Request By:
Robert G. DeFusco, Esq.
101 Madison
Louisa, Kentucky 41230
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Thomas R. Emerson, Assistant Attorney General
This is in reply to your letter raising a question concerning the interpretation and application of KRS 61.280 which prohibits officers of cities of the fifth and sixth classes from becoming interested, directly or indirectly, in contracts with cities of which they are officers.
The sanitation facilities for the city building, where the city's governing body meets, belong to a member of the city's governing body and his wife. In other words, the water and sewage system in the city hall building is part of the system installed at the home of the city officer. This arrangement has existed since 1978 but recently the wife of the member of the governing body who owns the sanitation system presented the city with a bill for the city's use of the sanitation system during the first three months of 1981. The city paid the bill.
You refer to OAG 72-26 where this office concluded that a mayor who used his equipment to work on the city's sewage and water system and then billed the city for those services created a contractual relationship in violation of KRS 61.280. You also refer to OAG 74-14 which you interpret as saying that a city officer does not violate KRS 61.280 if the services he provides cannot be obtained from any other source.
Your specific question is whether the city officer owning the sewage and water system has violated the provisions of KRS 61.280 by charging the city for the use of the system. The officer was an officer when the city building was built and the sewage and water system was installed. Rather than installing a sewage and water system pursuant to some other available method it was connected to the system installed in the city officer's home. In your opinion the officer has violated the provisions of KRS 61.280.
KRS 61.280 states as follows:
"No officer of a city of the fifth or sixth class shall be interested, directly or indirectly, in any contract with the city of which he is an officer, or in doing any work or furnishing any supplies for the use of the city or its officers in their official capacity. Any claim for compensation for work done, or supplies or materials furnished, in which any such officer is interested, shall be void, and, if audited and allowed, shall not be paid by the treasurer. Any willful violation of the provisions of this section shall be grounds for a removal from office, and shall be a misdemeanor, and purnished as such."
This office has on numerous occasions dealt with the provisions of KRS 61.280 and we have consistently concluded that the statute prohibits any officer of the city from being involved, directly or indirectly, in any contract with the city or in doing any work or furnishing any supplies for the use of the city. See, for example, OAG 72-26 and OAG 80-520, copies enclosed. We have also recognized the general rule set forth in Collinsworth v. City of Catlettsburg, 236 Ky. 194, 32 S.W.2d 982, 983 (1930), as follows:
"'The interest must exist at the time the contract is made. If at the time a contract is executed no officer of the city has a pecuniary interest in it, it is valid and it will not be invalidated merely because an officer subsequently acquires an interest therein, provided there is no evidence of any conspiracy or criminal understanding between the contractor and the city officer at the time the principal contract was entered into.'"
In OAG 74-14, copy enclosed, we said that if a public utility is operating under a franchise to furnish utility services and the franchise was executed prior to the utility employe assuming a city office, there would be no conflict. Also if the public utility in question is the only source of such utility services for the city there would appear to be no conflict of interest. In connection with the latter statement we direct your attention to several sources of authority.
In 56 Am.Jur 2d, Municipal Corporations, § 298 it is stated that, "Where service is furnished by a corporation not by contract, but by a requirement of law, it is no objection that a municipal officer is a stockholder in the corporation." In 63 C.J.S. Municipal Corporation § 991 (b) it is stated that where the contractor is a public utility company and is obligated by law to furnish gas or electricty to the city on demand, the rule as to the invalidity of a municipal contract in which an officer is interested does not apply.
In Capital Gas Co. v. Young, Cal., 41 P. 869 (1895), the Court said that the conflict of interest statute has no application to a situation where a gas company is required by law to furnish gas to the city upon demand, and, having furnished the service, has presented its bill to the city, although the mayor of the city owns stock in the gas company and is its president. In Hotchkiss v. Moran, Cal., 293 P. 148 (1930), the Court cited the Capital Gas Co. case, supra, and quoted from it. The Court said in part that the electric company involved is the only electric lighting company from which the city can obtain the energy. The reason for protecting the city against the possible result of the personal interest of the officer in a contract or transaction with the city does not exist under such circumstances. "The obligation of the lighting company to supply this public utility to the city under the law distingishes the transaction from the mere enforcement of a contract." See also OAG 73-222 and OAG 73-88, copies enclosed.
Conclusion
KRS 61.280 prohibits an officer of a city of the fifth or sixth class from becoming interested, directly or indirectly, in any contract with the city of which he is an officer. An exception to that conflict of interest provision would appear to be situations where the organization doing work for the city or furnishing a service to the city, and with whom a city officer is associated, is a public utility required by law to furnish the service involved and where the organization performing the service is the only legally authorized supplier of that particular service.
In the fact situation you have presented the city officer supplying the service and billing the city for the service is not associated with a public utility, he is not performing a service he is required by law to perform for the city and he is not the only legally authorized supplier of that service. Thus, the city officer who, after he assumed office, connected the city building's water and sewage system to the system installed in his home and billed the city for water and sewage services is in violation of KRS 61.280.