Chapter § 13.1

• Jurisdiction: Oregon

§ 13.1 SCOPE

This chapter summarizes the major provisions of the Oregon Constitution that relate to public finance. The term public finance refers to the borrowing of money by the State of Oregon and its local governments.

This chapter is intended to serve as a primer for lawyers who represent public entities that are considering borrowing money, for lawyers who represent clients who are considering loaning money to public entities, and for lawyers who represent clients who are interested in whether a public entity can borrow money for a project.

Lawyers should be aware that the doctrine of ultra vires is considerably more active in public finance than in private finance. If a borrowing by the state or a local government is not authorized, the government often is not obligated to repay the amount borrowed.

NOTE: The doctrine of ultra vires was the root cause of the over two billion dollars of Pacific Northwest bond defaults by the Washington Public Power Supply System (WPPSS) in the 1980s. Oregon and Washington courts reached opposite conclusions about the same transactions. Washington courts initially concluded that local government participants were obligated to pay WPPSS bonds, but the Washington Supreme Court eventually determined that the Washington government participants lacked legal authority to agree to pay the WPPSS bonds and released all participants. Chemical Bank v. Washington Public Power Supply System, 99 Wash 2d 772, 666 P2d 329, 342-43 (1983), adh'd to on recons, 102 Wash 2d 874, 691 P2d 524 (1984), cert den, 471 US 1065 (1985). Across the Columbia River, Oregon courts initially concluded that Oregon participants did not have the legal authority to agree to pay the WPPSS bonds and were not obligated to do so, but the Oregon Supreme Court held, after the Washington court had released all participants, that the Oregon participants did have that authority and would have been obligated

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