SENATE BILL REPORT

SHB 2476

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

Senate Hearing Date(s):February 23, 1990; February 26, 1990

Majority Report:  Do pass.

      Signed by Senators McDonald, Chairman; Craswell, Vice Chairman; Amondson, Bailey, Bauer, Bluechel, Cantu, Fleming, Gaspard, Hayner, Johnson, Lee, Matson, Newhouse, Niemi, Owen, Saling, Smith, Williams, Wojahn.

Senate Staff:Terry Wilson (786-7715)

                  February 27, 1990

AS REPORTED BY COMMITTEE ON WAYS & MEANS, FEBRUARY 26, 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 1 and 1/2 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 3/4 of 1 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 2 and 1/2 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 1 and 1/2 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 leases financing the acquisition of property by the lessee are subject to the indebtedness limitations, which shall not result in a total indebtedness limitation of 1 and 1/2 percent of the taxable property in the city or town.

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.

Appropriation:    none

Revenue:    none

Fiscal Note:      none requested

Senate Committee - Testified: Representative Horn, prime sponsor (pro); Charles Mise, City of Bellevue (pro)