Request By:
Mr. Gary M. Smith
Attorney
Executive Department for
Finance and Administration
Capitol Annex
Frankfort, Kentucky 40601
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Pursuant to KRS 42.350 and 200 KAR 10:040, the Barren River Area Development District has requested $65,000 for the renovation of the Barren County Courthouse, which courthouse is subject to a mortgage deed of trust. You ask if this is possible when considering that KRS 42.350(4) and Section 5 (4) of 200 KAR 10:040 both prohibit the encumbrance of a capital improvement project.
In 1964 the fiscal court, pursuant to KRS 67.450, et seq., transferred title to the courthouse land to the Barren County Building Commission, which issued bonds and built a new courthouse. Then the courthouse was leased back to the county, the annual rentals being used to fund the revenue bonds issued. A mortgage deed of trust, to secure the bondholders, was executed by the Building Commission to the Bond Trustees. Upon default of bond payments, the property could be sold under mortgage foreclosure. The court, in
Baker v. City of Lexington, Ky., 273 S.W.2d 34 (1954), wrote that the risk of loss, in a similar "holding company" situation, was remote and incidental. In the Lexington case a mortgage raised the possibility that a default on the bonds to build a swimming pool in a park area could result in a sale of park property, and the city was committed to using the property for park purposes. The court said that while the city and park board could not dispose of the property for a purpose inconsistent with its use as a public park, the court held the remote possible loss of the property, involving a consequent use inconsistent with park purposes, should not condemn a plan the only real purpose of which is the improvement of the park. As we said above, the court wrote that the risk of loss is remote and incidental.
Undoubtedly, the reason for inserting the "no encumbrance" provision in KRS 42.350(4) was to underscore the continued use of the capital project for the specific public purpose to which the governmental unit was dedicated.
While the literal wording of the statute provides for "no encumbrance" , it is our opinion that the literal terms should not be used to defeat the overriding purpose of the legislation, which is to aid local governments in capital construction, i.e., by new construction and renovation of existing buildings. As in the Lexington case, it could be said that the risk of loss is so remote that the prohibition against encumbrance is not substantially violated. There is only $150,000 in outstanding bonds, and the courthouse is valued at
$1,500,000! Judge Rees, in Department of Revenue v. Miller, 303 Ky. 822, 199 S.W.2d 622 (1947) 623, wrote that "literal language contained in some parts of a statute in apparent conflict with the general scheme should surrender to the general purpose and intent of the legislature as gathered from all parts of the statute." If this prohibition against encumbrance were to be followed literally then the renovating, with area development funds, of courthouses and other county and city buildings would have to be forgotten. This would obviously be in conflict with the general scheme of KRS 42.350.
We therefore are of the opinion that the use of area development funds for the Barren County Courthouse would be authorized, and it would not violate the general purpose of the legislature in enacting KRS 42.350.
In addition, while KRS 42.350(2) clearly includes renovation of government buildings as capital projects, the statute includes a prohibition against encumbrance. This indicates that encumbrance of preexisting county buildings, later marked for renovation, was simply not taken seriously into consideration. We think the legislature, if the renovation situation had been correctly brought into legislative perspective, would have made renovations involving mortgages as an exception to the prohibition against encumbrance. In any event, we believe the real purpose of the legislature [to aid local governments in local government building and other capital improvements] must not be defeated by a technical, literal and narrow interpretation. As the court said in