Request By:
Mr. Spencer E. Harper, Jr.
Harper, Ferguson & Davis
Attorneys at Law
310 West Liberty Street
Louisville, Kentucky 40202
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
You request the opinion of this office, regarding the applicability of KRS 56.873 (Enact. Acts 1980, Ch. 96, § 4, effective July 15, 1980) to certain industrial development bond transactions carried out by the Kentucky Pollution Abatement Authority and the Kentucky Development Finance Authority.
THE STATUTE
KRS 56.873 reads:
"Each proposed revenue bond shall be rated by Moody's Investors Service, Inc. or an equivalent bond rating agency. No revenue bond issued may be sold that does not receive a Moody's rating of at least A or the equivalent rating by another qualified bond rating agency."
THE ISSUE
The question is whether or not the provisions of KRS 56.873 apply so long as the subject bond financings are of such type as to independently produce revenues to fully meet debt service on such financings, so that no appropriation of state general funds will ever be required; and no legal liability can ever attach to the subject agencies in respect to such financings.
For reasons given in your "Submission of Legal Authorities and Argument", you contend that the provisions of KRS 56.873 do not apply to pollution control and industrial development bond issues of the Kentucky Pollution Abatement Authority and the Kentucky Development Finance Authority in cases where the bonds issued do not constitute an obligation, either direct or indirect, of such authorities, but are payable solely and only from private sources and where, consequently, no appropriation of state general funds will or can ever be required.
KENTUCKY POLLUTION ABATEMENT AUTHORITY
The Authority is permitted, under KRS 224A.260, to finance pollution control facilities in the manner provided by KRS 103.246, i.e., issue pollution control revenue bonds to provide industrial development bond pollution financing for industrial concerns and utilities companies.
Neither the Authority, under KRS 224A.260(4), nor the Commonwealth nor any political subdivision of the Commonwealth, shall be pecuniarily responsible or liable in any manner for the payment of principal and interest on bonds or notes issued by the Authority under this section. Such bonds or notes shall be payable solely from revenues, receipts and payments derived from the lease, sale or vesting of such pollution control facilities in and to industrial concerns and utility companies with whom the Authority contracts. Thus such bonds are secured and payable solely and only by payments made by the assisted industry or public utility.
The constitutionality of industrial development bond financing of this type has been upheld by our highest court in many instances. See, for example,
Faulconer v. City of Danville, Ky., 232 S.W.2d 80 (1950); and
White v. City of Hickman, Ky., 415 S.W.2d 379 (1967) 381. You mentioned OAG 79-439, in which we point out that while the city in such cases has an obligation of good faith to the bondholders, there is no financial obligation or indebtedness of the city issuing the industrial building revenue bonds under the constitution (§§ 157 and 158, Ky. Const.).
KENTUCKY DEVELOPMENT FINANCE AUTHORITY
As in the case of KPAA in the financing for pollution control facilities, KDFA financing, pursuant to KRS 103.210, involves the issuance of industrial development bonds by KDFA to finance industrial projects for private corporations and other entities by the proceeds derived from a lease agreement, loan agreement or other financing agreement. The authority for KDFA to issue such bonds is integrated into the KDFA enabling legislation. See KRS 154.010(17).
Thus the implications, at this point, in terms of the absence of pecuniary liability on the part of both agencies, and the absence of a need for state funds, i.e., KPAA and KDFA, are identical in nature. You mentioned OAG 80-320, in which we reiterated that industrial revenue bonds create no financial indebtedness or obligation for KDFA or the Commonwealth, and that such bonds are payable solely from revenues derived from the building project. There we said that no loan of government tax revenues is involved. Faulconer v. City of Danville, above. We said that in such bond issues no general fund revenues or tax revenues of the city will ever be involved.
PROVISIONS OF KRS CHAPTER 96, 1980 ACTS, VIEWED AS A WHOLE
Since KRS 56.873, the subject statute, requiring at least an A rating of revenue bonds, is a part and parcel of the act in question, it is necessary to look at the entire act to determine its basic thrust and purpose.
Judge Stanley, in Henry v. Commonwealth, 312 Ky. 491, 228 S.W.2d 32 (1950) 33, wrote that "In the construction of any statute the whole of it and the purpose of all of it are to be considered." Thus the whole act here must be examined to determine the central purpose.
The title of the Act is "An Act relating to legislative approval of certain state fiscal obligations." (Emphasis added).
The central provision of the Act, Section 1, (KRS 56.870) is that prior to issuance of state bonds or the securing of any interim financing, the General Assembly must give its approval by either a specific act or by the biennial appropriation act specifying the purposes for such financing. KRS 56.870(2) requires that the state budget act establish a ceiling for revenue bonds requiring a general fund appropriation to retire. KRS 56.870(3) excepts from the application of KRS 56.870(1) the financing of any project certified by the Governor to be of such type as to require no state appropriations.
Under Section 2 of the Act, in any case where the General Assembly has authorized a debt ceiling or a specific appropriation for debt service for a particular state agency, such projects are exempt from the application of the act.
Under Section 3, any refinancing transactions are exempt where a net debt service savings is involved.
Section 4 (KRS 56.873) provides that "Each proposed revenue bond shall be rated by Moody's Investors Service, Inc., or an equivalent bond rating agency. No revenue bond issued may be sold that does not receive a Moody's rating of at least A or the equivalent rating by another qualified bond rating agency."
Section 5 applies the act to state-federal flood control projects involving state funds.
CENTRAL PURPOSE OF THE ACT
In noting the title of the act and many references to General Assembly appropriations in the act, it is clear to us that the central purpose of the act is to require General Assembly approval of bond and interim financing where a General Assembly appropriation is necessary to fund the bond payments or meet the debt service. See
Grieb v. National Bond & Investment Co., 264 Ky. 289, 94 S.W.2d 612 (1936); and
First Bank & Trust Co. of Princeton v. Feuquay (U.S.C.A. -6, 1969) 405 F.2d 990, 993.
Since KRS 56. 873 (requiring the Moody rating of at least A) refers specifically to "revenue bonds", it can be logically said that it refers only to revenue bonds as defined in Section 1(2) (KRS 56.870(2)), i.e., revenue bonds which require a general fund appropriation to retire.
Moreover, if it is said that the literal language of KRS 56.873 (bond rating) is in apparent conflict with the act generally, the answer is that the literal language of that statute must surrender to the general scheme or general purpose and intent of the act.
Department of Revenue v. Miller, 303 Ky. 822, 199 S.W.2d 622 (1947) 623. As we said, the central purpose of the act is to provide for General Assembly approval of bond and interim financing where state appropriations are necessary to retire such bonds or financing. Thus KRS 56.873 must necessarily, within the total context of the act, be viewed as applying in cases in which this central purpose is involved.
In addition, the provision of KRS 56.870(2), that the state budget act shall establish a ceiling for revenue bonds which require a general fund appropriation to retire, and the provision of KRS 56.873, that each proposed revenue bond must have at least a Moody's rating of A, etc., are clearly interrelated sections enacted as parts of a single integrated statute. Obviously they must be construed in harmony with each other if the act is to be meaningful.
Daviess County v. Snyder, Ky., 556 S.W.2d 688 (1977) 691. See also
Department of Motor Transp. v. City Bus Co., Inc., Ky., 252 S.W.2d 46 (1952), involving KRS 281.010(15) (relating to granting a bus suburban certificate). There the court noted that in one part of the statute the term "air miles" was used and in another part the term "ten miles" was used. The court said that since the word "air" prefixed the initial reference to "miles" , a reasonable interpretation was that the word "air" be carried through to modify "miles" in the term "ten miles" .
It is apparent from reading the entire act that where state funds are involved in such financing, the General Assembly desired to determine that such securities of the Commonwealth may not be issued unless they meet certain reasonable quality tests, hence the minimal Moody rating A. As you pointed out, the legislature sought to prevent the issuance of obligations of marginal or questionable quality by the Commonwealth or its agencies, involving general fund revenues, which might constitute an overextension of the pledge of the general fund resources of the Commonwealth. Thus, as you say, Section 4 (KRS 56.873) was never meant to apply to "conduit" financing of a totally self-liquidating nature where the statutory agencies of the Commonwealth merely act as conduits for industrial development bond financings which can never become a pecuniary liability of the state or its agencies, and in which the agencies act no more or less than would a city or county under similar circumstances.
THE DOCTRINE OF PART MATERIA APPLIED
Chapter 339 of the 1980 Acts expands KRS Chapter 103, relating to industrial revenue bonds. It grants to KDFA the authority to finance industrial buildings (upon request by local units of government) in the same manner that such authority may be exercised by cities and counties of Kentucky. No other restrictions are set forth in Chapter 339 relating to the newly-granted industrial development bond financing power of KDFA. Such bonds are special and limited obligations, payable solely and only from income and revenues derived from the lease, sublease, sale or other financing transaction, whereby the industrial building is made available to the private corporation or other obligor. No funds of the state can ever be used for the amortization of any such bonds. There is no cross-reference to any limitation which might be created by Section 4 of the subject act (Ch. 96, 1980). Further, in the 1978 legislation (KRS 224A.260), relating to the KPAA financing pollution control facilities in the manner provided by KRS 103.246, there is no delimitation similar to Section 4 of Chapter 96 (1980). The doctrine of pari materia, relating to statutes concerning the same subject matter, requires that such statutes be construed together and harmonized where possible. The acts just mentioned, though passed at different sessions, are subject to the pari materia doctrine. And here they are readily susceptible to harmonizing, as you have indicated.
Economy Optical Co. v. Kentucky Bd. of Optometric Examiners, Ky., 310 S.W.2d 783 (1958).
CONCLUSION
Under the foregoing analysis and authorities, it is our opinion that the provisions of KRS 56.873 do not apply to pollution control and industrial development issues of the Kentucky Pollution Abatement Authority and the Kentucky Development Finance Authority, in cases where the bonds do not constitute a financial obligation, either direct or indirect, of such authorities, but are payable solely and only from private sources and where, consequently, no appropriation of state funds will or can ever be required. The term "revenue bond" which appears in Section 4 of the act (Ch. 96, 1980), was intended by the General Assembly to be applicable to the specific types and classes of revenue bonds which are otherwise regulated by the act, to-wit: "revenue bonds which require a general fund appropriation to retire, as defined in Section 1(2) of the act (Ch. 96, 1980).