You have asked whether a local board of education may issue “short-term bonds” which would have terms of maturity corresponding to the duration of a one-cent special purpose local option sales tax for educational purposes (“STEP”). A STEP must be approved by voter referendum pursuant to Article VIII, Section VI, Paragraph IV of the Georgia Constitution of 1983, as amended (the “STEP Amendment”). In particular, you expressed concern with respect to the situation in DeKalb County where a STEP referendum was passed, but where there was no companion referendum question submitted to obtain voter approval of short term bonds which would be repaid from the STEP. It is my understanding that the DeKalb County STEP has a duration of five years. It is also my understanding that, from a financial point of view, a local government such as DeKalb County may need to incur additional debt even though it receives additional income from the STEP. This is because the STEP revenue is received gradually over the entire calendar year, but most of it is needed in the spring and summer to fund school construction and improvement projects in time for the new school year each fall.

It is my opinion that a referendum is required before a school board may borrow money for a term longer than twelve calendar months even if the borrowing is to be repaid from expected STEP collections. It is also my opinion, however, that a school board may, without such referendum, engage in certain short-term borrowing for less than twelve calendar months, against the expectation of receipt of STEP collections, subject to certain constitutional and statutory constraints.

The STEP Amendment permits the STEP to be imposed for a period of time not to exceed five years. A STEP is a government revenue-producing measure. The heart of the question you have raised pertains to the constitutional limits placed on a government debt-incurring measure.

The Georgia Constitution specifically imposes the following limitation: “[N]o . . . county, municipality, or other political subdivision shall incur any new debt without the assent of a majority of the qualified voters of such county, municipality, or political subdivision voting in an election held for that purpose as provided by law.” Ga. Const. 1983, Art. IX, Sec. V, Para. I. The Georgia Supreme Court has rendered many opinions declaring that a contract entered into by a political subdivision of the state for longer than one fiscal year without an authorizing referendum creates a “debt” prohibited by the constitution. See McCrary Co. v. City of Glennville, 149 Ga. 431 (1919); Town of Wadley v. Lancaster, 124 Ga. 354 (1905); City Council of Dawson v. Dawson Waterworks Co., 106 Ga. 696 (1899); 1969 Op. Att’y Gen. 69-160.

As one of my predecessors has previously opined:

[A] county or other political subdivision may not legally incur ordinary indebtedness, secured or unsecured, for periods exceeding one year, without the assent of a majority of the qualified voters of the county or other political subdivision voting in an election for that purpose to be held as prescribed by law.

1969 Op. Att’y Gen. 69-160, p. 205. Thus, voter approval of a revenue-producing STEP with a duration in excess of twelve calendar months does not also authorize debt-incurring measures for the same period. Voter approval of debt-incurring measures is also required. However, there is an alternative method of financing which county school boards may consider. Operating within a calendar year, the state constitution affords local boards of education with a means of short-term borrowing without further referendum. See 1968 Op. Att’y Gen. 68-18, p. 19 (“Subject to the debt limitation provisions of the Georgia Constitution, there is no serious question as to the authority of a county board of education to borrow money for a period of nine months to a year for the purpose of building school houses.”).

The current Georgia constitution, and its two immediate predecessors, make it possible for local political subdivisions, and county boards of education, to engage in short-term borrowings for one calendar year or less in duration. The constitutions of 1945, 1976, and 1983 each have provided the ability to make short-term borrowings to certain local governments and political subdivisions of the state in anticipation of the future receipt of tax collections (the “Temporary Borrowing Provision”). Ga. Const. 1945, Art. VII, Sec. VII, Para. IV; Ga. Const. 1976, Art. IX, Sec. VII, Para. IV; Ga. Const. 1983, Art. IX, Sec. V, Para. V.

In the current constitution, and its two immediate predecessors, a county board of education is included as an entity to which the constitutional provisions apply. Four requirements are present in the Temporary Borrowing Provision which serve as limiting conditions upon short-term borrowing:

(1) The aggregate amount of all such loans must not exceed 75% of the board’s total gross income from taxes collected in the last preceding year;

(2) Such temporary loans must be payable on or before December 31st of the calendar year in which the loan was made;

(3) No new temporary borrowing can take place until all unpaid short-term loans from prior years are paid in full; and

(4) A ceiling is imposed on temporary borrowing equal to the board’s total anticipated revenue for the current calendar year.

It should be noted that the phrase, “all such loans,” does not include bonded indebtedness of the county board, and “total gross income” does not include the gasoline tax allocation. 1948-49 Op. Att’y Gen. p. 641. Additionally, “total gross income” does not include anticipated revenues from the State Board of Education. 1958-59 Op. Att’y Gen. p. 97.

With respect to the requirement that a temporary loan be payable on or before December 31st, in the context of the STEP, I construe that limitation to require retirement of the temporary loan to be repaid from STEP collections in full using STEP monies within the calendar year in which the loan is made. I am of the view that refinancing of such a temporary loan through new borrowing, without an authorizing referendum on the matter being approved, would violate the constitution.

In summary, it is my official opinion that, in a county in which the levy of a one-cent special purpose local option sales tax for educational purposes has been approved by referendum for a duration in excess of twelve calendar months, but where no separate referendum has been held with respect to the incurring of indebtedness to be repaid by such tax collections, the county board of education may not issue bonds, notes, or other forms of debt instruments and incur an obligation for a term equal to the duration of the tax. However, in such a circumstance, a county board of education may engage in temporary borrowing to be repaid from such tax collections all within the same calendar year, provided that the constitutional and statutory limitations discussed above are observed.

Prepared by:

SHIRLEY R. KINSEY
Assistant Attorney General