governs the procedure for local governmental units (including school districts) for determining expenditures, resources and necessary tax levies for each school year. Separate estimates are required to be made for debt service and estimates of all expenditures are required in detail. (ORS
4. For each fiscal year, the school district must identify expected resources, estimate expenses and ending fund balances. To arrive at a tax levy, the amount of resources other than taxes to be levied that are available to the district are deducted from the estimated expenditures. The remainder, plus an adjustment for discounts and delinquencies, is the tax levy. (ORS
Levy for Payment of Bonded Indebtedness. Tax levies for the payment of a school district's bonded indebtedness are specifically provided for by statute. ORS
"The district school board shall ascertain and levy *298 annually, in addition to all other taxes, a direct ad valorem tax on all the taxable property in the school district, sufficient to pay the maturing interest and principal of all serial school district bonds promptly when and as such payments become due. The amount of the tax may be increased by an amount sufficient to retire any bonds that may be callable. The board shall in each year include the taxes in the school district budget for such year. The taxes shall in each year be certified, extended upon the tax rolls and collected by the same officers in the same manner and at the same time as the taxes for general county purposes."
The statute further specifies that funds for bonded indebtedness shall be kept in a separate fund. If the district fails to levy a tax to pay the bonded indebtedness, the county treasurer is required to certify and levy the tax to raise the required amount. (ORS
5. The legislative scheme clearly recognizes, even requires, that bonded indebtedness and the debt service thereof be recognized separately. In preparing detailed estimates of its expenses, ORS
"(c) The amount levied for the payment of bonded indebtedness or interest thereon."
Presumably levies for the payment of bonded indebtedness are treated separately because the initial decision to incur the bonded indebtedness must be approved by the electorate. Once it is so approved, the statutes mandate that the district levy sufficient taxes to pay the principal and interest on the indebtedness as it falls due. For various reasons, the amount of the levy may fluctuate from year to year, but it has no built-in growth factor and is not subject to the constitutional tax base limitation.
Fund Transfers. This case has been submitted to the court on stipulated facts. What appears from these stipulated facts is that defendant transferred funds from its general fund *299 into its debt service fund for tax years 1984-1985 and 1985-1986. The transfer to the debt service fund in these two years has allowed the defendant to reduce or eliminate its debt service levy. The defendant has proposed the same procedure for the 1986-1987 tax levy. Plaintiffs object that this procedure will enable the defendant to levy a larger amount in its general levy and thereby "artificially" increase its tax base. This position recognizes that if no funds are transferred from the general fund to the debt service fund, there will be greater resources remaining in the general fund and therefore a lesser general levy will be required.
The stipulation fails to express facts which could reveal the motivations for this dispute. The stipulation does indicate that the electorate approved a new tax base for the defendant in 1980. One could surmise that the defendant, having obtained a new tax base, might take action to avoid losing it through erosion. Whatever defendant's motivation, it does not require surmising to conclude that defendant's purpose is to maintain or increase its allowable tax base. A resolution dated August 25, 1986, adopted after the levy was certified to the assessor, indicates that the transferred funds are to be made "from nonproperty tax resources only."
Thus the central question presented by this case is whether a taxing body may utilize nontax resources to pay its bonded indebtedness. Intervenor asserts that any amounts transferred from the general fund to a debt service fund must be presumed from taxes levied. The defendant admitted ORS
Defendant contends that ORS
Intervenor, in its memorandum, succinctly states the problems which would flow from such position.
"If a transfer from the General Fund is deemed to be paid from nontax revenues, a district will be able to artificially inflate its tax base in future years for other purposes. There is nothing in the statutes that would require a district to continue a practice of transferring funds from the General Fund to a debt service fund, and if the district changed its policy and shifted its financing of debt service back to a separate debt service levy, for which no voter approval would be required, its available tax base for other purposes would have been increased in amounts equal to the transfers to the debt service fund. This could be far in excess of the six percent growth limitation imposed on tax levies for purposes other than debt service by Article XI, section 11 and would serve to frustrate the purpose of that limitation. Also, the transfer amounts would affect the absolute amount of growth in the tax base because the six percent growth allowance would be calculated in part with respect to these amounts if they remain in 'the amount lawfully levied' in a prior year."
6. The court concludes that under the applicable constitutional and statutory provisions, any transfer of funds from defendant's general fund to its debt service fund must be deemed to be made from property tax resources to the extent they exist. The reasons for this conclusion are twofold. First, as indicated above, any other conclusion would facilitate avoiding the limitations of the Constitution. This would contravene the policy inherent in the constitutional limitation requiring voter approval outside the expressed limits. Such a result is to be avoided.
Second, the mandatory payment of bonded indebtedness from tax levies is not just a result of the mandatory language of ORS
Accordingly, pursuant to ORS