News and Opinion from Sisters, Oregon
News and Opinion from Sisters, Oregon
Sisters resident Mike Morgan filed suit against the Sisters School District in Deschutes County Circuit Court on Thursday, May 29.
Morgan wants to stop the district from making any further payments on $2.1 million in "Full Faith and Credit Obligations" the district issued last spring to fund replacement of the elementary school roof and other facilities needs.
The suit argues that the Full Faith and Credit Obligations agreed to by the school board on March 12, 2007, are in fact bonds and the school board should not have obligated the district without a vote of the taxpayers.
The school district used a funding mechanism that has been used elsewhere in the state and the board is confident of its legality.
"They did review the legality of being able to borrow that money," said Superintendent Elaine Drakulich, who took the superintendent's position last summer. "There are a number of districts in Oregon who have used this process to borrow."
School board chairman Mike Gould confirmed that after Morgan first raised concerns about the Full Faith and Credit Obligations last June, Gould and then-superintendent Ted Thonstad met with bond counsel Ann Sherman of the law firm K&L Gates and confirmed that the practice is legal and widely accepted.
"I guess at the heart of this, there's a fundamental difference in the interpretation of the law," Gould said. "I just trust the interpretation of K&L Gates, Seattle-Northwest (Securities), people like Ann Sherman. I certainly would put that ahead of what Mike (Morgan) thinks. There's an awful lot of people in the other corner who are comfortable with this."
Last summer, Drakulich noted that her former school district, North Clackamas, undertook Full Faith and Credit Obligations in a manner similar to Sisters. The district later folded repayment into a bond measure approved by voters.
That is exactly what bothers Morgan, who considers the move an end-run around laws that protect taxpayers.
He says that school districts use the mechanism to "push the envelope to get what they want - and it's at your (taxpayer) expense. This is going on statewide and it's not right," he told The Nugget. "It's certainly not per the plain language of the law."
While the suit was filed against the Sisters School District, Morgan says his real target is the securities underwriters, bond counselors and attorneys who recommend such mechanisms to public school districts.
In an e-mail to the school district, Morgan stated that "The form of this lawsuit recognizes that the district was given legal advice inconsistent with Oregon law. Teachers, students and taxpayers should not be harmed as a result of self-serving advice from persons who gained financially from these transactions."
The suit seeks to have the Full Faith and Credit Obligations defined as "bonds" and a declaration that the school board "wrongfully failed to obtain the approval of voters within the district" to issue bonds.
The lawsuit also seeks "injunctive relief prohibiting the Sisters School District from making further payments on the bonds and requiring the district to seek reimbursement of any principal and interest payments."
Morgan contends that a ruling to that effect will save the district $3 million.
"I don't understand how it (the suit) would save us money," said Drakulich. "At this point it's cost us money because I've engaged (High Desert Educational Service District attorney) John Witty to review it."
However, Drakulich said, both she and Witty are interested to determine if the suit would in fact have the effect Morgan claims.
The first court date for the suit isn't until September 2 and it may be a very long time before it actually goes to trial. Morgan expects heavy guns to come out against him.
"There's going to be a huge amount of money thrown at defeating this," he said. "There's been a ton of money made by people who... if the court rules as they should on this, could be in trouble."
This is the second lawsuit Morgan has filed against the school district. The first was over record-keeping practices regarding executive sessions. The district agreed that the board will record executive sessions.
An ethics complaint filed by Morgan against members to the school board over executive session practices was dismissed last winter.
IN THE CIRCUIT COURT OF THE STATE OF OREGON
FOR THE COUNTY OF DESCHUTES
MIKE MORGAN,
Plaintiff,
v.
SISTERS SCHOOL DISTRICT #6 and its DISTRICT SCHOOL BOARD,
Defendants.
Case No.
COMPLAINT
For Declaratory Relief; Injunction
Plaintiff alleges:
1.
At all material times herein, Plaintiff was and is a property owner and taxpayer within the Sisters School District, Deschutes County Oregon.
2.
At all material times herein, Defendant, Sisters School District #6, was and is a school district organized under the laws of the State of Oregon.
3.
The Defendant, District School Board, are the duly elected directors of the Sisters School District.
4.
On or about March 12, 2007, the District School Board adopted Resolution No. 06-07-06 which authorized the district to enter into a Financing Agreement, Escrow
Agreement and a purchase Agreement for the execution of and offering of $2,100,000 of Full Faith and Credit Obligations, Series 2007.
5.
In issuing the obligations the Defendant, Sisters School District, covenanted that the financing agreement payments are payable from the general non-restricted revenues of the District and other funds which may be available for that purpose, including any taxes levied within the restrictions of Sections 11 and 11b, Article XI of the Constitution of the State of Oregon.
6.
The proceeds of the obligations were used to finance the cost of modular classrooms, furniture, fixtures, equipment, building system upgrades, remodeling, other district improvements and the costs of issuance of the obligations.
7.
The District issued the obligations on May 8, 2008.
8.
To date the district has paid financing payments of $46,935, the first payment being made on December 1, 2007.
9.
The second financing payment is due on June 1, 2008.
10.
The obligation of the Defendant, Sisters School District, to make the financing payments is absolute and unconditional and is not subject to annual appropriation.
11.
Defendants Sisters School District and its School Board issued the obligations without first obtaining a vote of the electors within the school district.
12.
The Defendant, Sisters School District, issued the obligations pursuant to the provisions of ORS 271.390.
13.
The obligations issued by the Defendant, Sisters School District, are "bonds" pursuant to Oregon Revised Statutes and administrative regulations.
14.
ORS 328.205 et seq. authorizes a school district to issue bond indebtedness for the following purpose:
(a) To acquire, construct, reconstruct, improve, repair, equip or furnish a school building or school buildings or additions thereto;
(b) To fund or refund the removal or containment of asbestos substances in school buildings and for repairs made necessary by such removal or containment;
(c) To acquire or to improve all property, real and personal, to be used for district purposes, including school busses;
(d) To fund or refund outstanding indebtedness; and
(e) To provide for the payment of the debt.
15.
ORS 328.205 to 328.230, provides that school districts may only issue bonds after their issuance has been approved by a majority of the electors of the district.
16.
Plaintiff contends that:
(a) The issuance of full faith and credit obligations pursuant to Resolution No. 06-07-06 to finance capital improvements to real property and for the purposes alleged in paragraph 6, and which are referenced in ORS 328.205 (a) and (c), requires a vote of the electors within the district pursuant to the provisions of ORS 328.205 et seq. because the obligations issued by the district are "bonds."
(b) That the district should be prohibited from the further payment of the obligations; or, alternatively that payment of the obligation should be made by the insurer of the obligations.
(c) That the district should be required to seek reimbursement for all interest payments made to date or hereafter on the obligations.
(d) The provisions of ORS 328.205 et seq. are specific to school districts and require the vote of the electors whenever a bond is issued, which include those types of financing agreements used to finance capital improvements provided for by ORS 271.390 and issued as full faith and credit obligations.
(e) The issuance of "bonds" without the approval of the electorate, may jeopardize the districts' ability to provide for the daily operation of the district.
(f) The issuance of "bonds" by the district without voter approval increases the likelihood that the district will have to seek voter approval of additional bonds either as local option bonds or general obligation bonds. ORS 328.205 et seq. is intended to initially require voter approval and thus avoid the prospect of spending too much money in the form of full faith and credit obligations and then seeking voter approval.
17.
On information and belief the district contends:
(a) That the financing agreements issued pursuant to Resolution No. 06-07-06 are not bonds.
(b) That the financing agreements are authorized under ORS 271.390 without reference to ORS 328.205 et seq.
(c) No vote of the electors is required for the district to enter into the financing agreements.
(d) Even if the financing agreements are technically "bonds" they are authorized pursuant to ORS 271.390 without the necessity of obtaining approval by the electors of the district.
(e) The financing agreements were issued in accordance with applicable law pursuant to advice of bond counsel and must be honored by the district.
18.
Plaintiff requests a judgment and declaration of the court that:
(a) All financing agreements issued pursuant to ORS 271.390 as full faith and credit obligations of the school district to finance capital improvements to real property otherwise provided for by ORS 328.205 (a) and (c) are bonds and are subject to the provisions of ORS 328.205 et seq.
(b) The district's issuance of financing agreements pursuant to its Resolution No. 06-07-06 dated March 12, 2007 was in fact the issuance of "bonds."
(c) The district wrongfully failed to obtain the approval of the voters within the school district.
(d) The district is prohibited from making any further payments on the financing agreement sold May 7, 2007; or, alternatively must seek reimbursement from the insurer of the obligations.
(e) The district must seek reimbursement of all interest and principal payments made prior hereto or hereafter.
Wherefore Plaintiff requests judgment, declaratory relief and injunctive relief as follows:
1. For a declaration that:
(a) All financing agreements issued pursuant to ORS 271.390 as full faith and credit obligations of the school district to finance capital improvements to real property otherwise provided for by ORS 328.205 (a) and (c) are bonds and are subject to the provisions of ORS 328.205 et seq.
(b) The district's issuance of financing agreements pursuant to its Resolution No. 06-07-06 dated March 12, 2007 was in fact the issuance of "bonds."
(c) The district wrongfully failed to obtain the approval of the voters within the school district.
2. For injunctive relief prohibiting the defendant from making further payments on the bonds; or, alternatively requiring the district to seek reimbursement for all payments made prior hereto or hereafter from the insurer of the obligations.
3. For such further relief as the court deems just and equitable in the circumstances.
DATED this 29th day of May, 2008.
PAUL J. SPECK, OSB #72248
Attorney for Plaintiff
Jim Cornelius is editor in chief of The Nugget and author of “Warriors of the Wildlands: True Tales of the Frontier Partisans.” A history buff, he explores frontier history across three centuries and several continents on his podcast, The Frontier Partisans. For more information visit www.frontierpartisans.com.
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