Request By:
Mrs. Carol Haas, Member
Campbell County Board of Education
10 Rosa Place
Cold Spring, Kentucky 41076
Opinion
Opinion By: Steven L. Beshear, Attorney General; Robert L. Chenoweth, Deputy Attorney General
As a member of the Campbell County Board of Education, you have asked the Office of the Attorney General for an advisory opinion on KRS 58.430 as to its effect on KRS 160.540, if any. As we will explain more fully below, it is the opinion of this office that KRS 58.430 does not implicitly repeal or in any way modify the maximum interest rate a school district may pay on money borrowed in anticipation of taxes.
In order to understand and follow our reasoning regarding this matter it will be helpful to first look at KRS 160.540, which reads in full as follows:
"Any board of education may borrow money on the credit of the board and issue negotiable notes in anticipation of revenues from school taxes for the fiscal year in which the money is borrowed, and may pledge the school taxes for the payment of principal and interest on the loan. The rate of interest charged shall not exceed six per cent (6%) per annum, and the principal shall not exceed seventy-five per cent (75%) of the anticipated revenue for the fiscal year in which it is borrowed. In all cases such loans shall be repaid within the fiscal year in which they are borrowed. "
The unambiguous language of this provision of our school laws needs no interpretation or explanation.
The legal problem you have presented is precipitated by some of the language contained in KRS 58.430. In order to place this section of law in proper perspective it is necessary to consider all of Chapter 24 (Senate Bill 96), 1970 Acts of the General Assembly, including the preamble to this bill. The sections of Senate Bill 96 were codified as KRS 58.410-58.440 and read as follows:
"58.410. Definitions for KRS 58.410 to 58.440. - (1) As used in KRS 58.410 to 58.440, unless the context otherwise requires:
(a) 'Public body' means the Commonwealth, its political subdivisions, its municipalities, its school and other taxing districts, its nontaxing public bodies and institutions, and any and all agencies and instrumentalities thereof, whether such agencies or instrumentalities be now existing or hereafter created and established under and pursuant to specific statutory authority, or whether such agencies or instrumentalities be now existing or hereafter organized, established and caused to exist as nonprofit corporations under applicable general laws, having performance as such agencies or instrumentalities as their sole corporate purposes;
(b) 'Public obligation' means bonds, notes, warrants or other obligations of any public body;
(c) 'Rate of interest' means both the coupon or stated interest rate applicable to any public obligation, and the effective interest rate or interest cost percentage, computed upon the basis of the coupon or stated interest rate or rates and the price actually to be received by the issuing public body; provided, however, KRS 58.410 to 58.440 is not intended, and shall not be construed, to amend, alter or repeal any existing law requiring that certain public obligations be sold at not less than the face amount thereof.
(2) KRS 58.410 to 58.440 does not relate to or affect borrowing by any person or corporation except such as are within the definition of 'public body' as set forth in this section. (Enact. Acts of 1970, ch. 24, Sect. 1.)
"58.420. - Public policy as to public bond interest rates. - It is hereby determined and declared to be the public policy of the Commonwealth that interest rates payable by public bodies upon public obligations be such as to be competitive with those rates which are permitted by other states, in order that necessary public projects may be financed and may be undertaken in the interest of the public health, safety and general welfare. (Enact. Acts 1970, ch. 24, Sect. 2.)
58.430. Removal of interest rate limits. - From and after March 9, 1970, notwithstanding any other acts or laws of other import which may presently prevail, wherever the same may be found in the Kentucky Revised Statutes as of such date, it shall be lawful for public bodies to establish, agree and bind themselves to pay interest upon their public obligations at any rate or rates which may be determined upon by the governing bodies of the respective public bodies which are the issuers thereof, but subject, nevertheless, to such approvals as may now or hereafter be applicable thereto according to law. (Enact. Acts 1970, ch. 24, Sect. 3.)
58.440. Refinancing at higher rate than of original issue. - If any public body shall determine:
(1) That financing of a public project may be accomplished to the best advantage in the public interest only by combining the same with refinancing of previously issued and outstanding public obligations at a rate or rates of interest higher than the rate or rates otherwise applicable thereto, or
(2) That refinancing of a public project at a higher interest rate or rates is necessary in order to prevent or anticipate default in payment of interest or principal of public obligations with regard thereto, or
(3) That any combination of the circumstances described in subsection (1) or (2) exists, then such refinancing is recognized to be lawful; provided, however, that prior to any such refinancing at a higher rate or rates of interest, the issuing public body shall make and spread at large upon its public records its determination that such action is necessary or desirable in the public interest, and its reasons therefor. (Enact. Acts 1970, ch. 24, Sect. 4.)"
The preamble to Senate Bill 96 reads:
"AN ACT concerning interest rates which public bodies shall be permitted to pay upon their public obligations; and declaring an emergency.
WHEREAS, the cost of money as represented by prevailing interest rates in the financial market places has steadily increased in recent years, and is now higher than at any time in more than fifty years; and
WHEREAS, inflationary pressures, and competition for money among all sectors of the national economy, have been in recent months, and continue to be, such that the Commonwealth, its political subdivisions, its municipalities, school and other taxing districts, non-taxing public bodies and institutions, and agencies and instrumentalities thereof, have been and are, in increasing numbers, unable to market their bonds, notes, warrants or other lawful obligations within the various statutory limitations respectively applicable thereto; with the result, as demonstrated by numerous failures to receive purchase bids at public offerings, that the construction, acquisition or other undertaking of essential public projects (such words including, as examples only and without limiting their generality, school buildings, other buildings, structures and appurtenant facilities for public purposes, water systems, sewer systems, sewage treatment and disposal plants, and hospitals), cannot be financed and are of necessity being abandoned or postponed indefinitely, solely because prevailing statutory interest rate limitations are unduly and unrealistically restrictive; and
WHEREAS, it appears to the General Assembly that it is in the interests of the public health, safety and general welfare of the Commonwealth and its citizens, that financing of public projects to serve proper public needs and demands to be made possible by permitting public bodies to meet prevailing interest rate competition, and it has been caused to appear that certain adjoining states have enacted laws of this nature, thus placing the Commonwealth and its citizens at an additional disadvantage which further compounds already existing difficulties in the financing of urgently needed public projects; and
WHEREAS, by reason of all of the foregoing it is apparent that a state of emergency exists, and that this Act should become effective immediately upon its passage by the General Assembly and its approval by the Governor, in order that the Commonwealth, its subdivisions, public bodies and institutions, and the agencies and instrumentalities thereof, may be able to finance public projects and undertake the same as early as possible during favorable construction weather in the year 1970;"
It is our position and conclusion that a careful reading of these statutes makes it clear that the General Assembly only removed the ceiling on interest rates in connection with "necessary public projects."
We note that schools are specifically included within the definition of "public body" in KRS 58.410(1)(a) and that the definition of "public obligation" in KRS 58.410(1)(b) is written about as broadly as it can be. Nevertheless, the remaining provisions support our belief the General Assembly was only considering, as pertinent here, school districts' public obligations on public projects. While recognizing that the titles to the chapters of the Kentucky Revised Statutes are not part of the law (KRS 446.140), still we believe it informative to note that KRS Chapter 58 is entitled "Acquisition and development of public projects through revenue bonds." Moreover, in KRS 58.420 the "public policy of the Commonwealth" is stated "in order that necessary public projects may be financed. " KRS 58.440(1) and (2) refer to either the "financing of a public project" or the "refinancing of a public project. " These repeated references in the text of the law to be public obligations of a public body in connection with a public project lead to only one conclusion, in our opinion, which is that the General Assembly desired to give the latitude to public bodies to borrow money for public projects without the inhibitions produced by a low ceiling on interest rates that could be paid. The preamble to Senate Bill 96 recited in full above bolsters this public projects application analysis.
KRS 160.540 has nothing to do with the financing of public projects. It is simply a statutory vehicle authorizing a school district to borrow money on the board's credit until the revenues to be produced by taxes will be realized. Notes taken by a school district under this statute are typically short-term notes, even though the statute gives the school district the fiscal year in which the funds were borrowed to pay back the loan. We believe if the General Assembly intends to raise or eliminate the maximum rate of interest a school district may pay on such notes, this can be set out quite specifically. We do not read KRS 58.410-58.440, and particularly KRS 58.430, as accomplishing such an interest rate modification when the public obligation of the school district is for money in anticipation of taxes.