Request By:
Honorable Marvin M. Sotsky, P.S.C.
Attorney at Law
Citizens Plaza
Louisville, Kentucky 40202
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
In behalf of the Kentucky Housing Corporation (hereinafter "KHC"), you request the opinion of this office on questions relating to the housing finance bond program of KHC, as affected by House Bill 113, passed in the present session of the General Assembly.
In the 1972 regular session, the General Assembly enacted legislation which created KHC as codified in KRS Chapter 198A.
Pursuant to the above chapter, KHC was mandated to provide, inter alia, financing for development, construction, renovation, sale, rental, etc., of decent, safe and sanitary housing for persons and families of "lower income. " Persons and families of lower income with income insufficient to afford decent, safe and sanitary housing were to be determined by standards established by KHC's Board of Directors, pursuant to the implications of KRS 198A.010(13). Income guidelines were established by KHC and modified from time to time and vary over different sections of the state. Thus family income guidelines have been established and made applicable for each person or family seeking a loan financed by bond issues which have been implemented by KHC since it came into existence in 1972.
The latest housing finance bond program was the 1981 - Series A, involving $36,000,000.
The funds to be made available under the latest bond issue, above referred to, are placed throughout the state by various approved originators and/or servicers who are banks, savings and loan associations or mortgage companies. These originators and/or servicers make application to KHC for an allocation of bond funds and enter into various contractual arrangements with KHC including service agreements, mortgage purchase agreements and other documentation. Included in the contract documentation are "guidelines for applicant eligibility. " A copy of the current guidelines which were applicable at the time of the 1981 - Series A Bond Issue were attached to your opinion request. The originators and/or servicers throughout the state paid to KHC a fee for their respective allocation of funds and have agreed to process the loans according to the rules and regulations of KHC and the bond issue requirements.
The guidelines of KHC, referred to above, for applicant eligibility for single family mortgage loans, provide that an applicant's gross annual income shall not exceed: (a) $19,500, plus (b) $1,500 for head of household, if applicable, plus $1,500 for each dependent (normally a child) living in the household, plus (c) $2,500 if the residence is in designated eastern Kentucky counties.
Subsequent to the above, on March 23, 1982, H.B. 113, as amended, was signed by the Governor. It contained an emergency clause and became effective upon the Governor's signature.
H.B. 113 amends KRS 198A.010(13), which now reads:
(13) "Persons and families of lower and moderate income shall include only those individuals whose family income combined does not exceed twenty-five thousand dollars ($25,000) per year, or as shall be determined from time to time by the legislative program review and investigation committee of the Kentucky general assembly established as set forth in KRS 6.905."
The above referred to section, KRS 198A.010(13) which fixes the person or family income at $25,000.00 per year is less, under certain circumstances, than that which was established by the KHC guidelines applicable at the time of the 1981 bond issue. Under the 1981 bond issue, various loans have been closed wherein the originator and/or servicer have relied on firm commitments by KHC to purchase said loans. In other instances, KHC has approved the application by issuing its written commitment with the closings pending. In other instances, loans are in process based upon those guidelines applicable at the time of the subject bond issue. In all of the above instances involving the 1981 - Series A Bond Issue and in other instances involving pre-application situations, the subject originator and/or servicer has an allocation of bond funds from KHC for which it contracted and paid a fee.
In bond issues prior to the 1981 - Series A, funds are available, from time to time, principally from pre-payments of mortgage loans. When such funds are available, they are processed as additional loans under the particular bond issue from which they originated. Commitments have been made and loans pending under these earlier bond issues.
Questions
Based upon the above background and factual situation, the following questions are thus presented for our opinion:
1. Is the above referred to statutory section, KRS 198A.010(13), applicable to the 1981-Series A Bond Issue, or do the KHC income guidelines that were in existence at the time of the subject bond issue apply?
2. With reference to those funds available in bond issues prior to 1981 - Series A, wherein loan commitments have been made, is KRS 198A.010(13) applicable or do the KHC income guidelines that were in existence prior to March 23, 1982, apply?
As concerns question no. 1, it is our opinion that the new income guideline concept written into KRS 198A.010(13) by H.B. 113 is not applicable to the 1981 - Series A Bond Issue. Thus the KHC guidelines that were in existence at the time of the subject bond issue apply. The basic reason for our view is simply that H.B. 113 expresses no legislative intent to make it retroactive. Thus H.B. 113 has a prospective application only. The old Court of Appeals, in Roberts v. Hickman County Fiscal Court, Ky., 481 S.W.2d 279 (1972) 283, wrote that "A statute will not be given a retroactive effect unless an intent to do so is clearly expressed therein." (Emphasis added). Judge Montgomery, for the court, in City of Covington v. Sohio Petroleum Company, Ky., 279 S.W.2d 746 (1955) 750, said that "In the construction of a statute, the giving of a retroactive effect is not favored. . . . Such an effect will be given to the statute only when it is the manifest intention of the legislature, or the statute clearly and strictly declares its retroactivity. " House Bill 113 contains no intention of retroactivity and it contains no declaration of retroactivity.
House Bill 113 establishes a dramatically new concept of "lower and moderate" income. As you say, the $25,000.00 person or family income limitation as set forth in the amended KRS 198A.010(13) lacks proper definition as to what income is included or excluded to ascertain total income. Previously, where no dollar limits were set by statute, the concept "lower income" was implemented by KHC, which guidelines defined "income", as can be seen from reading the detailed treatment of guidelines attached to your opinion request. The new definition of income merely establishes the monetary threshhold of $25,000, which shall be determined by a "review and investigative committee of the general assembly" , not yet in existence.
While the legislature cannot delegate its legislative function to another branch (see §§ 27, 28, 29, Ky. Const.), the legislature may declare the policy of the law and fix a principle which is to control, and an administrative body may be invested with the power to ascertain the facts and conditions to which the policy and principle apply. Commonwealth v. Johnson, 292 Ky. 288, 166 S.W.2d 409 (1942) 412.
We are not called on here to assess the question of the constitutionality of a legislative review and implementation of the "lower and moderate income" concept, pursuant to KRS 198A.010(13).
Even if H.B. 113 were retroactive, which it is not, it is elementary that § 19 of the Kentucky Constitution expressly prohibits a change in the obligation of contract. Adams v. Greene, 182 Ky. 504, 206 S.W. 759 (1918). "The obligation of contract" within the federal and state prohibitions against impairment extends to contracts between a state or political subdivisions and private persons, as well as to contracts between private persons. Thus the sweeping prohibition of § 19, Kentucky Constitution, applies to the KHC business, regardless of KRS 198A.070, relating to the specific nature of the obligations of KHC. The "obligation" of a contract has been defined as the "law which binds the parties thereto to the performance of their agreement." Sturges v. Crowninshield, 4 Wheat. 122, 4 L. Ed. 529. It is an accepted principle that included in the terms of contracts are the laws which subsist at the time and place of the making of the contracts. See Home Building & Loan Ass'n v. Blaisdell, 290 U.S. 398, 54 S. Ct. 231, 237, 78 L. Ed. 413, 88 A.L.R. 1481. Also see City of Convington v. Sanitation District No. 1, Ky., 301 S.W.2d 885 (1957) 887.
SUMMARY
In answer to questions no. 1 and 2, H.B. 113 does not apply retroactively, only prospectively. Thus it has no retroactive application where the KHC has engaged in contractual commitment and where the originators and/or servicers have engaged in contractual commitment with persons furnished housing under the 1981 - Series A Bond Issue or furnished housing under prior bond issues where new loan commitments are made. The key here is prior contractual commitment on the part of KHC, its originators and/or servicers and persons furnished housing under those programs. In any event, the prohibition of § 19 of the Kentucky Constitution must be strictly observed.