Request By:
Mr. David H. Ashley
Attorney
Kentucky Center for Energy Research
Iron Works Pike
Lexington, Kentucky 40511
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
The legislature in 1974 established an "Energy Development and Demonstration projects" program and a trust fund to finance it. KRS 152.785. The declared policy was to promote the development and demonstration of efficient, environmentally and commercially feasible technologies, techniques, and processes for conversion of coal into clean fuels in liquid, gaseous, or solid forms. See KRS 152.750 through 152.785. The fund and program are to be administered by the administrator of the Kentucky Center for Energy Research. He is authorized to execute contracts to design, construct or operate development or demonstration projects, subject to the approval of the Board of Energy Research [see KRS 152A.410], up to a maximum of fifty million dollars ($50,000,000) for the period July 1, 1974, to January 1, 1979. Funds required under such contracts shall be deemed a necessary governmental expense and paid by the state treasurer upon approval of the Executive Department for Finance and Administration. KRS 152.755.
The amount necessary to fund the individual contractors under the trust fund is appropriated by each session of the legislature on the basis of "a budget amount necessary to meet the cash flow of the various projects." (Emphasis added). To date approximately $14.5 million of the total amount of the $50 million maximum has been appropriated. The life of the trust fund extends from July 1, 1974 to January 1, 1979. KRS 152.775 provides for a termination of Commonwealth participation if the developed product can produce a profit for private industry. In such event, or in the event of abandonment or termination of a project, the Commissioner of the Executive Department for Finance and Administration shall negotiate the participation agreement which shall provide for repayment to the Commonwealth of all funds held and moneys realized from the sale or liquidation of the assets of the joint demonstration project in proportion to the Commonwealth's share in the total of funds, property, or other assets expended, contributed, etc.
You ask our opinion as to whether or not the trust fund violates §§ 50 and 177 of the Kentucky Constitution. You feel that the trust fund is not unconstitutional as being violative of § 50 of the Constitution in that it is not a commitment against future revenues.
It is well established that the legislature can authorize the commitment of revenues anticipated during the biennium for which its appropriations are to be budgeted. To put it another way, the state cannot execute contracts involving state financial commitments which extend beyond available appropriations of a biennium. Turnpike Authority of Kentucky v. Wall, Ky., 336 S.W.2d 551 (1960). The provision in KRS 152.755 that the administrator of the Kentucky Center for Energy Research may execute project contracts up to a maximum of fifty million dollars ($50,000,000) for the period July 1, 1974 to January 1, 1979, is merely a program expenditure maximum but is not an actual appropriation. See § 230, Constitution, KRS 41.110, and Ferguson v. Oates, Ky., 314 S.W.2d 518 (1958), and Shannon v. Dean, 279 Ky. 279, 130 S.W.2d 812 (1939) 814. The point is that KRS 152.755 contains no direction authorizing the Department for Finance and Administration to issue warrants for and the state treasurer to pay out fifty million dollars ($50,000,000) for project purposes. Even though the state provides that funds required for such agreements shall be deemed a necessary governmental expense paid by the state treaurer upon approval of the Finance Department, it is our opinion that in reading the statute as a whole the intent was that such payments could be made, provided the legislature makes specific appropriations therefor in ensuing bienniums. It is not an appropriation of fifty million dollars ($50,000,000).
In our opinion the Demonstration projects and trust fund legislation is not unconstitutional, since it does not authorize expenditures beyond a biennium. The only caveat here is that to be constitutional, the administrator must be scrupulously careful to see that actual contract financial commitments do not go beyond available appropriations of a biennium. The budgeting to meet the cash flow of various projects each biennium is not of itself objectionable so long as actual state contract financial commitment does not exceed the available appropriations for the particular biennium.
Now, § 177, Constitution, prohibits the credit of the state being given, pledged or loaned to any individual or corporation.
Clearly the development of processes for conversion of coal into clean fuels is a valid public purpose in view of the international, national, and state energy problem and its concomitant effect upon the economy and the lives and fortunes of our Kentucky people. We are of the opinion that the courts would so uphold it, since the courts have often declared that public purpose is primarily for the legislature, and which legislative discretion will not be disturbed by the courts so long as it has a reasonable basis. Industrial Devel. Auth. v. Eastern Ky. Reg. Pl. Com'n, Ky., 332 S.W.2d 274 (1960) 276.
Further, it is our opinion that such state expenditures do not constitute a pledge or loan of credit, since the state is not a debtor or guarantor or surety. See Industrial Develop. Authority, above, page 278. We agree with you that McGuffey v. Hall, Ky., 557 S.W.2d 401 (1977), is to be distinguished from this situation, since in McGuffey the fund is underwritten by a guaranty in which the general funds of the state derivable from future tax revenues are made the surety. Thus being a surety means lending credit. See McGuffey, above, page 410. Here the Energy Development Trust Fund involves no guaranty or surety relationship in connection with state revenues.