May 25, 2000
Mr. Leon O. Brittingham, Jr.
Office of Auditor of Accounts
Thomas Collins Building
Dover, DE 19901
RE: Capital School District Referendum
Dear Mr. Brittingham:
You have asked the following questions with regard to the Capital School District's March 30, 1999 referendum to issue bonds and increase the tax assessments for the purpose of making capital expenditures on major school construction projects:
1) Did the Capital School District comply with 14 Del. C. section
2004 and 14 Del. C. section 2122(g)?
2) If yes, on what did you base this conclusion?
3) If no, what actions should the Capital School District take?
4) The voters of the Capital School District voted for a referendum
totaling $61,912,500; of which $20,912,300 was listed as local funds. The
$718,200 was included in the $20,912,300 local share, and was not listed
separately in the public notices or the newspaper advertisements or on
the ballot. Does this invalidate the referendum due to the inaccuracy of
the information presented to the public for a vote?
5) If the answer to number four is no, then how much of an inaccuracy
would it take to invalidate the referendum?
Although we have concluded that the District violated state law in the manner in which it conducted the referendum, it is our conclusion that no remedial action is required or mandated. As a result of the referendum, the new tax to be levied will conform to the proportion required by state law. There will be no adverse affect on the residents of the District and the net result will be that the new tax will reflect the intent of the voters, a majority of which approved the referendum.
Your request was prompted by your review of the Capital School District referendum following an anonymous complaint. The record provided by the District indicates that on December 16, 1998, the Capital School District Board of Education ("Board") authorized the capital referendum. A subsequent vote by the Board on January 20, 1999 further authorized the increase in real estate tax assessments to be placed before the voters in the referendum. On March 1, 1999, all notices were posted at all the relevant school buildings and a wide variety of post offices, local government buildings and fire houses. Publication of the notices in the Delaware State News was effectuated on March 11, 18 and 25, 1999. Publication was further made in the Dover Post on March 10, 17 and 24, 1999. The vote took place on March 30, 1999 and the referendum passed by a vote of 1,683 to 1,147.
As you have indicated in your letter and attachments, the wording on the ballot as presented to the voters in the Capital School District read: "To increase the debt service tax rate by $0.26/$100 of assessed value for major capital renovation/improvement projects.. For the tax increase Against the tax increase". The notice of the special election stated that the bonds were to be issued "to finance the cost of a school construction program which is estimated will cost $61,912,500.00 of which $20,912,300.00 is to be paid by the school district and $41,000,200.00 is to be paid by the State of Delaware." The notice went on to list the schools and administrative buildings to have major renovations or improvements.
As you have also indicated in your letter and attachments, the Board was aware that the standard school construction formula did not cover the entire cost of renovations/improvements to the Booker T. Washington School/Administration Building Complex. At the December 16, 1998 meeting, the Board noted that there would be an added cost to the school district of approximately $750,000 to cover the additional construction costs. The actual additional cost appears to be $718,200 according to your calculations. As you have pointed out, the local share of the bond issue includes the additional $718,200 in the $20,912,300 total, and that is reflected in the tax assessment increase of $.26/$100 assessed value.
You have pointed out that 14 Del. C. section 2004 applies in school construction matters where the construction cost request exceeds the Department of Education school construction standard formula. As that provision indicates, when the costs exceed the standard formula, the voters in the school district may either authorize or limit the expenditures by referendum. This statutory section states that provisions "shall be made for the following form to appear ... on the voting machine next to the appropriate levers:
Section I - Vote for one
A. For a bond issue at this time
B. Against a bond issue at this time
Section II - Vote for one
In the event that the majority of votes cast in Section I is for a bond
issue, which bond issue would you prefer?
A. For the bond issue in the amount of $ as recommended by the
B. For the bond issue in the amount of $ as determined from the
standard formula by the Department of Education."
14 Del. C. section 2004 (in pertinent part). You further cite to 14 Del. C. section 2122(g) which provides that "[a]n election under this chapter for the purpose of authorizing a bond issue shall be conducted by use of voting machines. The wording on the voting machine shall include a statement of the question which accurately reflects the issue being voted for and against." 14 Del. C. section 2122(g)(Emphasis added).
For the reasons stated below, we conclude that:
1) The Capital School District did not comply with the specific terms of 14 Del. C. section 2004 and 14 Del. C. section 2122(g).
2) This does not necessarily invalidate the March 30, 1999 referendum, however, the omission of the statutorily required form on the ballot, and the failure of the Board to include an accurate explanation of the inclusion of the additional $718,200 in the local share portion of the bond issue will require a limitation on the amount of the bond issue for the local share portion and possibly a subsequent referendum to address the oversight.
Capital investments in the school districts have historically been funded through a State appropriation which is matched by a local funding share on a 60:40 basis. The State's share is appropriated through the annual appropriations and bond authorization act. The State's share is usually conditioned on the deposit of a matching local share. 29 Del. C. section 7503.(1)
The local school board has the authority to issue bonds under 14 Del. C. section 2102.(2)
The power to issue bonds is not plenary, however, as such expenditures must be approved by the voters of the district in a special referendum held for that purpose. See 14 Del. C. section 2122(a).(3)
Elections must be validly noticed, and the notice must be posted and published. It must also "plainly set forth the amount of bonds proposed to be issued and the purposes and reasons thereof. . . ." Section 2122(c). While the general nature of the expenditures planned must be outlined in order to make the notice legally valid, an exact itemization of the proposed expenditures is not required. McComb v. Dutton, Del. Super., 122 A. 81 (1923); Brennan v. Black, Del. Supr., 104 A.2d 777 (1954). The proceeds of the bond sale, however, must be used for the purposes specifically authorized by the referendum. Brennan, 104 A.2d at 758-9.
Any analysis of a capital improvements referendum must focus on 14 Del.C. section 2122 which requires a school district to call a special election before issuing any bonds for acquisition or construction of school buildings. Such election follows State Board of Education approval of the "plan or program" for the acquisition or construction of schools. 14 Del.C. section 2102. Fourteen Del.C. section 2122(g) requires that the language on a ballot to authorize a bond issue "shall include a statement of the question which accurately reflects the issue being voted for and against." The statute requiring notice to the public of elections also requires that the language plainly state the "purposes and reasons" for the election. 14 Del.C. section 2122(c).
The statute which preceded the current section 2122 was interpreted by the Delaware Supreme Court in Brennan v. Black, Del.Supr., 104 A.2d 777 (1954). The earlier statute required that notices of bond elections must state "the purposes and reasons therefore ... plainly and in detail." Id. at 787 (former 14 Del.C. section 2120). The Court upheld the notice in Brennan by finding it to be in substantial compliance with the statute. Notices must be "adequate to apprise any taxpayer of the general purpose to which the revenue was to be devoted." Id. at 788. We believe that these principles also apply to disputes under existing section 2122. Delaware courts are likely to adopt the substantial compliance standard for analysis of section 2122 issues.
The ballot here, unfortunately, was not in substantial compliance with the statute. It failed to incorporate the second section of the form as required under 14 Del. C. section 2004. Due to this failure, the ballot did not adequately inform the voters of the district of the additional increase in the local share beyond what would have been required by the application of the state standard formula for school construction. This error is not a minor irregularity such as those contemplated in the Brennan or Dutton cases. Furthermore, the notices posted by the Board in this case failed to place all the issues squarely before the district's voters.
The district's construction counsel contends that the failure to include the second section of the form ballot as required under section 2004 is not significant because it may be interpreted, as a matter of law, to be a lack of a majority vote for the bond issue recommended by the Board. This would automatically result in a bond issue authorization by the State standard formula. That interpretation of the Board's failure to comply with section 2004 might well be valid in a case where the proposed tax increase in the first section of the ballot had not included the additional construction costs in the tax increase. That was not the case here. The question posed to the district's voters specifically stated a tax increase based upon additional construction costs incorporated in the district's local share. The voters, unwittingly, approved an increase in taxes without fully realizing for what they were voting and without being informed of their options in light of the State standard formula.
The question which must be addressed under these circumstances is what effect the Board's omissions have on the referendum. This office has considered a few key factors in reaching its conclusion. Clearly, the voters approved the construction/renovation (with the corresponding increase in taxation) by a sufficient margin. In addition, but for the omissions by the Board, and by operation of law, the voters also would have approved an increased assessment at least to the extent dictated by the State standard school construction formula. Moreover, the proposed tax increase as presented on the ballot (including the undisclosed additional local share as proposed by the Board) had no practical effect on the school district's voters. To the Board's good fortune, they rounded down the proposed tax increase-in actuality $.264408 per $100 assessed value-to the $.26 per $100 assessed value as it appeared on the ballot. Had the proposed tax increase been based upon the State standard formula, your calculation indicates that the actual increase would have been $.255328 per $100 assessed value. Rounded up, the proposed tax increase would still have been $.26 per $100 assessed value. You have also determined from the Receiver of Taxes that assessments are calculated based upon the figure as presented to the district's voters. Given these circumstances, the practical effect is the same: the district's voters approved a $.26 per $100 assessed value-the rate that would have been proposed to voters to meet the construction costs as calculated using the State standard school construction formula.
There is also no indication in any of the records presented to this office that the Board's omissions were due to fraud or unfair dealings.(4) Accordingly, in the absence of fraud or misconduct, and considering the above factors, this office is reluctant to recommend action that would invalidate the referendum, and by extension, the will of the majority of the district's voters. Nonetheless, the Board and school district cannot be permitted to issue bonds based upon their construction estimates even if the tax increase would cover the additional local share.(5) Absent a further referendum on the increased local share or legislative action, the risk to the district's voters and the Board will remain that legal action could be undertaken by a disgruntled portion of those voters in an effort to invalidate the referendum.
In conclusion, this office would recommend that the Board take immediate action to limit its ability to issue the bonds to the amount that would be appropriate given the State standard formula. We understand that the district will, should it desire to issue the additional bonds in accordance with its own construction estimates, hold another referendum consistent with this opinion. The appropriate letter to the State Treasurer's Office will also issue from this office relating to the bond issue authorized by the March 30, 1999 referendum with the proviso that it be limited to the State standard formula for that portion of the project pertaining to the Booker T. Washington complex.
Very truly yours,
Kevin R. Slattery
Deputy Attorney General
Michael J. Rich
Xc. Mr. Wayne Gault
1. 29 Del. C. sec. 7503
Sec. 7503. Matching funds.
Except in the case of a school district for which a local share is not required by any school construction bond authorization act, the state share apportioned to a school district by such school construction bond authorization act shall not be expended unless the local share for such school district shall have been deposited with the State Treasurer not later than 2 years after the effective date of a school construction bond authorization act.
2. 14 Del. C. sec. 2102.
Sec. 2102. Power of district to issue bonds.
The school board of any district may issue bonds for the purpose of carrying out any plan or program for the acquisition of lands or the acquisition or construction of buildings or for the construction of sidewalks leading to a school site as may be authorized by this title when such plan or program shall have been approved by the State Board of Education.
3. 14 Del. C. sec. 2122(a).
Sec. 2122. Election to authorize bond issue; rules governing; referendum to transfer tax funds.
(a) Before any school board issues bonds under this chapter, it shall call a special election. The school board will designate the school buildings to be used as polling places and establish voting district boundaries.
4. From the record, one could infer just the opposite as the Board discussed this issue in open session during the December 16, 1998 meeting when it authorized the referendum.
5. We note that pursuant to 14 Del.C. section
2118(a), the school district is empowered to collect the rate of taxation
plus an additional 10 percent for delinquencies.
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