Request By:
Honorable Stephen C. Cawood
Attorney at Law
P.O. Drawer 280
Pineville, Kentucky 40977
Opinion
Opinion By: Robert F. Stephens, Attorney General; By: Walter C. Herdman, Assistant Deputy Attorney General
This is in answer to your letter of September 4 in which you raise the following question:
"I am writing to you to request an opinion of the Attorney General with regard to a question whether or not an individual could serve on the City Council of a Fourth Class city, who is an officer and employee of the only bank in such a Fourth Class city, when that city government does its banking and borrows money from the banking institution employing that person and whether an employee of this bank would be disqualified from so serving by the provisions of KRS 86.050(2)."
In response to your letter we initially refer you to the case of
McCloud v. City of Cadiz, Ky. App., 548 S.W.2d 158 (1977), wherein the court took the position that the deposit of money by a city of the fifth class with a bank where certain city officers are directors, does not violate the conflict of interest statute, namely KRS 61.280, which is similar in part to KRS 61.270 governing cities of the fourth class though the second reason given by the court for its decision would not be applicable to a city of the fourth class governed by KRS 61.270 under any circumstance. KRS 61.280 was designed in part, according to the court, to protect the value of the goods and services received by the public whereas in a government regulated activity, such as banking, there can be no question as to value received. KRS 61.270 contains no such language.
The McCloud case, we believe, is distinguishable from a situation where the city borrows money from a banking institution which involves the payment of high interest rates under present day economic conditions. The loan would be a lucrative transaction for the bank and a direct obligation of the city.
It would be similar to a situation where the city might contract to borrow money from a loan company of which a member of the city council is a stockholder and which would obviously be prohibited by the terms of KRS 61.270. The fact that the banking institution in question is the only one located in the city would not be a factor since the city could negotiate a loan from any banking institution outside of the city.
It would thus appear that the provisions of KRS 61.270 and 86.050(2) would prohibit the negotiation of such a contract where a member of the city council is an officer of the bank.