RSU 19 would enter ‘uncharted territory’ if it defaults on loan, attorney says

By Alex Barber, BDN Staff
Posted Feb. 06, 2013, at 8:53 a.m.

NEWPORT, Maine — Embattled Regional School Unit 19 could be headed for unprecedented legal actions if it does not pay off a $1.5 million loan, an attorney representing the district said Tuesday.

On Jan. 29, RSU 19 invited two attorneys from Drummond Woodsum of Portland to talk with the district’s budget and finance committee. During the teleconference call, the two attorneys said Androscoggin Bank could sue the district if it defaults on its $1.5 million revenue anticipation note, which RSU 19 is currently not repaying. The loan must be repaid by June 30.

Because of serious errors in previous budgets, RSU 19 has a $3.6 million shortfall this school year. The district already has cut $1.6 million from the budget for this school year. RSU 19’s board of directors voted to ask voters for a $2.8 million stabilization loan. The district would use $1.5 million to repay its revenue anticipation loan to Androscoggin Bank, while the other $1.3 million would be used to pay bills. The loan will go to referendum on March 8.

The attorneys, Bill Stockmeyer and Dick Spencer, said the lender can recoup money from taxpayers of the eight towns that represent RSU 19 if the district defaults on the loan.

Since that meeting, several residents have expressed concerns to town officials.

The situation is the most extreme of scenarios that may lay ahead for RSU 19 if the district is unable to secure a $2.8 million loan for a third and final attempt next month, said Spencer.

In his 42 years of law experience, Spencer said he’s not aware of a case in Maine where a school district has defaulted on a loan and the lender had sought to recoup its borrowed money through the seizure and sale of residents’ property.

If RSU 19 defaults on the loan, “then we’ll be in uncharted territory,” said Spencer.

A regional school unit is considered a quasi-municipal corporation under Maine law. Under Title 30-A, section 5701, “The personal property of the residents and the real estate within the boundaries of a … quasi-municipal corporation may be taken to pay any debt due from the body corporate.”

The case of Canal National Bank v. School Administrative District 3 in Waldo County in 1964 involved the issue of whether several towns could be removed from SAD 3, where there was an outstanding bond.

“The court held that they couldn’t be validly removed from the district because the bond holders had the right to proceed against the property in those three towns,” said Spencer.

The case cited a 1885 ruling of George Eames v. Sarah Savage in which “The right of the bondholder to satisfy his judgment against the district by levy on personal and real property, as described, is security of the highest value for the bonds.”

In that case, the town of Embden defaulted on a bond and the town seized property from George Eames to help pay the bond.

“Eames argued that it was unconstitutional to take his property to satisfy the debt of the town,” said Spencer. “The court concluded that it was not unconstitutional.”

The statutes, however, don’t give directions on whose property may be seized and sold to pay the debt, he said.

Another statute says the person whose property was seized and sold may sue the school district to recoup his losses.

The least messy way for RSU 19 to repay its revenue anticipation note, said Spencer, is to “raise the revenue over a period of years so it doesn’t result in a catastrophic impact in one year.”

“They will have to raise the funds to pay the obligation one way or the other,” said Spencer.

RSU 19 is proposing a $2.8 million loan that would be repaid over 10 years.

The day after the attorneys spoke at the RSU 19 meeting, Newport Town Manager Jim Ricker said he fielded several calls from residents who were concerned about having their property taken and sold.

“I’m upset that [attorneys for the RSU] would resort to that type of … threat to the taxpayers — either pass this [loan] or this would happen to you,” said Ricker last week.

“Scare tactic? Absolutely not,” said RSU 19 Superintendent Greg Potter on Tuesday. “The board wanted to know what were the risks associated with not paying off the [revenue anticipation note] in time. The attorneys shared what the statute says. It’s highly unlikely that anybody’s personal property would be seized by the sheriff. I highly doubt a sheriff would do that. The bottom line is Androscoggin Bank would enforce its contract to recoup the money.”

http://bangordailynews.com/2013/02/06/news/mid-maine/rsu-19-would-enter-uncharted-territory-if-it-defaults-on-loan-attorney-says/ printed on November 24, 2014