FINAL BILL REPORT

SHB 2476

                                  C 205 L 90

BYHouse Committee on Capital Facilities & Financing (originally sponsored by Representatives Horn, Haugen, Nutley, Ferguson and May)

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

House Committe on Local Government

Rereferred House Committee on Capital Facilities & Financing

Senate Committee on Ways & Means

SYNOPSIS AS ENACTED

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 classify such debt.

Our state constitution restricts the ability of a city or town to incur general indebtedness exceeding one and one-half percent of the taxable property within its boundaries.  However, with a 60 percent majority vote at an election on a debt proposition, a city or town is permitted to incur a total general indebtedness of up to 5 percent of the taxable property within its boundaries.

A 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; but with a 60 percent majority vote, is permitted to incur a total indebtedness of up to two and one half percent.

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 rewritten to provide that only a lease financing the acquisition of property by the city or town is subject to the higher statutory indebtedness limitation of one and one half percent.  The value of such a lease, for purposes of calculating this indebtedness limitation, is that portion of the lease payments allocable to the principal aggregated over the term of the lease, with the portion of the payments allocable to interest not being included.

VOTES ON FINAL PASSAGE:

      House 96   0

      Senate    48     0

EFFECTIVE:June 7, 1990