Source: http://www.bigbadbonds.com/CALBONDS/content.cfm?p=attorney-general-opinion-06-1102
Timestamp: 2019-04-20 05:06:17+00:00

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This opinion was highly controversial when it was issued. (See: California's Cash-Out Deals Stir Debate and School districts, including many in valley, on thin ice in refinancing bond debt) Why? Because the school bonds cartel was caught with its hand in the cookie jar. Since people don't keep track of things like this, it only took a short time for the districts to go back to their old, law-breaking ways.
The gist of the opinion is that premiums on refunding bonds are illegal, because those premiums represent more debt (unless you believe that money grows on trees) that the voters didn't approve. While this is not a hard-and-fast rule, because it goes to the district's intent, it means that the bigger the premium, the more likely that it's a violation. This is an issue that should be raised with the county office of education, the county assessor, the county treasurer, and the county board of supervisors, since all of these agencies have a duty in the process to get a voter-approved tax assessed on your property.
Secondarily, this opinion also goes to the use of the premium. The extra money ABSOLUTELY CAN'T be used to pay for facilities. It must only be used to retire the debt. This should be a red flag for bond oversight committees, because refunding bonds may be issued long after all the bond proceeds have been spent. Therefore, district bylaws that claim to terminate a citizens' bond oversight committee (CBOC), without any statute authority, are also illegal.
1. When a school district has outstanding voter-approved general obligation bonds, may the district issue refunding general obligation bonds without further voter approval at a price or an interest rate that will generate proceeds in excess of the amount needed to retire the outstanding bonds?
2. May a school district that has issued refunding general obligation bonds without a vote of the electorate spend proceeds from that bond sale to supplement funding for the original voter-authorized projects; to fund additional capital projects; or for other purposes unrelated to paying off the outstanding bonded indebtedness?
3. May a school district issue refunding general obligation bonds to refund previously issued bonds without obtaining voter approval if doing so will result in: (a) an increase in the district's ad valorem property tax rates; or (b) a maintaining of the district's ad valorem property tax rates at their previous levels when a reduced rate would suffice to refund the original voter-approved bonds?
4. If a school district applies the proceeds from the sale of refunding general obligation bonds to purposes not authorized by law, what are the possible consequences to the district?
5. May a school district, acting without voter approval, sell refunding general obligation bonds to a joint powers authority at par value but with an above-market interest rate in exchange for the joint powers authority's agreement to issue its own revenue bonds and to use the resulting proceeds both to purchase the school district's refunding bonds and to fund the construction of additional school facilities?
1. Absent specific approval from the district's electors, a school district may not issue refunding general obligation bonds at a price or an interest rate that will generate proceeds in excess of the amount needed to retire the designated outstanding bonds.
2. Without voter approval, a district may not use proceeds from a refunding general obligation bond to provide supplemental funding for unfinished projects, even if the projects were previously approved by the electorate, or for any other purpose except to pay off the designated outstanding bonds.
3. Because a school district lacking voter approval may not issue refunding general obligation bonds to generate more proceeds than are necessary to refinance the district's targeted debt, the district is likewise prohibited from setting or maintaining ad valorem property tax rates at a level higher than necessary to refinance that targeted debt.
4. A school district's application of proceeds from the sale of refunding general obligation bonds to purposes not authorized by law may result in litigation to invalidate the bond issue or to restrain unauthorized expenditures, if timely filed; taxpayer lawsuits; or actions by the Attorney General.
and the higher tax required to support it are constitutionally impermissible without specific voter approval.
1 San Lorenzo Valley Community Advocates for Responsible Educ. v. San Lorenzo Valley Unified Sch. Dist., 139 Cal. App. 4th 1356, 1395 (2006) (citing 62 Ops.Cal.Atty.Gen. 209, 210 (1979)).
Black's Law Dictionary 191 (8th ed. 2004), defines "general obligation bond" as a "municipal bond payable from general revenue rather than from a special fund. . . . Such a bond has no collateral to back it other than the issuer's taxing power."
2 San Lorenzo Valley Community Advocates, 139 Cal. App. 4th at 1395.
3 See Black's Law Dictionary 1496 ("Tax. Ad valorem tax").
4 Cal. Const. art. XIII A, § 1(b)(2); art. XVI, § 18(a).
5 Cal. Const. art. XIII A, § 1(b)(3); art. XVI, § 18(b); see Committee for Responsible Sch. Expansion, 142 Cal. App. 4th 1178, 1184-1185 (2006); 87 Ops.Cal.Atty.Gen. 157, 157-159 (2004).
which, generally speaking, refinance designated existing general obligation bonds by either immediately retiring those outstanding bonds or, if the terms of the bonds do not permit immediate retirement, by setting up an escrow account to retire them when appropriate.6 More specifically, the questions require us to explore what we view as a distinctly different process, often referred to as "cash-out refunding" or "refunding plus," by which a district� again, without voter approval�not only obtains proceeds sufficient to retire existing valid outstanding bonds, but generates additional proceeds, or premium, for other purposes. Before addressing the specific questions posed, we provide an overview of the context in which refunding bonds arise, beginning with issuance of the district's original, or "new money," bonds.
6 See Govt. Code §§ 53551, 53555, 53558, 53580(c).
7 See Cal. Const., art. IX, § 14; Educ. Code §§ 35160, 35160.1.
8 Educ. Code § 35160; see Hartzell v. Connell, 35 Cal. 3d 899, 915 (1984).
9 See Cumero v. Pub. Empl. Rel. Bd., 49 Cal. 3d 575, 591 (1989) (detailed Education Code provisions governing employment matters supersede district control over many terms of teachers' employment).
At the same time, article XIII A, section 1, functions as a tax cap, setting a one-percent ceiling on the ad valorem property tax rate that a local district may levy, with some exceptions. One exception, found in subdivisions (b)(2) and (b)(3) of article XIII A, section 1, authorizes the levying of additional ad valorem taxes on real property to pay the principal and interest on those voter-approved bonds satisfying the conditions of article XVI, section 18.
made for the collection of an annual tax sufficient to pay the interest on such indebtedness as it falls due, and to provide for a sinking fund for the payment of the principal thereof, on or before maturity, which shall not exceed forty years from the time of contracting the indebtedness.
... any proposition for the incurrence of indebtedness in the form of general obligation bonds for the construction, reconstruction, rehabilitation, or replacement of school facilities, including the furnishing and equipping of school facilities, or the acquisition or lease of real property for school facilities, shall be adopted upon the approval of 55 percent of the voters . . . if the proposition meets all of the accountability requirements of paragraph (3) of subdivision (b) of Section 1 of Article XIII A.
11 State ex rel. Pen. Oblig. Bond Comm. v. All Persons Interested in Matter of Validity of Cal. Pen. Oblig. Bonds to Be Issued, 152 Cal. App. 4th 1386, 1398 (2007) (hereafter "All Persons Interested").
12 See, e.g., City of Long Beach v. Lisenby, 180 Cal. 52 (1919) (voter approval not required where bond pays debt imposed by adverse court judgment).
13 In re Co. of Orange, 31 F. Supp. 2d 768, 776-777 (1998).
14 Cal. Const. art XIII A, §1(b)(1).
satisfying article XVI, section 18.15 Accordingly, the school district needs voter approval for both pieces of the construction-bond process�i.e., both to issue the bonds and to levy the tax to repay them.
15 Cal. Const. art. XIII A, §§1(b)(2) and (3).
16 Prop. 39, § 4, Gen. Elec. (Nov. 7, 2000); Cal. Const. art. XVI, § 18(b). See Cal. Const. art. XIII A, § 1(b)(3); Foothill-De Anza Community College Dist. v. Emerich, 158 Cal. App. 4th 11, 23 (2007).
17 Foothill-De Anza, 158 Cal. App. 4th at 23.
18 Cal. Const. art. XIII A, § 1(b)(3).
19 Cal. Const. art. XIII A, § 1(b)(3)(A). See also San Lorenzo Valley Community Advocates, 139 Cal. App. 4th at 1403 (costs of bond issuance, as itemized in Educ. Code § 15145(a), may be paid from bond proceeds); 87 Ops.Cal.Atty.Gen.157, 161-163 (2004) (employee salaries may be paid from bond proceeds only to extent that employees perform work on approved bond projects).
20 Sutro v. Petit, 74 Cal. 332, 336-337 (1887).
21 See 66 Ops.Cal.Atty.Gen. 321, 323-324 (1983).
22 Educ. Code § 15122.
24 Cal. Const. art. XIII A, § 1(b)(3)(B); Educ. Code § 15122; Comm. for Responsible Sch. Expansion, 142 Cal. App. 4th at 1185-1191.
25 Educ. Code §§ 15122, 15140(a), 15143, 15144.
26 See, e.g., Comm. for Responsible Sch. Expansion, 142 Cal. App. 4th at 1191 (courts have "alternately described the relationship between the public entity and the electorate arising out of a bond election as either strictly contractual or analogous to a contract"); Metro. Water Dist. v. Dorff, 138 Cal. App. 3d 388, 398 (1982) (citing Peery v. City of Los Angeles, 187 Cal. 753, 769 (1922)).
27 Educ. Code § 15146(a).
28 Educ. Code § 15146; see, e.g., Golden Gate Bridge v. Filmer, 217 Cal. 754, 760761 (1933) (public officials issuing bonds on behalf of local agency are presumed to act in good faith and to sell bonds on best terms obtainable).
The refunding process may also be seen as an opportunity for a school district to generate supplemental funds, in the form of a premium. This can occur if, for example, the district issues the refunding bonds at an interest rate which, while still below the rate of the original bonds, is pegged above the current market rate. Purchasers of such above-market-rate bonds are willing to pay more than the face amount for these refunding bonds at the outset�a difference referred to as the premium�because, for the life of the refunding bonds, the district will pay the purchasers a higher interest rate than would be paid on the purchase of contemporaneously issued bonds sold at their face amount. Refunding bonds issued for the dual purpose of providing new funding as well as refinancing a district's outstanding bonded indebtedness are sometimes called "cash-out refunding bonds."
29 For purposes of this analysis, we assume that the duration of refunding bonds would not exceed the maximum period permitted by law. Cal. Const. art XVI, § 18. See, e.g., Govt. Code § 53553(e).
30 Govt. Code §§ 53580 (defining refunding bonds as bonds issued to refund bonds), 53555 (requiring refunding bond proceeds to be deposited in escrow to refund original bonds), 53582 (prohibiting local agency from requiring escrow deposit of more funds than necessary to refund original bonds); see also Govt. Code § 53587 (permitting use of refunding bond proceeds for ancillary costs of refunding transaction).
31 See City of Anadarko v. Kerr, 285 P. 975 (Okla. 1930); Com. ex rel. Keller v. Cannon, 162 A. 277 (Pa. 1932). The Florida constitution expressly provides that voter approval is not required for bonds issued for the exclusive purpose of refunding bonds or interest thereon. Fla. const. art. 9, § 6; see City of Miami v. State, 190 So. 774 (Fla. 1939); Sullivan v. City of Tampa, 134 So. 211 (Fla. 1931).
But we see a clear distinction between (1) bonds that are issued solely for the purpose of refunding original debt, and (2) bonds that are issued to raise funds in excess of the amount needed to pay off the old debt�what we are calling cash-out refunding bonds.32 Bonds of this latter kind, we believe, categorically result in the creation of new indebtedness for purposes of the constitutional debt limit, and therefore require new voter approvals before they may be issued. The analogy is simple and straightforward: When a homeowner refinances a mortgage both to refinance the existing debt and to take out additional equity (cash) to make home improvements, the homeowner is plainly incurring additional debt beyond that required merely to refinance the existing debt. The same must be said of a cash-out refunding situation, in which the district unquestionably incurs new debt to support the excess amount of proceeds it derives beyond what is needed to refinance the existing bonds. However, as we have explained above, California's constitution requires voter approval before a district may lawfully incur any new general obligation bond debt. Furthermore, because article XIII A, section 1, subsections (b)(2) and (3), prohibit the levying of taxes except to support voter-approved debt, the district would lack authority to levy taxes to support this additional debt without further voter approval.
32 Other jurisdictions also recognize this distinction. See Lawrence County v. Jewell, 100 F. 905 (8th Cir. 1900) (under federal statute applicable to territorial bond refundings, refunding bonds could be issued for sole purpose of retiring existing debt, and proceeds could not be used for ulterior purpose.); City of Concord v. All Owners of Taxable Property Within the City of Concord, 410 S.E.2d 482 (N.C. 1991) (refunding bonds may be issued without voter approval, but only if funds are used exclusively to retire existing debt); Bolich v. City of Winston-Salem, 164 S.E. 361 (N.C. 1932) (same); Altafer v. Nelson, 9 Ohio C.D. 599 (1898) (bonds issued to pay redemption premium that was not originally contracted for are not refunding bonds under refunding statute).
33 This opinion does not address the question whether proceeds from the sale of refunding bonds may properly be applied to the costs associated with their issuance, and nothing in this opinion should be read as concluding that such an expenditure would be illegal.
will generate proceeds in excess of the amount needed to retire the designated outstanding bonds.
We are informed that some school districts, without voter approval, currently issue cash-out refunding bonds as a means not only to retire outstanding bonds, but also to raise additional funding that may be applied, for example, to uncompleted voter-approved capital projects. Rather than conducting new elections and obtaining voter approval for such cash-out refunding bonds, as provided by statute,34 these school districts simply issue the bonds upon a resolution of their governing bodies�a process described in other statutory provisions.35 They argue that such unilateral action is permitted under a purported exception to the constitutional debt limit established by judicial precedent. The debt-limit provision itself, article XVI, section 18, contains no mention of such an exception.
The case most often cited as establishing the exception is City of Los Angeles v. Teed, decided by the Supreme Court of California in 1896.36 There, the Court made the following observation: "A bond is not an indebtedness or liability�it is only the evidence or representative of an indebtedness; and a mere change in the form of the evidence of indebtedness is not the creation of a new indebtedness within the meaning of the constitution."37 Despite the seemingly broad sweep of the Court's language, we do not believe that Teed supports the conduct in question here.
34 See Educ. Code § 15100, final paragraph. See also Govt. Code § 53506(a) (district may issue refunding bonds only as "authorized in accordance with the Constitution," which may be understood to incorporate the voter-approval requirement of Article XVI, section 18).
35 See, e.g., Educ. Code § 53552.
36 112 Cal. 319. Teed was recently discussed and distinguished by the court of appeal in All Persons Interested,152 Cal. App. 4th at 1406-1407.
38 Teed, 112 Cal. at 324.
42 Teed, 112 Cal. at 329-330.
45 See, e.g., Eugene McQuillin, The Law of Municipal Corporations vol. 15, § 41.35, 526-528 and n. 2 (3d rev. ed., Thomson/West 2005); 45 pt. 2 Cal. Jur. 3d Municipalities § 534 (1999); 52A Cal. Jur. 3d Public Securities and Obligations § 59 (2001).
exempt refunding bonds from the Constitution's voter-approval requirement. And, for the reasons stated above, we believe that this interpretation of Teed is overstated. Furthermore, as the court of appeal observed in All Persons Interested,46 the Teed Court's characterization of refunding bonds as not creating a new indebtedness was restricted to the refunding of "debt that already existed in the form of bonds issued before enactment of the constitutional debt limit"�that is, debt incurred prior to January 1, 1880.47 Obviously, no such pre-debt-limit bonds are involved in the questions posed here.
In any case, Teed's rationale, even if read broadly, could not reasonably be extended beyond refunding bonds that generate only enough proceeds to retire the old.48 The Court did not consider refunding schemes in which a city would acquire any supplemental proceeds or premiums, but specifically limited its discussion to bonds which "merely . . . fund or refund an existing debt."49 We therefore conclude that any "Teed exception" would have no application whatsoever to cash-out refunding bonds, which have as a chief purpose the generation of proceeds in excess of the amount required to retire targeted bonded indebtedness. As we explained in the introduction, we see a clear distinction between bonds that merely refinance existing debt and cash-out refunding bonds.
Accordingly, to the extent that a district's proposed refunding bonds would generate proceeds beyond the amount needed to refund its outstanding bonds, we believe that the refunding bonds would constitute a new bonded indebtedness within the meaning of article XVI, section 18, and would therefore require specific voter approval. Likewise, article XIII A, section 1, would prohibit the levying of taxes to support such new debt without voter approval.
46 152 Cal. App. 4th at 1407.
47 See also Teed, 112 Cal. at 326-327.
We acknowledge that some cash-out scenarios may not necessarily increase the principal amount owed by the district beyond that of the existing debt. However, this is a distinction without a constitutional difference. In such cash-out scenarios, the excess proceeds beyond those needed to merely refinance existing debt would result from an artificial increase in the refunding bonds' interest rate. And the constitution's prohibitions apply to "bonded indebtedness"�a term that includes both the principal and the interest associated with a bond sale.50 Hence, the district's debt would nonetheless exceed what is necessary to retire the original obligation, thereby triggering the voter-approval requirement.
Similarly, it is irrelevant that the cash-out refunding bond may be issued without increasing the debt service that would have supported the original debt; the fact remains that the cash-out process would generate new debt, beyond that needed to merely refund the existing debt. As we understand the debt limit, it is this latter measure that is the standard� the constitutional ceiling�for a district's permissible refunding without voter approval. And it is self-evident that, as a result of the artificially increased interest rate, a district issuing a cash-out refunding bond would need to maintain ad valorem taxes at a level higher than necessary to retire the original debt. This means that the district would be depriving its taxpayers of the full benefits of refinancing; instead, the taxpayers would be taxed, without voter approval, to support this new debt�a result that is not permitted under either the constitutional debt limit or the constitutional cap on taxes.
50 The term "bonded indebtedness" first appeared in article XIII A in 2000, in the amendments added by Proposition 39. Prop. 39, § 4, Gen. Elec. (Nov. 7, 2000). Although this term is not defined in article XIII A or elsewhere in the state's constitution, courts have defined "bonded indebtedness" as describing "those more formal transactions of both municipal and private corporations which require such prerequisites as elections or express approval of the stockholders in order for their creation and which, when issued, take the express form of bonds." Shasta County v. Trinity County, 106 Cal. App. 3d 30, 39 (1980) (citing Hammond Lumber Co. v. Adams, 7 Cal. 2d 24, 27 (1936)). "Bonded indebtedness" is incurred once an approved bond has issued. Faulkner v. California Toll Bridge Authority, 40 Cal. 2d 317, 325 (1953); Clark v. City of Los Angeles, 160 Cal. 30, 44-45 (1911).
However, in light of the constitutional constraints discussed above, we do not believe that the relevant statutory schemes governing school district bond issuances may reasonably be read to authorize issuance of cash-out refunding bonds without voter approval. Manifestly, the Legislature cannot override constitutional limitations by statute,52 and we are constrained to interpret statutes authorizing the issuance of refunding bonds in a manner that is consistent with the state constitution.53 Statutory authority may not be read to "clash with the constitutional provision which required popular approval of the bonds in the first place, or, as in this case, the constitutional authority for the bond issue."54 In our view, each of these cited statutory provisions must be interpreted as requiring voter approval whenever the proceeds of refunding bonds, or their associated supporting taxes, exceed the amounts required to retire the district's existing debt.
52 See, e.g., In re Marriage Cases, 43 Cal. 4th 757, 852 (2008).
53 See City of Palm Springs v. Ringwald, 52 Cal. 2d 620, 623 (1959).
54 Metro. Water Dist. v. Dorff, 138 Cal. App. 3d 388, 398 (1982) (citing Eastern Mun. Water Dist. v. Scott,1 Cal. App. 3d 129, 135 (1969)).
55 Cal. Const. art. XVI, §§ 18(a) and 18(b).
and of subsequent indebtedness not then proposed. If the proceeds from issuance of those prior bonds prove insufficient to complete some or all of the previously listed projects� because the district's cost estimates were too low, for example, or its project lists too ambitious�then, under the debt limit's requirements, it is incumbent upon the district to obtain new voter approval for new bonds if it wishes to further advance the projects.
We conclude that, absent express approval by the voters, a school district may not issue refunding general obligation bonds at a price or interest rate that will generate proceeds in excess of the amount needed to refund the targeted outstanding bonds.
Conclusion to Question 2: Without voter approval, a district may not use proceeds from a refunding general obligation bond to provide supplemental funding for unfinished projects, even if the projects were previously approved by the electorate, or for any other purpose except to pay off the designated outstanding bonds.
The second question is partially answered by our conclusion to Question 1: Refunding bonds may not be issued without voter approval if the proceeds (including premium) would exceed the amounts required for refunding purposes. However, the second question also encompasses the circumstance wherein a district issues general obligation refunding bonds with premium and without voter approval, but where the total amount of the proceeds, including premium, does not exceed the amount needed to pay off the outstanding indebtedness. In such a circumstance, are there any restrictions on the district's deposit, use, or other disposition of the proceeds? We conclude that the use of proceeds derived from such refunding bond sales, including premium, is restricted to paying off the district's outstanding bonded indebtedness.
There is both a constitutional and a statutory dimension to our analysis of this question. The constitutional answer is a corollary to the conclusion we reached in analyzing Question 1. That is to say, given that the only constitutionally permissible purpose for refunding general obligation bonds issued without voter approval is to merely refund the district's outstanding bonds, and given that the amount of proceeds that may be derived from such refunding bonds is limited to the bare amount required to refinance and retire that outstanding bonded indebtedness, it follows that the debt limit prohibits application of those proceeds to any project or purpose except paying off the district's outstanding bonds. Were it otherwise, the net effect to the voters would be the addition of new, non-refunding debt, evidenced by the proceeds of the ostensible refunding issuance that were diverted to other purposes. Accordingly, as a constitutional matter, we conclude that a district is prohibited from using the proceeds of even a non-cash-out refunding issuance to supplement funding for ongoing construction projects, to fund new projects, or for any purpose other than refunding the district's targeted indebtedness.
56 See note 51 ante.
57 Golden Gate Bridge v. Filmer, 217 Cal. at 760-762.
58 If a district artificially raised a bond's interest rate for the purpose of generating a premium, the district might thereby increase the taxpayers' burden (unless, for example, the principal amount of the bonds or some other variable were reduced to offset the premium), because taxpayers would thereafter be paying more debt service on the refunding bonds than would have been required under market conditions at the time the bonds were sold. Under those circumstances, the district would be acting inconsistently with the rule stated in Golden Gate Bridge, and at cross purposes with the announced legislative purpose of Article 9 refunding bonds to "permit the lowering of property tax rates . . . ." 1972 Cal. Stats. ch. 531, § 17.
60 See discussion page 14 ante.
requires that all proceeds received from the sale of refunding bonds be deposited in the local agency's treasury "for the purpose of refunding the bonds to be refunded."
Some districts might assert that a premium is distinct from the "proceeds" of a bond, and that, therefore, a premium escapes the reach of the debt limit and of section 53555. But we disagree. In our view, any premium generated by the sale of a refunding bond is simply one component of the total proceeds of the bond;62 hence section 53555's clear limitation on districts' use of proceeds applies to any premium.
62 See Franklin and Prendergast, Glossary of Public Finance Terminology 32 (3rd ed., 1992) (defining "proceeds" as "[t]he money the issuer receives upon initial delivery of an issue, being par value, plus premium or less discount, and plus accrued interest"). See also, e.g., City of Oakland v. Williams, 107 Cal. App. 340, 341 (1930) (it "would not seem to be open to dispute" that "when bonds are sold for more than their par value the entire purchase price, including the premium, constitutes the proceeds of the bonds").
Whenever any bonds issued by . . . any school . . . district in any county, whose accounts are required by law to be kept by the county auditor and treasurer, are sold at a premium or with accrued interest, or both, the amounts received for the premiums and accrued interest shall be deposited in the debt service fund of the county or district unless it is expressly provided by law that they be deposited in some other fund.
Black's Law Dictionary at 434 defines "debt service" as: "1. The funds needed to meet a long-term debt's annual interest expenses, principal payments, and sinking-fund contributions. 2. Payments due on a debt, including interest and principal." Cf. Cal. Const. art. XIII B, § 8(g). In section 29303, the referenced "debt service fund" would thus be applied to payments on the bonds that generated the premium.
Conclusion to Question 3: Because a school district lacking voter approval may not issue refunding general obligation bonds to generate more proceeds than are necessary to refinance the district's targeted debt, the district is likewise prohibited from setting or maintaining ad valorem property tax rates at a level higher than necessary to refinance that targeted debt.
In Question 3, we are asked whether a district may issue refunding general obligation bonds that result in either an increase in the district's ad valorem property tax rate or maintenance of property taxes at a rate higher than would otherwise be necessary to refund the original voter-approved bonds. Again, we conclude that a district may not do so, unless the district's voters have given their consent to such refunding bonds as required under article XVI, section 18, of the California Constitution.
64 In any event, even if section 29303 did govern Article 9 premiums, school districts would not be permitted to apply those funds to construction projects or other purposes; rather, the premium would be deposited in the district's debt service fund.
65 But see footnote 33, ante, leaving open the question whether, under the debt limit, proceeds from refunding bonds issued without voter approval may be applied to costs of issuance. Cf. § 53556 (permitting costs of issuance to be paid from proceeds of bond sales).
66 Furthermore, such an increase in tax rates or an unnecessary perpetuation of an inflated rate would likely conflict with a district's duties to obtain the best terms available and to lower the burden on district taxpayers when possible, as explained previously.
Conclusion to Question 4: A school district's application of proceeds from the sale of refunding general obligation bonds to purposes not authorized by law may result in litigation to invalidate the bond issue or to restrain unauthorized expenditures, if timely filed; taxpayer lawsuits; or actions by the Attorney General.
67 Sutro, 74 Cal. 332, 337.
68 Bd. of Supervisors of Merced Co. v. Cothran, 84 Cal. App. 2d 679, 681 (1948).
69 All Persons Interested, 152 Cal. App. 4th 1386, 1406-7.
70 See also Govt. Code §§ 53511, 53589.5.
71 Plan. & Conserv. League v. Dept. of Water Resources, 83 Cal. App. 4th 892, 922 (2000).
72 Code Civ. Proc. §§ 863, 864, 869.
Conclusion to Question 5: Because the proposed arrangement between a school district and a joint powers authority would result in a refunding bond issuance in excess of that needed to merely refund the district's designated outstanding bonded indebtedness, both the refunding bond issuance and the higher tax required to support it are constitutionally impermissible without specific voter approval.
73 Cal. Commerce Casino, Inc. v. Schwarzenegger, 146 Cal. App. 4th 1406, 1420 (2007) (quoting City of Ontario v. Super. Ct. of San Bernardino Co., 2 Cal. 3d 335, 341-342 (1970) (emphasis in original)).
74 Comm. for Responsible Sch. Expansion, 142 Cal. App. 4th at 1186; Foothill-De Anza, 158 Cal. App. 4th at 24.
75 McLeod v. Vista Unified Sch. Dist., 158 Cal. App. 4th 1156, 1171 (2008) (60-day statute of limitations applies when challenged matter pertains to validity of bonds).
76 See Sundance v. Mun. Ct., 42 Cal. 3d 1101, 1138-1139 (1986) ; McKinny v. Bd. of Trustees, 31 Cal. 3d 79, 91 (1982) ; McLeod v. Vista Unified Sch. Dist., 118 Cal. App. 4th at 1165-1170; TRIM, Inc. v. Co. of Monterey, 86 Cal. App. 3d 539, 542 (1978) (taxpayers have standing to challenge illegal expenditures by county officials under section 526a, and may also enjoin wasteful expenditures).
77 See, e.g., Pierce v. Super. Ct.,1 Cal. 2d 759, 761-762 (1934); 81 Ops.Cal.Atty.Gen. 281, 291-292 (1998).
78 An example might go as follows. Suppose the district sells the JPA $90 million of the district's refunding bonds at par value (i.e., without a premium) but bearing an above-market interest rate. The JPA then sells $100 million in revenue bonds, at the market interest rate, to investors. Because of the above-market interest rate on the district's bonds, the debt service on the district's bonds�paid to the bond holder JPA�is designed to be sufficient to pay the debt service on the JPA's revenue bonds. Meanwhile, after selling its $100 million in bonds and purchasing the district's $90 million in bonds, the JPA would have $10 million remaining for expenditure on local capital improvements or public buildings (see Govt. Code § 6546(c)), such as additional school facilities. Assuming that there had been a sufficient decline in market interest rates for bonds over a period of years, the school district's issuance of its refunding bonds in this example could theoretically reduce the district's overall debt service, yet the construction of additional school facilities would be funded by the JPA's revenue bond proceeds. In such a market, however, the district's debt service could be even further reduced in the absence of the proposed JPA arrangement.
80 We have not been asked to examine the powers of a JPA or the validity of the JPA actions described in this hypothetical transaction, and we express no views on that subject. We limit our analysis and opinion to the proposed conduct of a school district.
81 Govt. Code § 6502; 83 Ops.Cal.Atty.Gen. 82, 83 (2000).
82 Govt. Code § 6503.5; see Rider v. City of San Diego,18 Cal. 4th 1035, 1055 (1998).
Although the district would appear to have statutory power to enter into such an arrangement as a general proposition, collateral consequences of the arrangement would necessarily render it unconstitutional. This arrangement violates the constitutional debt limit because it results in a refunding bond issuance in excess of what is required merely to refund the district's outstanding bonds (the excess being represented not by cash this time, but by a bargained-for set of capital improvements to be delivered by the JPA). Qualitatively, the JPA scheme is the same as a cash-out with premium in which the excess cash received at closing (acquired in exchange for above-market interest rates) would be expended by the district on capital projects. Here, although the bonds are nominally sold to the JPA "without premium," the district will repay them at an above-market interest rate�a rate selected to obtain the JPA's promised financing for other projects. We have already explained, in our response to Question 1, that, absent voter approval, the constitution's debt limit permits only those refunding bonds that are limited to refinancing existing debt.
Further, the artificially increased interest rate on the district's refunding bonds would result in higher property taxes than would otherwise be necessary to retire the district's original bonds. Hence, the arrangement would also violate article XIII A, section 1, of the California Constitution. As we explained in our response to Question 3, a school district may not issue refunding general obligation bonds without voter approval if to do so would result in an increase in ad valorem property tax rates to, or a perpetuation of those rates at, a level higher than would otherwise be necessary to retire the original voter-approved bonds. Hence, the proposed arrangement between a district and a JPA would be barred by these constitutional provisions.
83 Id. at §§ 6584-6599.3.
84 Id. at § 6586.

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 §1
 § 4
 § 18
 § 1
 v. 
 § 1
 § 1
 § 15145
 v. 
 § 15122
 § 1
 § 15122
 v. 
 v. 
 § 15146
 § 15146
 v. 
 § 18
 § 53553
 § 53587
 v. 
 v. 
 art. 9
 § 6
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 15100
 § 53506
 § 53552
 § 41
 § 534
 § 59
 § 4
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 17
 v. 
 § 8
 § 53556
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 § 6546
 § 6502
 § 6503
 v. 
 § 6586