Legislative counsel to give opinion on legality of bonds

Sisters state representative Gene Whisnant is asking the Oregon State Legislature's Legislative Counsel for an opinion about the legality of school districts issuing full faith and credit obligations without first seeking voter approval.

Whisnant was unable to answer this question when Sisters School District resident Mike Morgan raised the issue with him.

"I have asked the Legislative counsel to provide information for me to respond to a constituent, Mr. Morgan," Whisnant told The Nugget. A portion of the mission of the Office of the Legislative Counsel is to provide legal services and legal advice to state legislators.

On June 18 Deschutes County District Attorney Michael Dugan rejected a request submitted by Morgan to investigate the Sisters School District's recent sale of $2.1 million in full faith and credit obligations without voter approval.

Funds received from the sale of the bonds (full faith and credit obligations) are being used to finance the purchase of a two-room modular, update the HVAC system and the lighting and install a new roof at the elementary school and to remodel interior spaces to create two new classrooms at the middle school.

In his written statement Dugan said that it appears that the bonds are backed by money currently held by the school district.

"It does not appear that there was any violation of the law in doing what the school board did," Dugan wrote.

Ann Sherman, bond counsel for the Sisters School District, told The Nugget that the Sisters School District's action does not require voter approval under ORS (Oregon Revised Statutes) Chapter 328. The district borrowed under ORS 271.390. Such borrowing is not funded through the levying of additional property taxes. For the first five years, the Sisters School District is required to pay only interest to service the debt.

Morgan questions this reasoning.

"They (the Sisters School District) contracted for a bonded debt," he said, pointing out that this $2.1 million is not part of the district's normal operating budget and at some point will have to be paid off.

Sherman did not argue legality.

"I'm not a litigator. I just do the financing side," she said. "I haven't been involved in any challenges to the statute. It's been used for a lot of school districts and special districts and cities and counties for a long time," Sherman said.

However, when asked to name other school districts that have issued full faith and credit obligations to fund the purchase of modular classrooms, for capital improvements and for remodeling, Sherman told The Nugget that she did not have a list.

According to Sisters School District Superintendent Elaine Drakulich, the North Clackamas School District (the district from which Drakulich came to Sisters) also issued full faith and credit obligations in a manner similar to the Sisters School District.

"I've seen the same kind of procedure used, and then actually very similar pieces to what Sisters is using the money for were then folded into their bond measure," Drakulich said.

In November 2006, the North Clackamas School District passed the largest bond measure in the history of Oregon, $229.6 million.

"Within that bond levy was some fold-in from prior borrowing on specific things like HVAC repair, heating to come up to meeting current standards with ADA with disability enhancement and/or asbestos abatement and those kinds of things," said Drakulich.

According to Morgan folding previous borrowing under ORS 271.390 into a bond measure under ORS 328 that requires voter approval is exactly why he is questioning the Sisters School District's issuance of the bonds.

"It is an example of how the scheme unfolds and how taxpayers are affected," Morgan said. "As a taxpayer, I am a party affected by this illegal funding scheme. The only remedy that keeps government entities solvent will be a taxpayer bailout."