Request By:
Mr. F. English Lacy
Certified Public Accountant
Cherokee Building, 3rd Floor
Hopkinsville, Kentucky 42240
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Walter C. Herdman, Assistant Deputy Attorney General
This is in response to your letter of August 12, in which you relate that your firm audits the financial affairs of several cities, one of which maintains a water and sewer department that operates on a fiscal year basis ending April 30, as required by two outstanding bond ordinances. Under the circumstances you present the following facts and questions:
"After reading KRS 91A.030 (4) and Section 169 of the Kentucky Constitution, it appears that continuance of the April 30 year-end beyond July 15, 1982 will be in violation of the law. Section 169 of the Kentucky Constitution states that all municipalities shall use a fiscal year beginning July 1 and ending July 30. In spite of Section 169 of the Kentucky Constitution, our current audit reference materials dealing with the auditing of Kentucky municipalities mentions two additional fiscal years allowable, these being a calendar year and a June 1 through May 31 year. In light of the above, my questions are as follows:
A) Is the water and sewer department required to alter its present year-end or will the bond ordinance prevail? (One of the bond issues is owned entirely by the Farmers Home Administration.)
B) Is the local housing authority, which is required by the federal government to use a fiscal year ending March 31, affected by the state imposed year-end restrictions?"
In response to your request we initially enclose a copy of OAG 80-380 in which we point out that Section 169 of the Constitution gives the state legislature the right to provide optional years for those cities desiring to adopt them. In this respect KRS 92.020 provides that the fiscal year of cities other than the first class may begin on January 1, June 1 or July 1. As a consequence, cities have the option to operate their fiscal years beginning on any one of those dates, which of course does not include a fiscal year beginning May 1 and ending April 30.
We understand that the city water and sewer department was organized pursuant to a 1940 ordinance placing the exclusive supervision of the department in the hands of a commission. This raises the question of whether the department is legally independent of the city and therefore a separate corporate body or political subdivision not governed by the above referred to section of the Constitution and and cannot be so organized. The water and sewer system was required to be organized under KRS 96.350, which does not authorize the establishing of an independent agency as, for example, an electric light, heat and power plant, under KRS 96.350. The courts have construed KRS 96.350 as authorizing the city to operate the utility through a commission, etc., by ordinance, Keathly v. Town of Martin, Ky., 246 S.W.2d 152, and to abolish such commission at will. City of Elizabethtown v. Cralle, Ky., 317 S.W.2d 184 (1958). Such a commission can only be an agency of the city under this statute.
Since Section 169 of the Constitution and KRS 92.020 do not authorize a city to operate on a fiscal year beginning May 1 and ending April 30, we believe that the bond ordinance requiring the water and sewer system to operate on a fiscal year otherwise, must be amended to conform to one of the dates mentioned. The general rule is that the requirements of the Constitution and statutes prevail over any ordinance, the terms of which are in contradiction therewith; and we are enclosing a copy of OAG 78-97, citing case law to support this position. You will note particularly the general rule as stated therein to the effect that "it has been stated broadly that no municipal ordinance can go beyond, be broader than, add to, subtract from, modify or affect, limit, amend or change statutes, at least where the net result is one of conflict." See also the case of City of Bowling Green v. Gasoline Marketers, Inc., Ky., 539 S.W.2d 281 (1976). The same rules would apply to all contracts with respect to those laws in existence when the contract is executed, though generally the terms of a contract involving a bond issue cannot be altered. Referring to McQuillin, Municipal Corporations, Vol. 5, § 19.42, you will find the rule stating that "laws which subsist at the time and place of making a contract enter into and form a part of it as much so as if such laws were expressly referred to and incorporated in its terms." We thus believe that the city water and sewer department would be required to alter its present fiscal year to conform with one of the three options prescribed in KRS 92.020 as authorized by Section 169 of the Constitution.
Our response to your second question would be in the negative, assuming that the city housing authority is an independent agency established pursuant to KRS Chapter 80. We are enclosing a copy of OAG 77-767, citing the case of City of Louisville v. Louisville Municipal Housing Commission, Ky., 261 S.W.2d 286 (1953), which held that the housing commission is a separate political entity with some of the attributes of a state agency but is not a county or subdivision of a county, a city or town. As a matter of fact, the Court declared that it is a hybrid agency not conceived by the framers of the Constitution. In view of this, we do not believe that the requirements of Section 169 of the Constitution and KRS 92.020 would govern the local housing authority, particularly where the federal government requires these agencies to use a fiscal year ending March 31.