Court Opinion

ID: 9549582
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:21:33.10082+00
Date Added: 2024-06-11T15:20:34.251305
License: Public Domain

Donworth, J.
(concurring in part and dissenting in part) —I concur in all of the majority opinion except the latter portion which pertains to the interest arrangement with respect to the refunding of bonds.
The RFC commitment to purchase the $16,750,000 of construction bonds is conditioned as to the interest arrangement in substance as follows:
1. The outstanding bonds ($791,000) must be refunded so that the entire new issue ($17,541,000) shall be a first lien on the gross revenues of the district.
*8372. In order to comply with the statute (RCW 54.24.090) providing that the coupon interest rate on refunding bonds shall not exceed the coupon interest rate on the bonds to be refunded, the district must increase the rate of interest on a portion of the construction bonds ($16,750,000) from four per cent to six per cent for such period of time as will compensate the RFC for the loss of interest on the refunding bonds. The average rate of interest on the entire new issue is to be four per cent per annum.
3. The district must procure an adjudication of the supreme court of the state of Washington holding that this procedure is legal, “such decision to be satisfactory to RFC counsel” and the district’s bond counsel.
The ostensible purpose of this proposal is to compel the district to do indirectly what it may not do directly, to wit, pay four per cent interest on bonds issued to refund outstanding bonds bearing a coupon rate of 2 to 3.4 per cent.
There is no doubt that under RCW 54.24.060 the commission is given power to sell bonds “in such manner and for such price” as it deems for the best interest of the district subject only to the limitation that the cost of the money to maturity shall not exceed six per cent per annum. Under this section of the statute, the commission could sell all of the construction bonds for any price it deemed proper so long as the money borrowed did not cost the district more than six per cent per annum.
However, when we consider the provisions of RCW 54.24-.090, the problem becomes more complicated. This section provides:
“When a district has outstanding utility revenue warrants or bonds, the commission may, by resolution provide for the issuance of funding or refunding bonds with which to refund the outstanding warrants or bonds or any part thereof at maturity, or before maturity if they are by their terms or by other agreement subject to call for prior redemption, with the right in the commission to combine various series and issues of the outstanding warrants or bonds by a single issue of funding or refunding bonds. The funding or refunding bonds shall be payable only out of a special fund created out of the gross revenue of the public utility, and *838shall only be a valid claim as against such special fund and the amount of the revenue of the utility pledged to the fund. The coupon rate of interest on funding or refunding bonds shall not exceed the coupon rate of interest on the warrants and bonds funded or refunded thereby. The commission may exchange the funding or refunding bonds at par for the warrants or bonds which are being funded or refunded, or it may sell them in such manner as it deems for the best interest of the' district. The funding or refunding bonds shall, except as specifically provided in this section, be issued in accordance with the provisions with respect to utility revenue bonds and warrants.” (Italics mine.)
The italicized portion of this section relating to refunding bonds differs materially from RCW 54.24.060 relating to construction bonds In that the words “and for such price” are omitted.
Under the provisions of RCW 54.24.090, refunding bonds bearing the same coupon rate of interest as the bonds to be refunded may be disposed of in either of two ways: (1) by exchanging them for the outstanding bonds or (2) by selling them “in such manner as it [the commission] deems for the best interest of the district” and using the proceeds to pay the outstanding bonds.
If the latter method is pursued (as is proposed here) the statute contemplates that the interest rate or cost of the money shall not exceed the coupon rate on the outstanding bonds.
The RFC commitment says, in effect, that it will buy the refunding bonds bearing interest at the rate of two per cent only if the district will increase the four per cent interest rate on a portion of the construction bonds (which rate is satisfactory to the RFC) to six per cent until the difference in the amount of interest received is equal to the loss of interest occasioned by its buying the refunding bonds. In addition, the RFC requires that we approve this transaction by a decision satisfactory to its counsel.
In my opinion, the contemplated procedure constitutes a clear violation of the plain meaning of RCW 54.24.090. The RFC, as a condition precedent to purchasing the construction bonds, exacts additional interest to compensate *839for the loss on the refunding bonds. The effect of the arrangement is to increase the coupon rate of interest on the refunding bonds over that payable on the bonds refunded. This is the very thing that the statute was intended to prevent.
The majority approves this transaction on the ground that RCW 54.24.060 authorizes the sale of construction bonds at any price satisfactory to the commission as long as the money does not cost more than six per cent per annum. Therefore, since the commission could have sold the construction bonds bearing the interest rates proposed in the commitment, it may carry out this arrangement.
This argument does not, to my mind, answer the problem. Here, the RFC says, in substance, to the district: “We won’t buy any bonds unless you compensate us for buying your refunding bonds by paying us an equivalent amount of additional interest on the construction bonds.” The effect is to force the district to do indirectly what the statute says it may not do directly. To hold that, because the refunding bonds on their face do not bear a coupon rate in excess of that borne by the outstanding bonds, we should approve this arrangement is to shut our eyes to the realities of the situation shown by the RFC commitment.
As this court has often stated, municipal corporations are merely creatures of legislative enactment and the powers of their officers are subject to such limitations as the legislature may see fit to impose. Misich v. McGuire, 24 Wn. (2d) 758, 167 P. (2d) 462. This principle is applicable to the present case.
Being of the opinion that the proposed arrangement for the purchase of these bonds constitutes a violation of the provisions of RCW 54.24.090, I am constrained to dissent from that portion of the majority opinion which approves it.
Since an emergency appears to exist in connection with the acceptance of certain contractors’ bids, I consent that the remittitur be sent to the trial court forthwith upon the filing of the opinion.
Weaver and Olson, JJ., concur with Donworth, J.