HOUSE BILL REPORT

HB 2476

BYRepresentatives Horn, Haugen, Nutley, Ferguson and May

Establishing a formula for allocating the indebtedness incurred by certain lessees.

House Committe on Local Government

Majority Report:  Do pass.  (14)

      Signed by Representatives Haugen, Chair; Cooper, Vice Chair; Ferguson, Ranking Republican Member; Kirby, Horn, Nealey, Nelson, Nutley, Phillips, Raiter, Rayburn, Wolfe, Wood and Zellinsky.

House Staff:Steve Lundin (786-7127)

Rereferred House Committee on Capital Facilities & Financing

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (12)

      Signed by Representatives H. Sommers, Chair; Rasmussen, Vice Chair; Schoon, Ranking Republican Member; Beck, Betrozoff, Fraser, Heavey, Jacobsen, Peery, Rector, Wang and Winsley.

Minority Report:  Without recommendation.  (1)

      Signed by Representative Bowman.

House Staff:      Bill Robinson (786-7140)

AS REPORTED BY COMMITTEE ON CAPITAL FACILITIES & FINANCING

JANUARY 30, 1990

BACKGROUND:

Most states have limitations on the level of indebtedness that local governments may incur.  These limitations are on the general indebtedness of the local government and do not include certain types of revenue indebtedness.  The appellate courts of different states have taken different positions on whether certain financial actions by local governments are subject to indebtedness limitations, such as leases ending in acquisition of the leased facility or purchases made with payments over time.  No case law exists in this state addressing the issue of how to compute such debt.

Our state constitution restricts the ability of a city or town to incur general indebtedness without voter approval up to an amount not exceeding one and one-half percent of the taxable property within its boundaries, and with a 60 percent majority vote, a city or town is permitted to incur a total general indebtedness of up to 5 percent of the taxable property within its boundaries.

One statute reduces the constitutional debt limits by 50 percent, so that a city or town can incur general indebtedness without voter approval up to an amount not exceeding three quarters of one percent of the taxable property within its boundaries, and with a 60 percent majority vote, a city or town is permitted to incur a total indebtedness of up to two and one half percent of the taxable property within its boundaries.

Another statute limits the amount of lease obligations that cities and towns can incur so that the annual amount of such lease payments, together with other indebtedness, cannot result in a total indebtedness in excess of one and one half percent of the taxable property in the city or town.  It appears that both normal leases, which probably are not debt, and leases ending in an acquisition of the leased facility are included under this limitation.

SUMMARY:

The statute authorizing cities and towns to incur a limited amount of lease obligations is altered to define that only leases financing the acquisition of property by the lessee are subject to these limitations.

In addition, the value of such leases, for purposes of calculating the indebtedness limitation, is stated to be that portion of the lease payments allocable to the principal aggregated over the term of the lease, with the portion of the lease payments allocable to interest not being included.

Cities and towns are permitted to jointly execute with the state or any unit of local government any lease provided under Title 35 RCW, instead of just leases authorized under the chapter of laws establishing a limitation on the amount of leases that a city or town can incur.

CHANGES PROPOSED BY COMMITTEE ON CAPITAL FACILITIES & FINANCING (SUBSTITUTE BILL):  The substitute bill reorganizes the language of the original bill to make the statute more clear.  Authorization for joint leases is removed.

Fiscal Note:      Not Requested.

House Committee ‑ Testified For:    (Local Government)  Stan Finkelstein, Association of Washington Cities; and Chuck Mize, City of Bellevue.

(Capital Facilities & Financing)  Chuck Mize, City of Bellevue.

House Committee - Testified Against:      (Local Government)  No one.

(Capital Facilities & Financing)  No one.

House Committee - Testimony For:    (Local Government)  This is a technical amendment to clarify existing law.  The amount of aggregate lease payments allocable to principal over the term of the lease actually is greater than a single year's payment of amounts allocable to both principal and interest, so the net affect of the bill is to restrict the amount of such indebtedness that can be incurred.

(Capital Facilities & Financing)  Same as previous committee.

House Committee - Testimony Against:      (Local Government)  None.

(Capital Facilities & Financing)  None.