Request By:
Mr. Ralph Ed Graves, Commissioner
Department for Local Government
909 Leawood Drive
Frankfort, Kentucky 40601
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in response to your letter raising questions pertaining to grants from the United States Department of Housing and Urban Development, the department hereafter being referred to as HUD. The grants are made to a local government or combinations of such and are audited by HUD on a periodic basis. The funds can only be spent in accordance with HUD rules and regulations. HUD is emphasizing grants which will be used to rehabilitate privately owned properties. Several cities have applied to HUD for block grants to establish a fund for loans and grants to private property owners for the rehabilitation of property in order to eliminate slums and blighted conditions. This rehabilitation fund is to be administered by the cities through a department for community development.
A considerable portion of your letter deals with KRS 99.330 to 99.510 which involves Urban Renewal and Community Development. You apparently are trying to show by way of comparison that what can be done under those statutory provisions can be done under the program with which you are now concerned.
Your letter concludes by presenting five questions, which are as follows:
"(1) Since a local government may accept grants from the federal government and include any conditions attached to the federal aid, is the local government permitted by state law to use the funds to eliminate slums and blight in any manner permitted by the grant, including grants and loans to private property owners?
(2) Is there any way a local government may use HUD block grant funds for rehabilitation of private property?
(3) If a local government may lend grant funds for rehabilitation of private property, is it permitted to take notes and mortgages to secure these loans and to sell such security to financial institutions without recourse?
(4) Does Kentucky Constitution Section 179 prohibit a city from making loans or grants to private owners for the rehabilitation of structures in order to eliminate slums and blighted conditions?
(5) Is a local government permitted to add general funds to the HUD block grant for rehabilitation of private property?
Perhaps at this point, without responding to your specific questions on an individual basis, it would be beneficial to attempt to set forth our opinion concerning the general subject matter you have presented. There is no state statute authorizing a city to spend its general fund money on the repair or rehabilitation of private buildings and structures. If the city treats the federal grant money as city funds and commingles the federal grant money with general fund money, serious problems may arise. The city may be subject to a suit for misappropriation of funds if it cannot clearly differentiate between general fund money spent for public purposes and federal grant money used for the rehabilitation of private property.
Since the federal law governs, basically, the use of federal money by the city or anyone else, we see nothing wrong with the city serving as the distributor of federal funds pursuant to federally prescribed standards, with sufficient federally enacted controls, where the money is kept in a separate account apart from the city's general fund money. With the city merely serving as the distributor of federal funds or the conduit through which the federal funds flow, the grants or loans would primarily constitute transactions between the federal government and the owners of private property and structures in the city.
To further elaborate on some of the other matters raised in your letter, particularly with reference to the powers of a municipal corporation under state statutory provisions and judicial decisions, we initially refer you to Juett v. Town of Williamstown, 248 Ky. 235, 58 S.W.2d 411 (1933). In that case the Court said in part that municipal corporations possess only such powers as are expressly given, or necessarily implied, in statutes constitutionally enacted, and, if there is a fair and reasonable doubt of the existence of the power, it should be resolved against the city. In addition, see OAG 75-156, copy enclosed, where we said that we are unaware of any statutory authority for a city to appropriate general fund money for the repair of privately owned and deteriorating buildings.
In connection with your reference to Section 179 of the state constitution, see OAG 70-93, copy enclosed, where we said that when a statute spells out a specific public purpose, the courts have been inclined to uphold it as a legitimate method of overcoming objections raised in connection with Sections 3, 171, 177, 179 and 181 of the Kentucky Constitution. At this point, however, we are unaware of any statute or judicial decision stating that the appropriation of money by a city from its general fund to private persons for the improvement of private property constitutes a public purpose. If you still have doubts as to the inapplicability of this provision to your particular problem, or you question any aspect of our approach to your problem, we can only suggest that a declaration of rights suit be filed. In the more distant future someone may wish to explore the possibility of a statutory enactment relating to the matter.