Senate Majority Leader Rodney Tom, D-Medina.
OLYMPIA, April 12.—A curious legal argument seems to be raging at the statehouse over a Senate plan to use bonds to pay for school construction – Democratic Party leaders say the $166 million plan is clearly unconstitutional, while the lawyers who earn the big bucks to pass judgment on such things give it a big thumbs-up.
Not that they’re saying it’s a good idea — that’s a decision for the Legislature to make. But attorneys for the Senate Ways and Means Committee, the attorney general’s office and the Office of Financial Management say the plan passes legal muster. It hasn’t kept House Appropriations Chair Ross Hunter, Senate Democratic Floor Leader David Frockt and others from charging that it violates state law. Thus a partisan policy argument has somehow become conflated into an argument over what is legally permissible – even though it appears to pose no legal problems at all. Says Senate Majority Leader Rodney Tom, D-Medina, “They were given a talking point long before they saw the budget, they took a swing and they missed.”
The point is important because Democratic opponents are using it as evidence that the no-new-tax spending plan passed by the Senate last week can’t possibly work. The Senate, under control of a Republican-leaning majority coalition, insists the budget can be balanced without new taxes. The school-financing plan is an essential ingredient in the $33.3 billion spending plan adopted by the Senate last week with considerable input from the Democratic Caucus. Meanwhile the House Democrats are poised to pass a substantially bigger spending plan today or Saturday that would require about $1.3 billion in tax increases.
The rhetoric has been turned up to 11, as Democratic Party leaders are accusing Republicans in the Senate of relying on outright illegality to keep those spending numbers low. “The Republicans in the Senate depend completely on unspecified cuts, unconstitutional transfers and gimmicks instead,” declared House Appropriations Chair Ross Hunter at a news conference Wednesday. “It would be hard for the treasurer to sell bonds at reasonable prices if we adopt that strategy, and we will be back in town fixing inexplicable problems after the first caseload forecast update this fall.”
Policy questions are one thing. Certainly the maneuver requires the state to use debt where it did not before, though it might be argued that big new spending demands imposed by the state Supreme Court require some big-picture rethinking about the way the state pays for schools. And green groups are nervous that it might mean less money for them. But Hunter and others are raising a different sort of argument: They say the school-financing plan is so blatantly illegal that the state surely will be hauled into court and dire consequences will ensue. The weight of legal opinion appears to indicate that just ain’t true.
Would Issue Bonds for School Construction
At a Wednesday news conference, House Appropriations Chair Ross Hunter, D-Medina, argues that the Senate’s school bonding plan is illegal.
What the Senate is proposing is actually pretty simple. Instead of paying as it goes for school construction, using revenue from public lands – mainly timber sales – the state would issue bonds for school construction and pay them off over the course of 30 years. The timber money would be used to pay for school operations. Any time there are proposals to use to state debt to finance anything, there are big policy questions involved, because it requires the state to pay debt service – but where schools are concerned it gets mighty complicated indeed.
Since statehood, Washington has used public-land revenue to pay for schools. Until the constitution was amended in 1966, the money couldn’t be used for school construction – it had to be used for school operations. But that 1966 amendment turned things on its head. It established a fund “to be used exclusively” for school construction and directed the public-lands money there, and it left the Legislature to find money for K-12 operations from the state’s general fund budget. That’s one of the reasons money for school operations is a matter of political debate 46 years after the amendment took effect. The school-construction money is doled out to school districts according to a complicated formula that matches money raised through local bond issues.
The thing is, according to a lengthy legal analysis from Senate Ways and Means staff attorney Steve Jones, the construction fund really isn’t that exclusive. A few sentences after the constitution establishes the construction fund in Article 9, Section 3, it says that if the state meets the demand for school construction funding, “excess” money in the fund may be spent on K-12 schools “as the Legislature may direct.” So what the Senate is proposing is that the state issue bonds to meet school-construction demands for the next two years, thus freeing up $166 million to be spent for K-12 operating expenses.
Has Been Done Before
Senate Ways and Means Chair Andy Hill, R-Redmond.
Using bonds to pay for school construction is a big switch from the state’s pay-as-you-go policy, but it wouldn’t be the first time the state has used money from the school construction fund to pay for K-12 operating expenses. During the state’s last big round of budget trouble, back in 1981, lawmakers used “excess” money from the state school-construction account to pay for the state’s K-12 operations. They did it twice that year, diverting a total $72.3 million – though a law they passed at the time required them to pay it back with interest the next time they wrote a two-year budget. The bond plan basically does the same thing, but because bonds would be used the payoff would be over a much longer period.
Whether it’s a good idea is a different question. Hill says it makes sense: Bonds ought to be used for long-lasting projects like schools. “I think it’s good policy,” he says. “The way we do things right now is that we’re taking current operating funds to pay for school construction, while we generally should pay for things that last for 30 years with bonds and not with current revenues. It’s a mismatch of where the funds come in. It will fund all the schools, and the schools are not going to lose anything.”
And while the state may have avoided interest costs in the past by paying for school construction needs with current cash receipts from public lands, Hill points out that things are considerably different today, now that the Supreme Court has directed the state to pay substantially more for basic education at a time when the cupboard is bare. The court’s McCleary decision requires a $1 billion or so increase this year, and that’s just to start. “It’s really about what color of money you are using,” Hill says. “We believe you should match long-term projects with long-term dollars, but we can use short-term dollars for basic education to fulfill the McCleary mandate.”
No Legal Problem, Lawyers Say
It’s not that the state would find itself further in debt than it does today, nor would it necessarily mean that the state would pay more for interest than it does currently. That’s because a constitutional limit on state debt ensures that the state can’t run up its credit card. But it does mean the state couldn’t use its debt capacity for other things. Thus the biggest objections to the plan, on a policy level, are being raised by green groups. They have been eyeing the state’s credit card as a way to finance big-ticket environmental projects, like purchases of sensitive lands that might be declared off-limits to development. During a hearing last week on Senate Bill 5895, the measure that makes it all possible, they seemed to catch the implication right off the bat. Darcy Nonemacher of the Washington Environmental Council complained there would be less money available for habitat restoration. “We are concerned about pressure that is created by this bill and being able to fulfill that investment.”
But legally there’s no problem at all, maintains legislative staff. Hill says the Ways and Means legal analysis made that clear before the Senate proposed its budget. And since that time other state legal officials appear to concede that the Senate is right about the law.
A statement from David Stolier, senior assistant attorney general in the office’s education division, has been circulated to members of the Legislature. It says he “can find no flaws in the Senate legal analysis.” The statement doesn’t take the status of a formal written opinion, to be sure. But it is buttressed by other legal analyses. Julie Murray, director of legal and legislative affairs for the Office of Financial Management, in another widely circulated email, says, “I cannot say that this this is unconstitutional on its face. There is no caselaw on the subject that I can find. Their theory is defensible. I can make contrary arguments, but one of the first rules of statutory construction is that statutes are presumed to be constitutional. In addition, in the absence of any reduction in funding showing harm to any entity, I think it would be difficult for anyone to have standing to even bring this case to court.”
The state treasurer’s office, meanwhile, says it is concerned about the plan’s legality, but isn’t drawing a conclusion. Says spokesman Chris McGann, “We also have serious concerns because this appears to be a permanent transfer of cash from the capital budget for operating expenses to be replaced with bond proceeds on an ongoing basis. This is two-step way to pay operating costs with borrowed money – now and into the future.”
Some Dems Have Alternate Theory
It ought to be noted that not all Democrats are claiming that the plan is illegal – only those who are raising political arguments against the Senate budget. For instance, Sen. Jim Hargrove, D-Hoquiam, who helped write the Senate budget, points out that the Legislature’s legal staff believes it to be constitutional. “You never find out until you actually get sued and the Supreme Court rules on it, but our staff believes it is not a problem and it has been done twice before,” he says.
Nevertheless, others are raising the specter of legal challenges. During last week’s debate on the Senate floor, Frockt, D-Seattle, insisted that the bond plan is clearly illegal. “It is unconstitutional. I went back and looked at this, and we are going to get a lawsuit on this.”
And as the House Democrats rolled out their much more expansive budget proposal this week, Hunter declared the illegality was obvious. “I would urge you to read Article 9, Section 3,” he said. “It says that money is provided exclusively for school construction. That is what it says. You can go read it. It is really, really crystal clear, ‘provided for school construction.’”
Hunter predicted that if the case went before the Supreme Court, the justices would order the state to pay the full cost of school construction, rather than splitting it with school districts – meaning the state would be in even worse budget trouble. “They borrow hundreds of millions of dollars more money in order to have more money to spend in the operating budget, so this is putting your groceries on your credit card,” he said.
The problem with that analysis is that you have to read to the end of the paragraph in the state constitution to see that it isn’t so, say members of the Senate Majority Coalition. “We’re on pretty solid clay,” says Tom. “And Ross isn’t an attorney.”
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