Chapter § 13.3
| Jurisdiction | Oregon |
Oregon local governments borrow in many different ways, including general obligation bonds, full-faith-and-credit obligations (such as assessment bonds), revenue bonds, and tax-increment bonds. The provisions of the Oregon Constitution primarily affect general-obligation bonds, assessment bonds, and tax-increment bonds.
§ 13.3-1 General-Obligation Bonds
Oregon local government general-obligation bonds are full-faith-and-credit obligations of the issuing local government. A full-faith-and-credit obligation is one that is payable from any lawfully available money of the issuing local government. It is roughly equivalent to a general, unsecured obligation of a private entity. In addition, Oregon local government general-obligation bonds are always also secured by the power to levy an additional, unlimited property tax that is sufficient to pay the bonds. The general-obligation bond tax is described as "unlimited" because the tax is not limited by the Oregon Constitution.
In 1990, Oregon voters approved Article XI, section 11b, of the Oregon Constitution (often known as Measure 5), a citizen initiative limiting property taxes and certain other charges on property. In 1997, Oregon voters approved current Article XI, section 11, of the Oregon Constitution (often known as Measure 50), another measure limiting property taxes. Because general-obligation bonds are secured by unlimited property taxes, both measures contain specific limitations on general-obligation bonds. However, those limitations have been eased by subsequent constitutional amendments. For additional discussion of Measure 5 and Measure 50, see § 14.5-1 to § 14.5-9.
§ 13.3-1(a) Voter Approval
Before passage of Measure 5 in 1990, Article XI, section 11, of the Oregon Constitution allowed the legislature to authorize local governments to issue general-obligation bonds without voter approval, although most general-obligation bond statutes required voter approval for general-obligation bonds.
Before Measure 50 took effect, Oregon law allowed voters to approve general-obligation bonds at any election and by a simple majority of the voters who voted on the general-obligation bond measure. See Or Const, Art XI, § 11 (1995).
When Measure 50 was approved in 1997, it permitted voters to approve local government general-obligation bonds only at a general election in an even-numbered year, or at another election in which at least half of registered voters cast ballots. Or Const, Art XI, § 11(8). Many local governments in Oregon never have half their registered voters cast ballots at any election, and this requirement of Measure 50 therefore forced many local governments to ask for voter approval of their general-obligation bond measures at general elections in even-numbered years.
In 2008, Oregon voters approved Article XI, section 11k, which provided local governments more flexibility in seeking approval for general-obligation bonds. Section 11k allows property taxes, including the taxes that secure general-obligation bonds, to be approved at any election held in May or November and by a simple majority of the voters that vote on the general-obligation bond measure.
§ 13.3-1(b) Use of Proceeds
Since January 1, 2011, local governments have been able to issue general-obligation bonds to finance capital costs. Or Const, Art XI, § 11L. Capital costs are defined as assets with a useful life of more than one year. The definition specifically excludes costs of routine maintenance and supplies from the definition of capital costs; however, this exclusion has little practical effect because routine maintenance and supplies generally have a useful life of one year or less. Or Const, Art XI, § 11L(5).
General-obligation bonds that finance capital costs must have a weighted average life that does not exceed the weighted average life of the capital costs that are expected to be financed with the general-obligation bonds. Or Const, Art XI, § 11L(4). This requirement effectively prevents local governments from imposing taxes to pay bonds after the assets financed with the bonds cease to have value.
Between the passage of Measure 5 in 1990 and the passage of Measure 50 in 1997, local governments could issue general-obligation bonds only to finance costs of "capital construction or improvements." Or Const, Art XI, § 11b(3)(b) (referring to general-obligation bonds as "bonded indebtedness"). However, Measure 5 did not define those terms. It was widely rumored that these definitions were intended to prevent school districts from using general-obligation bonds to finance computers. The legislature adopted statutes attempting to provide clarity. See ORS 310.140(1)(d), (f).
Measure 50 provided supplementary language defining the terms capital construction and capital improvements. The language provided some additional clarity and some additional confusion and complexity, largely because Measure 50 prohibited the use of general-obligation bonds to finance equipment unless the equipment was "intrinsic to the structure" or was a "public safety [or] law enforcement vehicle[] with a projected useful life of five years or more." Or Const, Art XI, § 11(13). Although the legislature attempted to add some clarity by amending ORS 310.140 (see Or Laws 1997, ch 541, § 258), many awkward issues remained.
For example, Article XI, section 11(13), clearly authorized the use of general-obligation bonds to finance ambulances, but did not clearly authorize the financing of defibrillators and other expensive medical equipment that is routinely carried on ambulances and is necessary for ambulances to function effectively. In addition, there were spirited debates about whether a computer could be characterized as "intrinsic" to a classroom, because modern educational practices require use of computers. These fascinating legal issues no longer require discussion as a result of the approval of Article XI, section 11L, in 2010. Section 11L allows local governments to use the proceeds of recently issued general-obligation bonds to finance "capital costs," which clearly include defibrillators and classroom computers.
§ 13.3-2 Article XI, Section 11b, and the Relationship between General-Obligation Bonds and Operating Levies
Article XI, section 11b, of the Oregon Constitution (Measure 5), places absolute limits on the rates of property taxes that local governments are permitted to impose for operating purposes. As described in § 14.5-1 of this book, those limits are $5 per $1,000 of real market value for educational services, and $10 per $1,000 for other services. Or Const, Art XI, § 11b(1).
The property-tax reductions caused by Measure 5 were most dramatic for schools; property taxes for public education were reduced from $15 per $1,000 in fiscal year 1991 to 1992 to $5 per $1,000 in fiscal year 1995 to 1996. Or Const, Art XI, § 11b(1). Schools routinely levied significantly more than $5 per $1,000 when Measure 5 was enacted, and today most schools levy property taxes at rates that are near the $5 maximum permitted by Measure 5. Nonschool governments, on the other hand, relatively infrequently levied property taxes at rates in excess of the $10-per-$1,000 limit that applies to nonschool governments.
Nonschool governments therefore generally have greater ability to increase taxes under the $10-per-$1,000 limit of Measure 5 without using general-obligation bonds.
Because schools in many areas impose taxes that are close to the $5-per-$1,000 limit, Measure 5...
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