When a Virginia locality refinances school bonds and saves money on debt service, can the school board reallocate that surplus to other school needs?

Plain-English summary

The Isle of Wight County Treasurer asked the AG whether a county school board could keep and reallocate debt-service savings that resulted from refinancing school bonds. In May 2011, the county supervisors had adopted the school board's budget "in designated line item form" but then "appropriated said budget in a lump sum amount of $57,861,769.00," of which $4,388,545 was designated for debt service. The county also approved refunding the outstanding bonds. By June 2012 the actual debt service savings tied to school bonds came to about $1.36 million. The school board took the position that since the original appropriation was a lump sum, the savings stayed with the board to spend on other school purposes.

The AG drew a clean line between two possible structures. If the appropriation is genuinely a lump sum, the school board has full discretion and can reallocate any in-year savings. If the appropriation is divided into classifications (with debt service broken out as its own category), then the board may not move savings out of one classification into another, and a debt-service surplus stays unspent in its category.

But the AG declined to apply that legal framework to Isle of Wight's particular ordinance. The Office's settled practice is not to interpret local ordinances; whether the supervisors actually created a lump sum, or whether the line-item table attached to the ordinance was incorporated into it as a classification scheme, is a question of local law. A footnote in the opinion notes that, per press reports at the time, the school board did reallocate and spend the savings.

Currency note

This opinion was issued in 2013. 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

What is a "lump sum" appropriation versus a "classification" appropriation?
A lump sum appropriation gives the school board one bucket of money and lets the board decide how to spend it. A classification (or category-by-category) appropriation slots the money into named buckets, like "instruction," "transportation," or "debt service," and the board can move money among items within a bucket but not between buckets.

Why does it matter?
Because debt-service refinancing in this case generated a real surplus inside the "debt service" line. If the appropriation was lump sum, the surplus was the board's to use anywhere. If "debt service" was a separate classification, the surplus was locked into debt service and could not be redirected to teachers, buses, or building repairs.

Why didn't the AG just read the ordinance and give a yes-or-no answer?
The AG's Office, as a matter of long-standing practice, will not interpret local ordinances. It interprets state law. Reading a local appropriation ordinance is a question of local law that belongs to the locality's own attorney, or a court.

What is the relationship between a county board of supervisors and a county school board?
Under Virginia law, they are separate and distinct governmental agencies, but the school board depends on the governing body for most of its operating funds. The supervisors set the size of the appropriation. The school board decides, within whatever appropriation structure the supervisors used, how to spend it.

What happened in this specific case?
The opinion notes (in a footnote) that local press reported the school board did reallocate and spend the savings. The AG took no position on whether that was lawful given the actual ordinance.

Background and statutory framework

A local governing body and a local school board are separate and distinct governmental agencies, but the board depends on the governing body for a significant share of its funding. The opinion describes the arrangement as a "symbiotic relationship": the school board manages and maintains the school system, and the local governing body provides the requisite local funding.

The opinion rests on two prior positions of the Office that sit on either side of the lump-sum question. Once a governing body has appropriated funds for educational purposes to the school board, the board has the right to determine how those funds will be spent. But if the governing body has divided its appropriation into classifications, the school board may not use funds designated for one classification on expenses belonging in another. Both rules survive intact under this opinion; which one applies turns entirely on how the local ordinance is structured.

Citations

• Va. Code § 2.2-505 (Attorney General advisory opinions)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2013/12-084_Wells.pdf

Original opinion text

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

July 12, 2013

900 East Main Street
Richmond, Virginia 23219
804-786-2071
FAX 804-786-1991

Virginia Relay Services
800-828-1120
7-1-1

The Honorable Judith C. Wells
Treasurer, Isle of Wight County
Post Office Box 79
Isle of Wight, Virginia 23397

Dear Treasurer Wells:

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

Issues Presented

You present two questions related to the appropriation of funds by a local governing body to the local school board. You first inquire whether funds "earmarked" for debt service may be reallocated and spent for other school needs when a refunding of the outstanding bonds results in a debt service savings thereby resulting in a surplus in the "earmarked" amount. You further ask for the interpretation of a local ordinance to determine whether the local governing body made a lump sum appropriation to the school board for fiscal year 2011-2012 or whether the local governing body intended that a portion of the local school board appropriation was designated specifically for debt service.

Response

It is my opinion that if the local governing body made a lump sum appropriation to the school board for fiscal year 2011-2012 and a surplus resulted from debt service savings, then the school board may reallocate and spend those savings for other school needs. It is further my opinion that the question of whether a lump sum appropriation was made to the local school board depends upon the interpretation of a local ordinance, a practice from which this Office has traditionally abstained.

Background

You relate that on May 12, 2011, the local governing body "formally adopted the school board budget, in designated line item form and . . . appropriated said budget in a lump sum amount of $57,861,769.00 . . . of which . . . a specifically designated line item of $4,388,545 [was] set aside for debt service . . ." on outstanding school bonds. You further indicate that on May 12, 2011, the local governing body approved a resolution authorizing the refunding of outstanding bonds to achieve debt savings and that a portion of those savings were directly attributable to debt service in the local school board budget.

By June 2012, it was clear that the actual debt service savings associated with the bonds issued for school purposes was approximately $1,358,887. You indicate that the local school board's position was that the savings already had been "appropriated" to the local school board in a lump sum and that, therefore, the board could reallocate the funds and spend them for other school purposes.

Applicable Law and Discussion

A local governing body and local school board are separate and distinct governmental agencies of the Commonwealth. The local school board, nonetheless, does depend on the local governing body for a significant amount of its funding. Indeed, "[t]he statutory scheme prescribed by the General Assembly envisions a symbiotic relationship between the school board and the [local governing body], whereby the school board manages and maintains the school system and the [local governing body] provides the requisite local funding."

The local governing body has a budget and appropriations process by which funds are made available for the programs and operations the local governing body supports, including the local school board. The formal act of appropriation by the local governing body is how money is set aside for a specific use. Generally, "[o]nce the [governing body] has appropriated funds for educational purposes to the school board, the school board has the right to determine how such funds will be spent . . . ." Specifically, when the local governing body makes a lump sum appropriation to the school board, the school board has full discretion in determining how to spend the appropriated funds. Nevertheless, if a local governing body has divided its appropriation into classifications (e.g. debt service), the school board may not use funds designated for one classification for expenses belonging in another. Consequently, whether the school board in your scenario can allocate the debt savings surplus to another use depends on how the local governing body appropriated the school board's funds.

You present an ordinance by which the local governing body appropriated funds to the local school board, and you request an opinion regarding whether the language of the ordinance creates a lump sum appropriation or establishes classifications whereby the school board is more limited in its spending discretion. The Attorney General traditionally limits responses to "interpretation of federal or state law, rule or regulation." "In instances when a request requires interpretation of a local ordinance, the [Office] has declined to respond in order to avoid becoming involved in matters solely of local concern[.]"

Conclusion

Accordingly, it is my opinion that if the local governing body made a lump sum appropriation to the school board for fiscal year 2011-2012 and there was a surplus as a result of debt service savings then the school board could reallocate and spend those savings for other school needs. It is further my opinion the question of whether there was a lump sum appropriation was made to the local school board depends upon the interpretation of a local ordinance and this Office does not opine on local ordinances.

With kindest regards, I am

Kenneth T. Cuccinelli, II
Attorney General