Request By:
Mr. Ralph Ed Graves
Commissioner
Department for Local Government
Capitol Annex
Frankfort, Kentucky 40601
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your questions relate to encumbrances on capital projects acquired in whole or in part with Area Development Funds or Coal Severance Economic Aid Funds, and specifically as this bears on industrial development projects.
You have stated the background situation as follows:
"In order to complete development of local industrial projects, local development agencies must generally sell industrial property to private enterprises which in turn create jobs in the public interest through operation of their businesses. Our concern is that private firms would not purchase industrial sites from local agencies which they could not mortgage or otherwise encumber for expansion or other purposes."
Your questions read:
"1. Does the restriction against encumbrances apply to Area Development Fund industrial development projects acquired by private business enterprises from local public agencies for completion of an industrial development purpose?
"2. Does the restriction against encumbrances apply to Coal Severance Economic Aid Fund industrial development projects acquired by private business enterprises from local public agencies for completion of an industrial development purpose?"
KRS 42.350(2) and 42.330(2) provide that fund money may only be used for capital projects, which include industrial development projects. Both statutes contemplate that upon the award of any contract to provide capital improvement and the acquisition of real property, title to the property remains in the state until completion and acceptance by the Commissioner [Secretary] of the Executive Department for Finance and Administration, at which time title will vest in the designated beneficiary [appropriate political subdivision, etc.] of such grant-in-aid to be used for public purposes. Should the capital project cease at any time to be used for a public purpose, title in the property reverts to and vests in the Commonwealth.
The Coal Severance Fund statute [KRS 42.330(11)] reads in part:
"No encumbrance of any kind shall be placed upon the capital project or real property and such restriction shall be recited in any deed or other conveyance made between the parties."
The Area Development Fund statute [KRS 42.350(4)] contains an almost identical restriction against encumbrance except that the phrase "by the public agency" is added to modify the word "placed":
"No encumbrance of any kind shall be placed upon the capital project or real property by the public agency and such restriction shall be recited in any deed or other conveyance made between the parties." (Emphasis added).
First, the two statutes should be considered in pari materia [same subject matter], since they both involve capital projects, including industrial development projects, and were passed in the 1976 regular session and signed on the same day.
Economy Optical Co. v. Kentucky Board of Opt. Exam., Ky., 310 S.W.2d 783 (1958). Such statutes "are presumed to be actuated by the same policy", and likewise must be construed, if possible, so as to effectuate both acts." (Emphasis added).
Sumpter v. Burchett, 304 Ky. 858, 202 S W.2d 735 (1947) 736. We think that under these statutes only private enterprise would otherwise have had the occasion to encumber the property. The appropriations for these funds are to be used to pay for the government's capital expenditure.
Thus in harmonizing the two statutes, and in considering the pragmatic workings of the legislation, it is our opinion that the phrase "by the public agency" does not make sense, since the restriction against encumbrance could only be practically effective by applying to private enterprise acquiring such properties. We therefore conclude that the answer to both questions is "yes". In other words the restriction against encumbrance, as to both funds, applies to private enterprise acquiring such industrial development properties.
The literal language here, "by the public agency" , is in obvious conflict with the general scheme of these statutes, and it must be deleted in construing it in order that such language may surrender to the general purpose and intent of the legislation when viewed as a whole.