Request By:
Mr. William G. Clouse, Jr.
Madison County Attorney
P.O. Box 961
Richmond, Kentucky 40475
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
The Madison County Board of Health, which is the governing body of the county's public health taxing district, seeks to purchase a building for the purpose of expansion. In connection with the financing of the project, you raise the following questions for the opinion of this office:
"#1. May a Health District purchase property by means of a conventional ten year or fifteen (15) year note and mortgage?
"#2. May a Health District execute a land contract for the purchase of property?
"#3. May the Health District enter a long term lease arrangement with a purchase clause in the lease, wherein the lease payment may be applied to the purchase price?
"#4. May the Health District enter short term leases for a period of one, two or four years with options to release and option to purchase with rent applying to purchase price? "
Concerning Question No. 1, the public health taxing district was designated as a separate taxing district within the meaning of § 157 of the Kentucky Constitution, pursuant to KRS 212.720 and 212.750. Thus, within the context of a conventional ten (10) or fifteen (15) year note and mortgage, Section 157 of the Constitution would require that the total indebtedness be fundable from the revenue available to the district for the year in which the obligations are executed, i.e., in the absence of a vote of the people of the district assenting to the indebtedness. If the indebtedness would exceed the income and revenue actually available for the year in which the obligation is incurred, the assent of two-thirds of the voters of the district at an election for that purpose would be required. The purpose of § 157 was to establish the pay-as-you-go plan in local government. Thus each year's income and revenue must pay each year's indebtedness and liability. Payne v. City of Covington, 276 Ky. 380, 123 S.W.2d 1045 (1938).
The old Court of Appeals established the principle that the payment of compulsory and essential expenses of the usual and current administration of the governmental unit are valid though the results exceed the limitations of § 157. Fulton County Fiscal Court v. Southern Bell Tel. & Tel. Co., 285 Ky. 17, 146 S.W.2d 15 (1940). However, the payment of such essential governmental expenses must be paid out of the funds raised within those limitations.
We do not believe, under the presently known facts, that the acquisition of a health building is within the category of compulsory and essential expenses of district administration. Section 157 applies to contract indebtedness, but not to necessary governmental expenses or other liability imposed by law. Francis v. City of Bowling Green, 259 Ky. 525, 82 S.W.2d 804 (1934) 806.
In answer to Question No. 2, the health district, through the health board, may execute a land contract for the purchase of property for district purposes, pursuant to KRS 212.740, subject to § 157, Constitution, payable from district ad valorem taxes (KRS 212.725 and 212.755).
In response to Question No. 3, if the district entered into a long term lease, with a purchase clause, and with the lease payments being applied to the purchase price, it would be subject to the restrictions of § 157, Constitution, where the total lease payments would exceed the available current revenues for the year the lease is executed. Under a long term lease, the total rentals for the entire lease period would have to be measured against § 157. However, in order for § 157 to not apply, the lease could be written on the basis of a lease of one (1) year at a time, subject to renewal for one (1) year at a time, not to exceed a designated number of renewals, and providing finally a purchase option wherein all the rentals paid will be applied to the purchase price. We assume in that situation, that all of the rentals, as they become due, each year, could be paid out of the current revenues for each particular year of the lease, as renewed. See Kirkpatrick v. City Board of Education, 234 Ky. 836, 29 S.W.2d 565 (1930).
In response to Question No. 4, we have answered it under Question No. 3.