Request By:
Ms. Cattie Lou Miller
Deputy Secretary
Department of Finance
Capitol Annex
Frankfort, Kentucky 40601
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
You enclosed documents with your letter, which documents are now pending in the Finance Department proposing to pay for legal services totaling $6,644.03 for the Kentucky Development Finance Authority [KDFA]. KDFA proposes to reimburse the Business Development Corporation [BDC] for its proportionate share of legal expenses in cases involving the foreclosure of certain loans made by both parties to business enterprises.
KDFA's legal counsel, retained under a personal service contract, was not obligated to provide legal services for the litigation mentioned above. KDFA informally in some way retained the Business Development Corportion's (BDC) attorney to represent KDFA's interest in two recent foreclosure and bankruptcy proceedings because of the common venture of the two entities [co-lenders] , identical interest, and the necessity for immediate action. The attorneys' fees were paid out of the proceeds of the foreclosure. No formal personal service contract was entered into as relates to KDFA. There apparently was an informal arrangement as betwen KDFA and BDC that KDFA would reimburse BDC for a certain part of the BDC's counsel fees. The subject documents were prepared preparatory to the payment of the reimbursement amount of $6,644.03 by KDFA, out of its appropriate funds in the state treasury, to BDC.
The question is whether or not KDFA's funds can be expended for such legal services unattended by the usual formalities of an executive order of the governor authorizing such legal services employment, pursuant to KRS 12.210, the review of such contracts and initial approval of the Secretary of Finance, pursuant to KRS 41.110, 41.120 and 45.360(3), and of the review procedure, involving the Secretary of Finance and the Personal Service Contract Review Subcommittee, established in KRS 45.710 and 45.715.
Although KRS 12.020 [administrative organization] shows KDFA under the Department of Commerce for housekeeping purposes only [see KRS 154.020(1)], the definitional statute is controlling. KRS 12.200 reads:
"The term 'department' as used in KRS 12.210 to 12.230 shall be construed to mean and to include each and every executive or administrative department, program cabinet, division, office and independent agency as said terms are defined and set forth in KRS chapter 12, and shall include any administrative department, program cabinet, division, office and independent agency heretofore or hereafter designated as such by the general assembly. " (Emphasis added).
In connection with the review procedure for personal service contracts in KRS 45.705 to 45.720, the term "contracting body" includes each "authority" authorized by law to contract for personal services. KRS 45.700 (1)(a).
Under the above statutes, it seems at this point that the legal services arrangement for KDFA cannot be considered proper, unless there are some explicit statutes providing for a deviation from the above statutory procedures.
The purpose of KDFA is to promote business and economic development opportunities, which includes the authority to make loans. See KRS 154.080 and 154.110, for example. Business Development Corporations are created for the same purpose. KRS 155.020. The statutes provide that KDFA and a business development corporation can cooperate with each other in this common purpose. KRS 154.040(1) and 155.030(8). Thus the two entities are co-lenders from time to time and in the instances presented were faced with foreclosure and bankruptcy proceedings in relation to such loans.
In KRS 154.020(1), it is provided in part that the Kentucky Devlopment Finance Authority in state government "shall be an independent agency of the commonwealth not attached to any administrative department except for housekeeping purposes. . . ." (Emphasis added). KRS 154.025, while noting that KDFA shall be attached to the Department of Commerce, provides that the Authority shall make all policy relating to loans, and that its payroll and other expenses of the authority shall be administered by KDFA. The Department of Finance is required to keep separate trust and agency accounts for the loan fund, the interest received fund, and the mortgage insurance funds for the Authority. It is our understanding that the subject legal expense would, if authorized, be paid out of KDFA's interest fund account.
Under KRS 154.040(4) and (5), KDFA has the authority to make contracts of every nature and to execute all instruments necessary or convenient for carrying on its business. It has the authority to take title by foreclosure to any industrial building project, agricultural or tourist project, etc. See also KRS 154.150, relating to the revolving trust and agency funds of KDFA. Subsection (3) provides that all loans to local development agencies and all costs of administration of KRS Chapter 154 shall be paid out of the trust and agency funds. It provides that "payment shall be made in the same manner as other state expenditures, except that they shall be subject to the approval of the department of finance only as to the availability of funds." (Emphasis added). See KRS 45.220 [availability of funds].
KRS 12.020 [administrative organization] shows KDFA under the Department of Commerce, and KDFA is the recipient of appropriations under the biennial budget. The appropriation for KDFA for 1981-82 is $3,000,000. The appropriation for KDFA for 1978-79 was $4,050,000; and the appropriation for KDFA for 1979-80 is $1,550,000. KDFA is a "budget unit" as envisioned in KRS 45.010(2) and (8), 45.020(1), and 45.140. There is no appropriation for KDFA for 1980-81, since, according to the Budget Analyst for that Authority, there is approximately an available balance of $6.8 million for that period.
It seems to us that the legislature recognized the need for uniformity in state financial matters in enacting KRS 12.200 and in specifically listing KDFA as a state agency in KRS Chapter 12. Moreover, as relates to KRS 12.210 [governor employs attorneys], KRS 12.200 expressly provides that the term "department" shall include any "independent agency" heretofore or hereafter designated as such by the General Assembly. We think that is controlling, since in spite of the somewhat autonomous tone of KRS Chapter 154, there is no explicit reference to KRS 12.200. The legislature could have said in Chapter 154: "notwithstanding the language of KRS 12.200." However, it chose not to mention KRS 12.200.
It is therefore our opinion that KDFA, in employing legal services, is bound, as are other state agencies, to follow the usual state procedure as is involved in KRS 12.210, 41.110, 41.120, 45.360(3), and 45.705 to 45.720. If the General Assembly should later intend to remove KDFA from such procedures, it would have to do so by spelling it out in clear and unambiguous language. The abandonment of a uniform system of procurement of legal services in such a case should not be effected under a cloud of ambiguity. In Hargett v. Kentucky State Fair Board, 309 Ky. 132, 216 S.W.2d 912 (1949) 917, the court observed that "Careful scrutiny is always given to an exception to a general statute, and especially is this true when there is an exception permitting the carrying on of an activity generally declared to be against public policy. " It can be seen that procuring legal services under the routine statutory procedures is designed to promote the public policy of careful scrutiny and approval of such contracts. To permit an exception is to go against public policy, as the court in Hargett, above, said. Moreover, the courts declare that implied exceptions to general statutes are not favored. United Brick & Clay Workers v. Deena Artware, (U.S.C.A. -6. 1952) 198 F.2d 637, 644. Therefore we have no burden here trying to read an implied exception to the general rule into KRS Chapter 154.