Request By:
Mr. Frank P. Campisano, Jr.
Attorney at Law
Public Administration Specialist
Lincoln Trail Area Development District
702 College Street Road
Elizabethtown, Kentucky 42701
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your questions relate to the county's franchising of ambulance service for Larue County.
The fiscal court desires to advertise for bids, pursuant to Section 164, Kentucky Constitution, for a one year franchise. In the franchise the county would extend to the holder of the franchise an option, without rebidding, to negotiate exclusively with the county for a second and third year's service.
Question No. 1:
"Can Larue County grant a franchise to a private ambulance service for a period of one (1) year with the original bid winner being given an option to negotiate exclusively to provide the next year's service without the necessity to rebid in each succeeding year?"
The answer is in the negative.
While KRS 65.710 and 65.720 relate to a fiscal court's authority to enter into contracts for ambulance service, Section 164 of the Kentucky Constitution controls. The latter section reads:
"No county, city, town, taxing district or other municipality shall be authorized or permitted to grant any franchise or privilege, or make any contract in reference thereto, for a term exceeding twenty years. Before granting such franchise or privilege for a term of years, such municipality shall first, after due advertisement, receive bids therefor publicly, and award the same to the highest and best bidder; but it shall have the right to reject any or all bids. This section shall not apply to a trunk railway."
It is our opinion that if a fiscal court grants a franchise, the literal terms of Section 164 must be followed, i.e., the bidding requirement is mandatory for each new term. A term cannot be extended by this option device. In 64 Am.Jur.2d, Public Works & Contracts, Section 34, p. 886, we find this rule: "Where the provision for competitive bidding appears in the Constitution, the power of the legislature is limited thereby." The purpose of advertising is the key to understanding the mandatory character of bidding in granting a franchise. The purpose of bidding is to secure the governmental unit against the loss of valuable rights for mere paltry considerations. The sale to the highest and best bidder is to enable the municipality to receive the value of the privilege to be granted, and to prevent municipal councils from granting valuable rights and privileges to favorites without any sufficient consideration.
Willis v. Davis, Ky., 534 S.W.2d 255 (1976) 256, 257.
It is our opinion that the option feature is not permitted by Section 164, since it envisions a franchise period certain for a term of a year or years. In
People's Electric L & P. Co. v. Capital Gas & Electric L. Co., 116 Ky. 76, 75 S.W. 280 (1903) 283, the court ruled that under Section 164, a municipality was without authority to enlarge a utility's franchise for a term of years, except by award to the highest and best bidder. See also
Kentucky Utilities Co. v. City of Paris, 237 Ky. 488, 35 S.W.2d 873 (1931) 874. In
City of Ludlow v. Union Light, Heat & Power Co., 231 Ky. 813, 22 S.W.2d 909 (1929) 910, the court held that after the expiration of a franchise period the contractual relationship is terminated. See the later case of
Kentucky Utilities Co. v. Board of Com'rs, 254 Ky. 527, 71 S.W.2d 1024 (1934), on the point that a new franchise must be let under bids when the old expires.
The case of
Ray v. City of Owensboro, Ky., 415 S.W.2d 77 (1967), holds that a county ambulance service is a proper subject of franchise under Sections 163 and 164 of the Kentucky Constitution. The court observed at page 79 that "It is apparent from the above that if the subject of the franchise is covered under section 163 and the ordinance meets the technical requirements of section 164, then it is valid." (Emphasis added). Of course the bidding requirement is a technical requirement of Section 164. You say that on page 80 of that opinion, where the court said that "if the use of a franchise can be an effective instrument. . . .", the court is suggesting that a franchise is only an optional method of providing ambulance service. We do not so construe it. To us the court is saying that if the county lets a franchise, it must follow the requirements of Sections 163 and 164, Constitution, including the bidding requirement. It also says that the county may, under its police powers, directly operate an ambulance service, or it may grant a franchise. But if the franchise is the option, then Section 164 must be strictly followed. It is self-executing and requires no legislative implementation or embellishment.
Thus after the one year franchise expires, another franchise, if the fiscal court wants to grant another one, must be effected by bidding under Section 164. The option to negotiate for an extension would not be valid in terms of Section 164, since the constitution makes no provisions for it.
Question No. 2:
"Can Larue County contract with a private ambulance service for a two (2) or three (3) year period specifically making any additional years optional with the right of either party to terminate upon thirty (30) days notice wherein the option is one only for the privilege of exclusive negotiating rights so that no current year revenue is allocated for expenditure in a future year?"
We have answered that above. The option to extend the franchise without bidding would be unconstitutional.
While Section 164 provides that no franchise may be issued for a term exceeding 20 years, since the county will have to subsidize the ambulance service in the franchise contract, the fiscal court must keep in mind, in arriving at a specific term of years, that the aggregate money necessary to subsidize the operation must be paid out of current revenues of the county [Sec. 157, Kentucky Constitution], unless the people vote on it favorably.
Question No. 3:
"Could Larue County incorporate under KRS Chapter 273 and grant that corporation a long-term franchise to negotiate with private firms on a yearly basis to provide ambulance service to the county?"
The answer is "no". The fiscal court, by a chapter 273 creation, cannot circumvent the express language of Section 164, as we said above.