Request By:
Mr. James S. Secrest
Allen County Attorney
Box 35
210 W. Main Street
Scottsville, Kentucky 42164
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
The Allen County Water District, created pursuant to KRS Chapter 74, desires to borrow about $90,000 to put with other funds in the event a grant can be obtained from HUD to extend water lines to the Holland area of Allen County. You advised the District that it is subject to § 157 of the Kentucky Constitution. See KRS 74.010 and 74.012.
It is your opinion that the District might use the Special Fund Doctrine, as outlined in OAG 82-446, to borrow the money from local banks (without a revenue bond issue) and repay the loan from Water District revenues. You ask whether we concur with your view.
A water district is a political subdivision of the state. See KRS 74.020 (administered by a board of commissioners appointed by the county judge executive with approval of fiscal court), 74.260 (work must be let on bids), 74.290 (bonds may be issued, and are tax exempt), and 74.150 (land in the district is assessed for payment of operating and maintaining the district). Revenues of the district may be pledged as security for its bonds as well as the proceeds of the required assessments. Where its bonds are only secured by the land assessments, the bonds would not be negotiable. However, where bonds are secured by both the assessments and the district revenues, they are negotiable.
Olson v. Preston St. Road Water Dist. No. 1, 286 Ky. 66, 149 S.W.2d 766 (1941) 767.
KRS 74.290(3) provides that district bonds, issued to defray the cost of constructing or acquiring additions to the district, shall be payable solely from the revenues of the waterworks of the district "and shall not constitute an indebtedness of the water district within the meaning of the constitution." (Emphasis added). The case of
Ryan v. Commissioners of Water Dist. No. 1, 220 Ky. 822, 295 S.W. 1023 (1927), stresses the public purpose subserved by water districts.
Although the water district may be called an "other municipality" , as found in § 157, Constitution, but since the water district does not have taxing powers, it is not subject to §§ 157 and 158 of the Kentucky Constitution. In
Skidmore v. City of Elizabethtown, Ky., 291 S.W.2d 3 (1956), Judge Cullen, for the court, wrote this on page 5:
"We think Section 157 of the Constitution is concerned only with the protection of such future revenues as can be exacted in the form of taxes."
Also, on the principle that the restrictions of §§ 157 and 158, Constitution, are to be applied to a unit of government constituting a "municipality" and a "taxing unit" at the same time, see
Bell v. Board of Education of Barren County Sch. Dist., Ky., 343 S.W.2d 804 (1961) 806;
Payne v. City of Covington, 276 Ky. 380, 123 S.W.2d 1045 (1938) 1051; and
Griffin v. Clay County, 304 Ky. 592, 201 S.W.2d 733 (1947) 736. Also see OAG 80-333, published, Banks-Baldwin.
KRS Chapter 74 permits a water district to place assessments on land improved by water district facilities. See KRS 74.130, 74.150, and 74.170. The assessments are in proportion to the benefits conferred. However, the statutes do not provide for the district's levying an ad valorem or any other tax.
Theobald v. Board of Comr's of Buechel Water Dist., 288 Ky. 720, 157 S.W.2d 285 (1941). In connection with water districts, the General Assembly has not yet delegated the "tax levying" authority, in the strict constitutional sense, to water districts. See §§ 157, 171 and 181, Kentucky Constitution. Also see OAG 77-329. The reference in KRS 74.290(3) to revenue bonds not being an indebtedness under the constitution does not convert the water district into a taxing district. See these cases holding specifically that local special assessments are not taxes within the meaning of § 157,
Constitution: Gosnell v. City of Louisville, 104 Ky. 201, 46 S.W. 722 (1898) 725;
Williams v. Wedding, 165 Ky. 361, 176 S.W. 1176 (1915) 1181;
Shaver v. Rice, 209 Ky. 467, 273 S.W. 48 (1925) 51; and
Klein v. City of Louisville, 224 Ky. 624, 6 S.W.2d 1104 (1928) 1108.
The remaining question is whether the water district can borrow about $90,000.00 to extend water lines in the county.
You mention OAG 82-446 relating to the application of the Special Fund Doctrine in connection with county hospital financing. Cf.
Perkins v. City of Frankfort, Ky., 276 S.W.2d 449 (1955), involving city revenue bonds payable solely from revenues, other than taxes, derived from rates and charges for services; and
Jones v. City of Corbin, 227 Ky. 674, 13 S.W.2d 1013 (1929), involving payment for city's light and water plant equipment out of the plant revenues, i.e., out of a special fund only. However, those cases are pertinent in the historical necessity for discovering a legitimate circumvention of §§ 157 and 158 of the Kentucky Constitution. But constitutional circumvention does not apply to a water district because of the nonapplicability of those constitutional sections to a water district (it is not a taxing district) .
Concerning your residual question, the borrowing of the money (without a revenue bond issue) for the expansion of the district facilities and service is conditioned upon two elements: (1) any restrictions contained in KRS Chapter 74; and (2) the sound business judgment of the water district commissioners. See KRS 74.070 and 74.080, as to the powers of the water commission. The funding of water district systems depends largely on land assessments, as mentioned above, and charges for its water services. See KRS 74.130 and 74.150. As relates to the two restrictive elements in water district borrowing, the statutes in KRS Chapter 74 strongly suggest that the water commission, in engaging in a loan, must consider the total available revenues from assessments and services charges which are uncommitted. Further, the commission must carefully weigh the repayment of the loan in terms of uncommitted revenues which are reasonably anticipated to become available during the life of the loan. Even though the water district is not a taxing district, the statutes in KRS Chapter 74 strongly suggest that the water commission measure its obligations in terms of available revenue for the life of the loan. It is a pay-as-you go concept, though not dictated by the Constitution. Cf.