Request By:
Mr. Mark Fitzgerald
Representative
P.O. Box 313
Cynthiana, Kentucky 41031
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your problem was written as follows:
"Several firms which prepare bond issues for local governments have approached county governments since the close of the 1978 Session of the General Assembly promoting county bond issues for the purpose of mortgage loans to private citizens. They have cited KRS 67.083(3)(j) as the statute authorizing such bond issues.
"KRS 67.083(3) states that county governments can issue bonds for governmental purposes 'Except as otherwise provided by . . . the Kentucky Constitution.' It was the belief of the members of the General Assembly when the 'home rule' bill, KRS 67.083 was amended, that Section 179 of the Kentucky Constitution would prohibit county governments from incurring a financial obligation for the purpose of making mortgage loans to private citizens.
"My question is this: Does the Kentucky Constitution allow county governments to issue bonds, the proceeds of which will be used to make mortgage loans to private citizens?"
As you know H.B. 68 of the Extraordinary Session of 1979, Section 1 amends KRS 67.083(3)(j) by deleting the phrase "facilitating the construction of new housing. " (Emphasis added). This evidences the clear intention of erasing the previously delegated power, whatever it is.
Prior to the 1979 amendment and deletion, at most KRS 67.083(3)(j) provides in effect that the fiscal court of any county shall have the power, except as provided otherwise by statute or the Kentucky Constitution, to enact ordinances and "issue bonds" in the performance of certain enumerated public functions, including the phrase "Facilitating the construction of new housing. " (Emphasis added). There is no explicit or express reference to revenue bonds as such. In addition, revenue bond financing under KRS 58.010, et seq., cannot be invoked as a companion, since those bonds must inevitably involve property suitable for and intended for use as "public property for public purposes." (Emphasis added). Standing alone with no adjectival modifier or any other language suggesting revenue bonds, the term bonds would be understood to mean county government obligation bonds. It can be noted that revenue bond financing is clearly and strictly a matter of statute. Revenue bond financing, where it exists, is spelled out with particularity and with specificity. For example see KRS Chapters 58, 103 and 198A.
Here, in KRS 67.083, there is not even a faint trace of an intent to delegate the specific authority of issuing revenue bonds for construction of new housing.
In Fiscal
Court, Etc. v. City of Louisville, Ky., 559 S.W.2d 478 (1977) 481-482, the court reiterated the ancient doctrine that all power to be exercised by a fiscal court must be expressly delegated to it by statute. On page 482 the court wrote that in the granting of governmental powers to counties, the General Assembly "must do so with the precision of a rifle shot and not with the casualness of a shotgun blast. The thoughtful, purposeful and deliberate delegation of a known power is required of the General Assembly." (Emphasis added). The court added that where such powers are not so expressly and specifically enumerated, the grant is legislation in a vacuum and a nullity.
Here we are of the opinion that KRS 67.083(3)(j), in terms of revenue bond financing, simply would not pass this constitutional test of sufficiently described powers as laid down by the Supreme Court of Kentucky. The legislature simply does not describe revenue bond financing, only governmental obligation bond financing. The statutes providing revenue bond financing furnish guidelines for such issuance. Here in KRS 67.083(3)(j) there are no guidelines.
The courts have held that in revenue bond financing the indebtedness of the governmental unit of issuance, within the meaning of debt limit provisions of the constitution, is not involved. And upon the same reasoning the transaction is held not to constitute a lending of credit as expressly prohibited by § 179 of the
Kentucky Constitution. Bennett v. City of Mayfield, Ky., 323 S.W.2d 573 (1959) 576. Section 179, Constitution, as you mention, expressly prohibits the General Assembly from authorizing any county to loan its credit to any corporation, association, or individual, with exceptions not pertinent here.
Since KRS 67.083(3)(j) is only dealing with government obligation bonds, at the most, it is our opinion that the construction of new housing by way of making mortgage loans to private citizens is in the teeth of the prohibition of § 179, and that part of the statute is thus unconstitutional. The device of revenue bond financing which might otherwise circumvent § 179 simply is not provided for.
While the courts have generally left it up to the General Assembly to determine what is a "public purpose" , the old Court of Appeals said, in
Industrial Develop. Auth. v. Eastern Ky. Reg. Pl. Com'n, Ky., 332 S.W.2d 274 (1960) 276, that such legislative discretion will not be disturbed by the courts so long as it has a reasonable basis. Here the statute reads "Construction of new housing. " By way of contrast, note the carefully worded policy 1 and public purpose underlying the revenue bonds issued by the Kentucky Housing Corporation in providing "low-cost housing. " They were thinking of the poor or low income groups. Here there is no economic or social strata classification given. It could be housing for the poorest or the richest. The industrial revenue bond cases speak of relief of unemployment and encouragement of industry. But such rationale is absent from the legislation in question. The bond financing of the Kentucky Housing Corporation involves federally guaranteed loans. Here there is no such security. In a bad depression, counties issuing such bonds could wind up bankrupt. The bond experts and financial houses all are aware of the delicate interrelation between revenue bond financing and government obligation bond financing. The default in payment of either type of bonds mars the national credit of any state or political subdivision. The courts could very well hold that such a public purpose as is stated in KRS 67.083(3)(j) is unreasonable and goes beyond even the most liberal rationale upholding various kinds of public financing. The constitutional prohibition against lending credit of the state or of counties seeks to prevent transactions that might result in future liabilities against the general resources of the state or county "and thereby encroach upon the freedom of another generation to utilize those resources as it then deems necessary or appropriate."
McGuffey v. Hall, Ky., 557 S.W.2d 401 (1977) 411. As Justice Palmore wrote in McGuffey, "state constitutions ordinarily forbid one generation from stealing the earnings of another, at least without a vote of the people as a whole."
For reasons and authorities outlined above, we are of the opinion that § 179 of the Kentucky Constitution prohibits county governments from applying KRS 67.083(3)(j), as it is presently written, in the making of mortgage loans to private citizens.
Of course, on and after May 12, 1979, the deletion of the power to engage in the "construction of new housing" will become effective. Thus on and after May 12, 1979, there is no statutory authority for it at all [H.B. 68, Ex. Sess. of 1979].
Footnotes
Footnotes
1 KRS 198A.020.