Request By:
Mr. William S. O'Daniel
Commissioner
Department for Local Government
909 Leawood Drive
Frankfort, Kentucky 40601
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your problem relates to the Area Development Fund [KRS 42.345-42.370] used for capital projects [KRS 42.350].
Under KRS 42.355, the Department for Local Government must examine each capital project selected by the affected area development district. Your department must make findings as to whether the proposed project conforms to the requirements of KRS 42.350 to 42.370, whether the estimated costs are reasonable, whether the costs to be paid from the fund are within the amount available, and whether the proposed beneficiary agency will be reasonably able to finance and maintain the project during its estimated useful life. If your department finds affirmative on all those criteria, then you are required to recommend approval to the Secretary of the Finance Department.
The board of directors of each affected area development district is required, by KRS 42.350(3), to determine from among the capital project proposals submitted by "eligible beneficiary agencies" the capital projects to be proposed to be constructed or acquired out of the fund. "Beneficiary agency" is defined in KRS 42.345(1) as meaning an agency eligible to receive the benefit of a capital project to be wholly or partly financed out of the area development fund, including and limited to political subdivisions, special districts and agencies created pursuant to the Interlocal Cooperation Act, or any combination thereof, and not-for-profit corporations organized for a public purpose and performing governmental functions and services.
The Northern Kentucky Area Development District established a project rating system containing twelve (12) factors. The factors listed: (1) Does the project involve a threat to health or safety? (2) Are supporting services adequate to serve the project (sewer, roads, etc.)? (3) Status of project? (4) Project relates to a regional or local plan? (5) What percent of project will be financed from sources other than the area development fund? (6) Is there a clear need for project? (7) Project justified on basis of cost-benefit ratio? (8) Overall quality of project? (9) Scope of region served? (10) Will project's benefits be long term? (11) Impact of project upon employment? (12) "Has the applicant participated in the regional problem solving process as demonstrated by a full FY'79 monetary contribution, as of March 8, 1979, to the NKADD?" (Emphasis added).
Question: Is the No. 12 criterion immediately above in conflict with the statutes dealing with subject fund? The answer is "yes".
The city of Ft. Thomas conveyed an objection to the Department on the grounds that the inclusion of criterion No. 12, payment of a monetary contribution to ADD, is contrary to the intent of the General Assembly. The ADD cites Walling v. McCracken County Peach Growers Association, 50 F.Supp. 900 (Dist. Court, W.D. Ky.-1943) in support of its position. In Walling, the court said that when Congress delegates administrative power to an administrative board, the proper exercise of that power is within the administrative discretion of the public officers to whom it is delegated, except when there is no rational connection between the declared policy of Congress and the regulation of the administrative body, the regulation can be declared invalid by the court.
The underlying purpose of the fund is to finance capital projects which contribute to the community [governmental] or industrial development in Kentucky. Authorized capital projects include construction and maintenance of buildings, acquisition of real estate, purchase of major items of equipment, industrial site development, extension and installation of water, gas, sewer and electrical utility lines to public facilities and industrial sites and solid waste and disposal systems.
KRS 42.350(3) merely states that the board of directors of each area development district shall determine, from among the capital project proposals submitted by eligible beneficiary agencies, the capital projects to be proposed to be constructed or acquired out of the fund. The statute suggests no explicit criteria to be used in the selection process.
In this situation it is our opinion that the board of the area development district may exercise its sound and reasonable discretion in establishing criteria leading to making the selections of projects to be submitted to the Secretary of the Finance Department. It is our opinion that criterion No. 12, providing that the applicant must have made a monetary contribution to the ADD organization, does not represent a rational connection between the legislative purpose and the scheme of criteria. It is really arbitrary. Section 2, Kentucky Constitution. It has been said that if a law's provisions are reasonable they are not arbitrary. Jefferson County v. King, Ky., 479 S.W.2d 880 (1972). The same principle would apply to the administrative determination of a selection process. We do not believe No. 12 criterion is a reasonable proposition upon which the selection will partly depend. There is nothing wrong with encouraging the making of monetary contributions to the ADD organizational structure. But the injection of the criterion of contribution has no legitimate place in the administrative screening and selective process of the board.
Judge Stanley for the court wrote, in Goodwin v. City of Louisville, 309 Ky. 11,215 S.W.2d 557 (1948) 559, that "orderly procedure in cases of public administrative law favors a preliminary sifting process, particularly with respect to matters within the competence of the administrative authority set up by a statute, as where the question demands the exercise of sound administrative discretion. " Here we think criterion No. 12 is outside the pale of sound administrative discretion. "Administrative officers may lawfully be vested with a large measure of discretion in exercising their powers, but this discretion must be exercised in accordance with established principles of justice and not arbitrarily or capriciously . . . ." 42 Am.Jur., Public Administrative Law, § 69; and Commonwealth v. Frost, 295 Ky. 137, 172 S.W.2d 905 (1943) 909.
We do not believe that the existence of a rational connection between criterion No. 12 and the purpose of the legislation is "fairly debatable." See City of Louisville v. McDonald, Ky., 470 S.W.2d 173 (1971) 178.