Request By:
Mr. Mark Fitzgerald
Representative
P.O. Box 313
Cynthiana, Kentucky 41031
Opinion
Opinion By: Robert F. Stephens, Attonrey General; By: Charles W. Runyan, Assistant Deputy Attorney General
Reference is made to OAG 79-166, in which we concluded that KRS 67.083(3)(j), which authorizes counties to issue bonds to facilitate the construction of new housing, was unconstitutional under § 179 of the Kentucky Constitution, which constitutional section prohibits counties from appropriating money and lending its credit to private persons.
We have been asked by several counties, including Johnson, Clark, and Floyd, to reconsider our conclusion. We have learned that Johnson County has already issued mortgage revenue bonds under this statute. Several other counties apparently contemplate issuing similar revenue type bonds.
KRS 67.083(3)(j) provides in essence that any fiscal court "may enact ordinances, issue regulations, levy taxes, issue bonds . . ." in performance of certain enumerated public functions: . . . (j) "Facilitating the construction of new housing. " (Emphasis added).
Certainly under the doctrine of express delegation of powers to fiscal courts, no one can deny that the governmental purpose [construction of new housing] is effected by a thoughtful, purposeful and deliberate delegation of a known power. Fiscal Court Etc. v. City of Louisville, Ky., 559 S.W.2d 478 (1977).
The major question remaining is whether the financial methods necessary to attain the governmental functions enumerated are sufficiently spelled out in the statute. The key here is the words "issue bonds". (Emphasis added). The statute does not define "bonds". Nowhere in the statutes can we find a definition of "bonds" bearing on the subject statute. A bond has been characterized as a bonded and written obligation for the payment of money by any county on which interest is paid. Tandy's Ex'rs v. Carlisle County, Ky., 178 S.W.2d 591 (1944); and Fidelity & Columbia Trust Co. v. Lyons, 302 Ky. 839, 196 S.W.2d 605 (1946) 607.
It can be seen from the long list of expressly mentioned areas of county government functions under KRS 67. 083(3)(a) through (x) that such subjects may be properly and constitutionally financed through general obligation bonds of the county and through revenue bonds of the county. Thus we are at this point led to believe that the legislature, in using the words "issue bonds", intended to establish a phrase necessarily embracing any constitutional method of financing by way of the appropriate kind of bonds, i.e., general obligation bonds and revenue type bonds of the county, depending upon the expressly authorized governmental function involved. It is an established rule of statute construction that the policy and purpose of the statute will be considered in determining the leaning of words used. Kentucky Region Eight v. Commonwealth, Ky., 507 S.W.2d 489 (1974) 491. Here the contextual sweep of KRS 67.083(1) and (3) with its plainly declared policy and purpose, literally compel this result. This conclusion is buttressed by several considerations. First, Subsection (3) of the statute carefully directs that, regardless of whatever kind of bond is issued, for the particular governmental function, such financing method must not contravene any statute or constitutional section. Further, in subsection (1) of the statute the legislature underscored the point that "It is the purpose of this section to provide counties as units of general purpose local government with the necessary latitude and flexibility to provide and finance various governmental services within those functional areas specified in subsection (3) of this section . . ." (Emphasis added). This simply means that flexibility and sound judgment are vested in the fiscal courts, subject to their conforming to the dictates of the statutes and constitution.
The conclusion is further supported by Olson v. Preston Street Road Water Dist. No. 1, 286 Ky. 66, 149 S.W.2d 766 (1941). In that case the statute authorized water districts to "issue bonds", to establish water rates and "do all things necessary to the operation and maintenance of a water system." The court concluded that there was nothing in the statute which would prevent the issuance of revenue bonds for the statutory purpose. The case of R.F.C. v. City of Richmond, 249 Ky. 787, 61 S.W.2d 631 (1933) is authority for the proposition that even in the absence of an express statutory provision as to "bonds", a city was held to have the authority to issue gas revenue bonds. At that time there were no revenue bond statutes in existence. In Spahn v. Stewart, 268 Ky. 97, 103 S.W.2d 651 (1937), the court wrote at page 659 that "It is well settled that when the legislature delegates a power to a municipal corporation that body has the implied right to select the means by which the purpose may be accomplished, provided always that the adopted means do not transcend any constitutional inhibition."
Under the above analysis we think the interpretation of "issue bonds" is clear. However, even if it were argued that the term is ambiguous [and it is not], there is a settled principle that any doubt regarding the constitutionality of a statute must be resolved in favor of its constitutionality. Thus where a statute is susceptible of two constructions, one of which will render it unconstitutional and the other valid, the latter will be adopted. Reeves v. Wright & Taylor, 310 Ky. 470, 220 S.W.2d 1007 (1949) 1009. This is true "even though the construction which is adopted does not appear to be as natural as the other." 16 Am.Jur.2d, Constitutional Law, § 145, p.p. 348-349.
It is our view that if the county were to employ its general obligation bond to finance the construction of new housing, such would constitute an unconstitutional use or application of the statute. In such case the county would be diverting its tax revenues to private individuals; and such appropriation of money and extending of credit to individuals is expressly prohibited by § 179 of the Kentucky Constitution. But see Faulconer v. Danville, 313 Ky. 468, 232 S.W.2d 80 (1950), upholding industrial building revenue bonds, since there is no governmental debt obligation, and no lending of credit, and no use of tax revenues. However we must carefully distinguish between an unconstitutional statute and a statute which may merely be used unconstitutionally. Judge Latimer in Preston v. Clements, 313 Ky. 479, 232 S.W.2d 85 (1950) 88, wrote that "An act is not unconstitutional merely because there may be an anticipated unfaithful and invalid administration of it." He pointed out that there is ample remedy in the courts where such unconstitutional use of a statute exists.
Thus we conclude that KRS 67.083(3)(j) 1 is constitutional, and the revenue bond kind of financing will involve a constitutional use of the statute.
Although there are no guidelines spelled out in the statute as to revenue bond financing, this is left to the sound discretion of fiscal courts who must rely upon fiscal agents and the expertise of bond counsel in such details and in the formulation of the appropriate bond documents. We are informed that the Johnson County bonds that have been issued and delivered are truly in the classic category of revenue bonds, and that such mortgage revenue bonds of that county are payable solely from and secured by a pledge of the revenues, reserve funds, and assets, including any insurance proceeds related to the mortgage financing pledged under the indenture, and do not constitute a debt of the county within the meaning of constitutional limitation.
As relates to the public purpose, tax revenues are not used in revenue bond financing, and revenue bonds for the subject purpose will not be paid from the general funds of the counties. We see no constitutional problem here. The counties stand to benefit from a reasonable profit margin, and at the same time make housing possible at a substantially lower rate of interest. Then there are various general economic benefits which follow the availability of increased housing in terms of the gross county economic product. The Supreme Court of the United States upheld residential housing as a public purpose in Green v. Frazier, 253 U.S. 233, 64 L. Ed. 878, 40 S. Ct. 499 (1920). See also Green v. Frazier, 44 N.D. 395, 176 N.W. 11 (1920), in which court the issue first arose. The North Dakota Court emphasized the value of the house as housing the "home" or family as the vital unit in American society. The North Dakota Court wrote that "The home, in effect, is a miniature government wherein legislative, executive, and judicial power is exercised." He said that if a home is to function properly it must have adequate housing. It must have a fixed abode, and at reasonable interest rates. The Supreme Court of the United States upheld the legislation as a valid public purpose and as promoting the general welfare. In Spahn v. Stewart, 268 Ky. 97, 103 S.W.2d 651 (1937), the court wrote at page 655 that "a public purpose . . . has for its objective the promotion of the public health, safety, morals, general welfare, security, prosperity, and contentment of all the inhabitants or residents within a given political division . . . the sovereign powers of which are exercised to promote such public purpose. " Note that the Johnson County mortgage revenue bonds recite the fact that the bonds are issued to relieve the condition of unavailability of mortgage funds at a reasonable rate of interest, to relieve the depressed condition of housing facilities in the area, unemployment conditions among housing contractors, and housing employees in the area.
OAG 79-166 is withdrawn accordingly.
Footnotes
Footnotes
1 In this opinion we are addressing only the matter of construction of new housing.