Can a Virginia county redirect leftover general obligation bond money from a completed project to a different voter-approved project?

Plain-English summary

Loudoun County asked whether it could redirect leftover general obligation bond money from a finished project to a different voter-approved project. The county runs a multi-year capital improvement program and submits each year's bond package to voters with a separate dollar amount per project. Some projects come in under budget. The question was whether those leftover dollars could be shifted to one of the other listed projects.

The AG said no, unless the resolution or ordinance that voters actually approved at the referendum said the money could be reallocated. The principle drew from Virginia constitutional law: under the Constitution of Virginia, counties cannot contract debt without voter approval, and the approval is tied to the specific terms placed on the ballot. The Supreme Court of Virginia had said that the issuance of bonds had to be "in conformity with the terms and conditions of the submission" to voters.

The AG read the Public Finance Act of 1991 the same way. The county's bond resolution had to set out the purpose and the maximum amount. Voters approved that purpose and amount. Bond proceeds could only be used for the purpose voters approved. If the ballot listed each project with a separate authorization amount and no language permitting shifts between them, the county was stuck with that allocation. Leftover funds would need to go to debt service or to call or defease the bonds, both of which the county had identified as available alternatives.

Currency note

This opinion was issued in 2012. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Did Loudoun County have any flexibility at all?
Only the flexibility it built into its own bond resolution and ballot question. The AG noted that the question submitted to voters could be worded specifically or generally, but the locality was bound by whatever language it used.

What could the leftover bond proceeds be used for instead?
The county itself had identified two options that didn't require reallocation: paying debt service on the bonds or calling/defeasing the bonds. Both consume the leftover proceeds for their original debt purpose without redirecting them to a different capital project.

Why was the language on the ballot so important?
Because under Virginia's constitutional regime, voters are the ones who consent to debt. The terms they vote on define the scope of the local government's authority. The Supreme Court of Virginia had been emphatic that bonds had to issue in conformity with what voters were asked to approve.

Did this opinion change practice for Virginia counties?
No. The AG noted that this office had consistently opined the same way. The thrust was a reminder, not a new rule.

What if a locality drafts its bond resolution flexibly going forward?
The opinion noted that the question submitted to voters may be worded specifically or generally. The key is that the flexibility has to be on the ballot, because the governing body is bound by the language voters approved.

Background and statutory framework

The Constitution of Virginia bars counties from contracting debt without voter approval. The Public Finance Act of 1991 implements that requirement. A county adopting a bond ordinance has to state, in brief and general terms, the purpose for which the bonds are to be issued and the maximum amount. The ordinance also has to request the circuit court to order a special election under §§ 15.2-2610 and 15.2-2611. After voter approval, the county can issue and sell bonds up to the authorized amount.

The constraint is the substance of the ballot. The Supreme Court of Virginia held that bond issuance must be in conformity with the terms and conditions of the submission to voters. Earlier AG opinions reached the same conclusion: proceeds may be used only for the purpose for which the bonds were issued as expressed in the submission to voters.

Citations

• Va. Code § 2.2-505 (Attorney General opinions)
• Va. Code §§ 15.2-2610, 15.2-2611 (special elections)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2012/12-029_Roberts.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

September 28, 2012

John R. Roberts, Esquire
County Attorney for Loudoun County
Office of the County Attorney
1 Harrison Street, S.E.
5th Floor, MSC#06
Leesburg, Virginia 20175-3102

Dear Mr. Roberts:
I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented
You inquire whether Loudoun County ("County") may apply proceeds of general obligation bonds issued by the County for one project, but no longer needed for that project, to a different project, when each project has been approved at referendum by the qualified voters of the County.

Response
It is my opinion that a county may not apply proceeds of general obligation bonds issued by the county for one project to a different project unless the resolution or ordinance adopted by the county and submitted to the qualified voters authorizes the application of the bond proceeds to the other project.

Background
You relate that the County has a Capital Improvement Program ("CIP") for a series of projects extending over a number of years. To fund that CIP, the County conducts a bond referendum each year to ask the voters to consider whether to approve the issuance of general obligation debt for specified projects. You also note that the County is very specific in its bond resolutions, typically reciting a specific amount to be authorized for each project listed in the referendum. In each fiscal year, the County projects the anticipated funding needed to construct approved projects and determines the amount of general obligation debt to be issued. In some instances, a project will be completed under budget, and the County may have issued more debt than needed for that project. You also indicate that the County can use the leftover funds to pay debt service on the bonds or use the funds to call or defease the bonds.

Applicable Law and Discussion
The Constitution of Virginia provides that:

[n]o debt shall be contracted by or on behalf of any county or district thereof or by or on behalf of any regional government or district thereof except by authority conferred by the General Assembly by general law. The General Assembly shall not authorize any such debt ... unless in the general law authorizing the same, provision be made for submission to the qualified voters of the county or district thereof or the region or district thereof, as the case may be, for approval or rejection by a majority vote of the qualified voters voting in an election on the question of contracting such debt. Such approval shall be a prerequisite to contracting such debt.

The authority of a county to contract debt is set forth in general law pursuant to the Public Finance Act of 1991 ("Public Finance Act"). The Public Finance Act provides that "any locality may ... contract debts for any project, borrow money for any project and issue bonds to pay all or any part of the cost of acquiring, constructing, reconstructing, improving, extending, enlarging and equipping any project." As the constitutional provision requires, however, this authority is limited in that, generally, "no county has the power to contract any debt or to issue its bonds unless a majority of the voters of the county voting on the question at an election held in accordance with §§ 15.2-2610 and 15.2-2611 approve contracting the debt, borrowing the money and issuing the bonds."

The Public Finance Act establishes the procedures a county must follow to contract debt and issue general obligation bonds. First, the county "shall adopt an ordinance or resolution setting forth in brief and general terms the purpose or purposes for which the bonds are to be issued and the maximum amount of the bonds to be issued." When voter approval is required, the ordinance or resolution must also "request the circuit court to order an election to be held pursuant to §§ 15.2-2610 and 15.2-2611 on the question of contracting the debt and issuing the proposed bonds." Once certified by the clerk of the governing body, a copy of such resolution or ordinance is to be filed with the circuit court serving the locality. Then, "[t]he circuit court shall order a special election ... [to] take the sense of the voters of the locality on the question of contracting the debt and issuing bonds for the purpose or purposes set forth in the resolution or ordinance." Finally, "[i]f a majority of the voters of the locality voting on the question approve the bond issue ... [t]he locality may then proceed to prepare, issue and sell its bonds up to the amount so authorized . . . ."

Once the bond has been approved, the governing body is bound by the terms of the ordinance or resolution it submitted to the voters. The Supreme Court of Virginia has declared that "[t]he issuance of bonds pursuant to an election [by the voters of the respective county] must be in conformity with the terms and conditions of the submission [to such voters,]" which, as noted above, is required to set forth "the purpose or purposes for which the bonds are to be issued and the maximum amount of the bonds to be issued." As this office consistently has opined, the proceeds of a bond issue may be used only for the purpose for which the bonds were issued as expressed in the submission to voters. Although the question submitted to voters may be worded specifically or generally, a board of supervisors is bound by that language and, therefore, may not use bond proceeds for any use other than that expressly approved by the voters, as set forth in the bond referendum. Thus, if the resolution or ordinance approved by the voters sets forth a separate authorization amount for each project listed therein without language to permit the use of leftover bond funds authorized for one of the listed projects to be applied to another project listed in the resolution or ordinance, the governing body is bound by the language used and cannot reallocate those proceeds.

Conclusion

Accordingly, it is my opinion that a county may not apply proceeds of general obligation bonds issued by the county for one project to a different project unless the resolution or ordinance adopted by the county and submitted to the qualified voters authorizes the application of the bond proceeds to the other project.

With kindest regards, I am
Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General