Request By:
Honorable Benny Ray Bailey
State Senator
Route 1
Box 102A
Hindman, Kentucky 41822
Opinion
Opinion By: David L. Armstrong, Attorney General; Walter C. Herdman, Asst. Deputy Attorney General
This is in response to your letter of February 4 in which you raise a number of questions regarding the location of a new regional medical center. Your initial question is as follows:
"Can a city commission of a third class city undertake to purchase real property on an installment contract basis from general revenues of the city at a total cost in excess of anticipated revenue for the current fiscal year without enactment of an ordinance pursuant to KRS 91A.030 and without compliance with the referendum requirement of Sec. 157 of the Kentucky Constitution?"
Our response to the above question would be in the negative. Section 157 of the Constitution prohibits a city from becoming indebted in any manner or for any purpose in an amount exceeding in any year the anticipated income and revenue provided for that year without a vote of two-thirds of the people residing within the city. The procedure for such a referendum is detailed in KRS 91A.090. In interpreting the restrictions under Section 157 of the Constitution, the courts have consistently held that the fact the payment of the indebtedness is deferred over a period of years, would not change the restriction. In other words, the total indebtedness regardless of the number of years in which it may be paid, even under a lease-purchase agreement, must be considered in determining whether or not the indebtedness exceeds the anticipated revenue of the year in which the total debt originates. See
O'Brien v. City of Owensboro, 113 Ky. 680, 68 S.W. 558 (1902) and
County Board of Education of Christian County v. Board of Trustees of the Hopkinsville Public Schools, 154 Ky. 309, 157 S.W. 697 (1913). Also in McQuillin, Mun, Corp., Vol. 15, Sec. 41.15, it is stated in effect that attempts to evade debt limitations by subterfuge or indirect methods, such as "by contracting the installment payments," are universally frowned upon. Referring now to Section 41.16 we quote the following:
"Municipalities desiring to purchase property, but indebted to such an extent as to make it impossible, have often resorted to a lease to evade the debt-limit provision, so that the annual payments would be within the debt limit, and such annual payments would be the only indebtedness created; but such evasions, where in fact a purchase, have invariably been held a violation of the debt-limit provisions and therefore invalid. Thus, a contract which is in fact a purchase of an electric light plant, although in the form of a lease with an option to purchase, constitutes an indebtendness for the entire sum from the date of its execution."
Your second question is as follows:
"Can a city donate real property to a private, not-for-profit hospital corporation for construction of a hospital or must it sell the land to the hospital pursuant to KRS 82.060, can it sell the property to the hospital corporation for less than fair market value?"
In response to the above question, the city cannot donate its property whether it be in the form of real estate or an appropriation of public funds to any private corporation as this would be in direct violation of Section 179 of the Kentucky Constitution. The city, of course, may sell its property no longer needed for public purpose pursuant to the terms of KRS 82.081 and 82.082 in any manner that it desires. However, such property should be sold either for its fair cash value based on an independent appraisal, by auction or through the bidding method as we have pointed out in numerous opinions including OAG 82-41 and 82-530, copies attached.
Referring to McQuillin, Mun. Corp., Vol. 10, Sec. 28.37 concerning the right to dispose of municipal property, it is also pointed out that the power to sell and convey property does not authorize a conveyance to private individuals or a corporation for private purposes without consideration. See also Section 28.43.
We also call your attention to the fact that during the 1980 Session of the Legislature a bill was enacted, coded as KRS 85.125, which specifically authorized the legislative body of any city of the third class or the fiscal court of any county containing this class of city, to pay public funds to any nonprofit hospital located in the city or county serving any citizen in the city or county. This statute, however, was repealed by the 1982 Legislature for the apparent reason that it would violate Section 179 of the Constitution.
Incidentally, KRS 82.060 to which you refer in your question was repealed in 1980 and the home rule statute, KRS 82.082, was enacted to take its place.
Your third question is as follows:
"Can a city commission of a third class city by resolution authorize the disposition of real property owned by the city to a private, not-for-profit hospital corporation and undertake to construct natural gas pipelines to the site, extend a ten-year credit of $2,000.00 per month toward city water and sewer charges, construct drainage facilities from the hospital site free of charge and furnish future snow removal from hospital parking lots free of charge in an inducement for location of the hospital within the city limits? Would such action by the city commission to authorize disposition of the property, provision of credits and free city services be required to be taken by ordinance under KRS 91A.030 rather than by resolution? Would the city's extension of water and sewer credits, construction of natural gas pipelines and drainage facilities and furnishing of free snow removal services to the hospital corporation violate Sec. 179 of the Kentucky Constitution or any other constitutional or statutory prohibition? Would a contractual commitment to provide such credits and per-form such governmental services to the hospital corporation be binding upon successor administration?"
The initial question raised above concerning the right of the city to dispose of its real property to the private nonprofit corporation has been answered above. Also, any attempt on the part of the city to grant the corporation relief from the payment of water and sewer charges or to construct free of charge drainage or pipeline facilities, or grant it other credits or free services mentioned, would likewise be in violation of Section 179 of the Constitution and against public policy. This conclusion negates the necessity for answering the question of the binding effect of such agreements on successive administrations.