Request By:
Mr. Bryan L. Claycomb
Meade County Fire Department
Fairway Drive
Brandenburg, Kentucky 40108
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in response to your letter asking:
"Can the Meade County Volunteer Fire Department negotiate and transact a loan with a bank for the purpose of replacing a fire department vehicle?"
You state that the Meade County Fire Department is a body of the Meade County Fiscal Court and is organized pursuant to the provisions of KRS Chapter 67. In attempting to replace a fire department vehicle, the fire department contacted several banks concerning a loan. One bank granted a loan, pursuant to the approval of the fiscal court, and signed a letter of intent setting forth the terms of the proposed loan and the repayment schedule. Another bank questioned the legality of such a loan, stating the fire department could not transact such a loan and that it violated the provisions of KRS 287.290.
KRS 67.320, which formerly authorized a fiscal court to maintain a fire department, was repealed as of June 17, 1978. However, under the provisions of the county "home rule" statute as amended, a county is authorized to enact ordinances pertaining to police and fire protection. Thus, under KRS 67.083(3)(u) a county may still maintain a fire department.
The volunteer fire department to which you refer is apparently a unit of the county government rather than an independent unit disassociated from county government such as a nonprofit corporate entity or a volunteer fire district organized pursuant to KRS Chapter 75. Thus, in any situation where county money is involved, the fiscal court, and not the county fire department, should act on behalf of the county and make the basic decisions of how to spend the money, how much to spend and the arrangements pertaining to any particular expenditure. The fiscal court has the authority to regulate and control the fiscal affairs of the county, KRS 67.080(1)(c).
In
Todd County Fiscal Court v. Frey, Ky., 285 S.W.2d 499 (1955), the Court said that the authority to expend the public funds of the county is exclusively vested in the fiscal court. In addition, no county official may bind the fiscal court to pay any indebtedness without its knowledge or its authorization. In
Lewis v. Board of Education of Johnson County, Ky., 348 S.W.2d 921 (1961), the Court said that a county governing body can speak only through its records and can confer authority to make or terminate contracts at a meeting regularly called and held when its acts are duly recorded and authenticated.
The Court, in Fannin v. Davis, Ky., 385 S.W.2d 321 (1964), stated that no valid appropriation can be made except by a majority of the members of the court, at a meeting held for that purpose.
In dealing with your specific fact situation and KRS 287.290(3), we direct your attention to OAG 78-572, copy enclosed, at page one. KRS 287.290(3) is an exception to the maximum debt restriction of persons to banks, caid maximum debt restrictions being established in KRS 287.280. One of the exceptions to the maximum-debt-to-banks statute is obligations of Kentucky counties and school districts incurred through borrowing in anticipation of the current year's tax receipts as authorized by KRS 68.320 and KRS 160.540.
Section 157 of the Constitution of Kentucky provides in part that no county, city, town, taxing district, or other municipality, shall be authorized or permitted to become indebted, in any manner or for any purpose, to an amount exceeding, in any year, the income and revenue provided for such year, without the assent of two-thirds of the voters thereof, voting at an election held for that purpose. Section 158 of the Kentucky Constitution places a restriction on the indebtedness of a county, the maximum indebtedness not to exceed 2% of the value of the taxable property therein, except for an emergency, etc.
KRS 68.110(1) provides that the fiscal court shall not in any year expend any money in excess of the amount annually levied and collected for that year. KRS 68.300 states in part that any appropriation made or claim allowed by the fiscal court in excess of any budget fund, and any warrant or contract not within the budget appropriation shall be void. KRS 68.320, in connection with borrowing, states:
"The fiscal court may borrow money in anticipation of revenue receipts to meet current expenses of the county as they accrue, and to pay interest and principal on bonded debts. Such current borrowing shall not exceed seventy-five per cent (75%) of the unrealized and unencumbered revenue estimated in the budget to be derived from a tax levy for the then current fiscal year from which the principal of the borrowed money and the interest thereon may be paid. . . ."
Thus, without a vote of the people, any loan made to the county must not exceed, when considering the total financial obligations of the county for the particular fiscal year, the anticipated current revenue for that fiscal year. This is consistent with the constitutional and statutory provisions set forth herein. Furthermore, if a county borrows money from a bank in anticipation of revenue for that fiscal year, and the loan does not exceed, when considering total financial obligations of the county for the particular fiscal year, the anticipated current revenue of the county for that fiscal year, the loan comes under the exception of KRS 287.290(3).
Apparently the county is contemplating borrowing from a bank the total amount of money necessary to pay for the fire equipment (aggregate purchase price), and if this aggregate loan cannot be repaid from current tax receipts for that fiscal year, then the constitutional and statutory provisions (Section 157 of the Kentucky Constitution and related statutes) would be violated. A contract to pay an annual amount for a period of years creates an indebtedness for the aggregate amount in the year in which the contract is made. See again OAG 78-572, at page three, dealing with a lease-purchase agreement which might provide an alternative arrangement which would be more fiscally compatible to the fiscal court.
Thus, the fiscal court has the authority to operate and maintain a fire department and the fiscal court, which has the exclusive authority to expend county funds and to financially obligate the county, has the authority, generally, to borrow funds from a bank. Since we do not know the county's financial condition at the present time and we are not auditors, we can only set forth the constitutional and statutory principles applicable to your fact situation. You, the fiscal court and the county attorney will have to study and analyze the county's budget and its revenues and expenditures for the current fiscal year to determine whether the fiscal court may at the present time obtain the proposed loan you have mentioned.