Request By:
Mr. O. Leonard Press
Executive Director
KET Network Center
600 Cooper Drive
Lexington, Kentucky 40502
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
In your letter you refer to the State Property and Buildings Commission Revenue Bonds of $8,560,000, Project No. 19, for educational television. You gave the following facts and raised the following question:
"Project Number 19, by which the State Property and Buildings Commission in 1967 issued revenue bonds for the construction of transmitters and Network Center for Kentucky Educational Television, included monies for 'production equipment necessary to originate television programs to be installed by the Authority in production studios' at six state universities and the Jefferson County Board of Education.
"Accordingly, two hundred thousand dollars was allocated to the Jefferson County Board of Education for use at Channel 15, done by special voucher E1130 on October 6, 1970.
"Presently the Jefferson County Board of Education is negotiating with an as-yet-unnamed nonprofit group to effect a transfer of license. KET and the Jefferson County Board of Education consequently need a judgment to this question:
"What obligation(s) do KET, the Jefferson County Board of Education, and/or any prospective new licensee have with regard to the above referenced equipment purchased by revenue bonds issued by the Commonwealth of Kentucky?"
The State Property and Buildings Commission leased the project, under the terms of the bond documents, to the State Board of Education. The project included "educational television facilities", which in turn included various sites, buildings, structures, machinery, equipment, etc. Included in such facilities was the production equipment for a production studio necessary to originate educational television programming by the Jefferson County Board of Education, operating as Channel 15. The actual possession of this equipment is presently with the Jefferson County Board of Education. The subject production equipment in the possession of the Jefferson County Board of Education, of course, is owned by the Commonwealth of Kentucky.
The bonds were issued under the authority of KRS 58.010 to 58.140 [public property to be used for public purposes], KRS 56.450 [issuance of revenue bonds by State Property & Buildings Commission], and KRS 156.070 [State Board for Elementary and Secondary Education may lease educational television from State Property & Buildings Commission].
These bonds are secured by and under the terms of a resolution of the Commission, and constitute a first lien on the gross receipts and revenues derived from and to be derived from the lease, use, rental and occupancy of the facilities comprising Project No. 19. There is no provision for a lien upon physical properties constituting the revenue bond project.
Mr. Cornelius W. Grafton, of the original Kentucky Bond Counsel for the subject bond issue, has indicated to us that while there was no practical, statutory or conventional security, the bondholders bought the bonds with the understanding that the General Assembly would continue to make appropriations from which some public body could pay the annual rentals on the lease, and thus fund the bond issue. The bond documents reflect that agreement.
The bond documents are contractual in nature, and the contract must not be impaired.
Keathley v. Town of Martin, Ky., 253 S.W.2d 3 (1952) 56.
It is our opinion that the interests of the state can be subserved and the rights of the bondholders preserved if the ownership of this production equipment is retained by the Commonwealth, and proper provisions are made for the use of these state assets by another nonprofit organization devoted to serving the same public interest. In this manner, the integrity of the KET operation will be maintained, and the reason for renewing the lease annually and continuing to pay the rentals from which the bondholders receive their money will be preserved. There must not be even a partial breakdown in the original funding and programming scheme envisioned under the bond issue. The new nonprofit organization should be required to acknowledge that the title to the assets is in the Commonwealth and agree to continue the operation of Channel 15 on a nonprofit basis and in a manner consistent with the state-wide KET operation. We think that only by observing the conditions just outlined can the continuance of the biennial state appropriations be reasonably anticipated.
It is true that no indebtedness of the Commission or Commonwealth is involved. But it is important that the state continue a fiscal and statutory program calculated to pay off these bonds and interest as they become due and continue the original KET program envisioned.
If the above conditions are observed, the obligations of KET, the Jefferson County Board of Education and the prospective new licensee will be substantially met.