Request By:
Mr. Harry Lee Waterfield
Chairman of the Board
Chief Executive Officer
Investors Heritage
Life Insurance Company
200 Capital Avenue
Frankfort, Kentucky 40601
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your question is whether or not the Murray State University Foundation, of which you are a member and Vice Chairman, can become or remain unaffiliated with Murray State University, the State Finance and Administration Cabinet, the Legislative Research Commission, or any other state agency.
An "affiliated corporation" is defined in KRS 164A.550(3) as follows:
"'Affiliated corporation' means a corporate entity which is not a public agency and which is organized pursuant to the provisions of KRS Chapter 273 over which an institution exercises effective control, by means of appointments to its board of directors, and which could not exist or effectively operate in the absence of substantial assistance from an institution."
"Institutions" are defined in KRS 164A.550(2) as meaning all public supported institutions of higher education in Kentucky recognized in KRS 164.100, 164.290, 164.293 or 164.810(1)(a).
The definitions are a part of the legislation enacted in 1982 relating to financial management of institutions of higher education.
We pointed out in OAG 82-520, copy enclosed, that under KRS 164A.560, the governing boards of the public institutions of higher education may elect to perform under this universities management legislation. There we said that the state universities are at liberty to elect all, some or none of the provisions of House Bill 622.
A foundation of the kind you mention may or may not be an affiliated corporation. You, the Foundation and your attorneys will have to make a judgment as to whether at present the Foundation qualifies as an affiliated corporation, as defined in KRS 164A.550(3). If your Foundation Corporation was created under KRS Chapter 273, but is not a public agency, and if Murray State University exercises effective control over the Foundation by means of appointments to the Foundation's Board of Directors, and which Foundation could not exist or effectively operate in the absence of substantial assistance from the University, then the Foundation is an affiliated corporation.
If your Foundation is not an affiliated corporation, then the subject legislation, which envisions only affiliated corporations, would not apply. Thus your Foundation can continue its present unaffiliated existence, if that is the case. The Foundation's present contractual relationship with the University will remain unimpaired. See also KRS 164A.615, which was designed to maintain contractual status quo concerning money coming into the hands of a Foundation for its corporate purposes.
If the Foundation is an "affiliated corporation" under the statutory definition above, and considering that the state universities are at liberty to elect all, some or none of the provisions of House Bill 622 (KRS 164A.550 et seq.), the University has a great range of election of various parts of the management legislation, such that the University Board of Regents may for all practical purposes continue its basic contractual relationship with the Foundation. See KRS 164A.610 and OAG 82-521, copy enclosed.
When you consider that Foundation money destined for state university use ultimately is private money, an over-arching constitutional principle comes into play. Section 19 of the Kentucky Constitution provides that no law impairing the obligation of contract shall be enacted. The court wrote, in Union Gas & Oil Co. v. Diles, 200 Ky. 188, 254 S.W. 205 (1923) 207, that "To impair the obligation of a contract, within the meaning of the constitution, it is only necessary to impose upon one of the parties a higher or greater duty than the one imposed him by the instrument itself, or by the implied conditions which the law will read into it." It is no wonder that KRS 164A.615 was enacted to overcome any possible constitutional question arising out of a state university's relationship with an affiliated corporation. House Bill 622 was designed to permit state universities to integrate certain state financial management procedures, such as are found in KRS Chapters 41 (treasury), 42 (Department of Finance), 45 (Budget and Financial Administration), 56 (state lands and buildings), and 57 (public printing) with various university funding programs. However, in the permissive election to use some, all or none of the management legislation and in enacting KRS 164A.615, the necessity for observing contractual commitment as to private foundation money coming ultimately into the university system was scrupulously noted by the General Assembly. See also Article 1, Section 10 of the United States Constitution, which prohibits the enactment of law impairing the obligation of contract.
Thus, it is our opinion that the university management legislation in no way would prevent the Foundation from becoming or remaining nonaffiliated with the university or other state agency.