Request By:
Mr. Vernon A. Dinkle
City Attorney
City of Catlettsburg
City Building
Catlettsburg, Kentucky 41129
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Walter C. Herdman, Assistant Deputy Attorney General
This is in response to your letter of February 1 in which you relate that there exists an excess amount of money in the flood wall bonding account following redemption in the amount of $50,000. Your question is as follows:
"What can we do with the surplus funds? Since the money cannot be returned to the taxpayers from whence it came, would it not be legal to put it in the General Fund? "
According to our phone conversation, the flood wall was constructed pursuant to Ch. 104 KRS which provides two alternative methods for constructing such a system. One method particularly applicable to fourth class cities is found under KRS 104.200 to 104.380. Assessment bonds are authorized to be issued to cover the cost of establishing the flood control system. At the same time assessments may be levied on benefited property on an annual basis in sufficient amounts to pay the interest on the bond and establish a sinking fund to provide payment of the principal. Also an annual assessment may be established for the purpose of providing funds for the operation and maintenance of the system against all benefited property.
Neither the above method nor the alternative method found under KRS 104.020 to 104.160 indicates the procedure for disposing of excess or surplus funds over and above that necessary to pay off the bonds and interest and maintain the system. You do not indicate in your letter how the system will be maintained over the years and the surplus funds you have indicated could very well be used for that purpose, particularly if the maintenance assessment is not utilized under KRS 104.340.
Regardless, however, of the actual procedure followed [which is not clear], there is no provision under either of the flood control methods and procedures that authorizes or implies that so-called excess funds may be placed in the city's general fund, and in such absence, we doubt the legality of the transfer.
In illustrating our conclusion, we call your attention to the Public Works Act, Ch. 94 KRS, pursuant to which under KRS 94.319 provision is specifically made to transfer excess improvement tax funds to the general fund of the city. In like manner, following the establishment of a utility system by the city pursuant to Ch. 96 KRS, we find a general provision [KRS 96.200] authorizing excess funds to be placed in the general fund as held in the case of Electric Plant Board v. City of Mayfield, 299 Ky. 375, 185 S.W.2d 411 (1945). See also OAG 72-449. We have also held in OAG 68-548 that KRS 96.200 would not be applicable in connection with any public project conducted under Ch. 58 KRS since under this act there was no provision for the transfer of surplus funds to the city's general fund. As pointed out in McQuillin, Mun. Corps., Vol. 15, § 43.137, funds collected by assessments on property should be dispensed in the mode specified in the bonds or by statute, or other applicable law.
On the other hand, there does appear to be authority for refunding any excess tax payments by benefited property owners back to the property owners and we refer you to McQuillin, Mun. Corps., Vol. 14, § 38.336, from which we quote:
"Landowners paying special assessments to a fund to pay bonds issued to cover the actual cost and expenses of the improvement in excess of the sum required, due to miscalculation or mistake, are, in equity, justly entitled to have such excess refunded to them, each landowner to receive the excess paid by him, that is, the excess should be prorated among the property owners, as it may appear that each has paid. Such money, when collected from the several property owners becomes a trust fund, to be used only for the purpose specified, and when the bonds and interest and other legal expenses chargeable against such fund have been satisfied, the balance belongs to the landowners. Each lot or parcel of land in the improvement district must bear its equal share in the total cost and no more."
Under the circumstances, we seriously doubt that the surplus funds from the flood wall bonding account collected from the benefited property owners can be placed in the general fund in the absence of any specific or implied authority to do so. If this is true, then the excess tax funds should be returned to the landowners on a prorated basis as an equitable solution. It nevertheless might be well for the city to file a declaratory judgment suit and let the court determine the appropriate disposition of these funds.