Request By:
Mr. Charles J. McEnroe
City Attorney
City of Burnside
P.O. Drawer 10
Somerset, Kentucky 42501
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Walter C. Herdman, Assistant Deputy Attorney General
This is in response to your letter of July 26, in which you state that Pulaski County has requested the City of Burnside to join into their countywide fire protection program which was initiated during the previous county administration. At that time the city entered into an agreement, copy of which you enclosed, whereby the county would pay the city $25,000 towards the construction of the new firehouse. The county also furnished the city a piece of fire equipment to aid them in their overall program. However, the city built the fire station and borrowed $25,000 in reliance on the contract which apparently was never fulfilled insofar as the county's contribution was concerned.
Under the present administration the county and a public holding company now wants the city to deed its fire station and real property on which it is located to the county. In turn the county will deed the property to the holding company for the purpose of further securing a bonded indebtedness issued by the company to fund this program which is for a term of twelve years, after which the property would be deeded back to the city. The question is raised as to the legality of the city making such a conveyance under the circumstances.
To begin with, a city may dispose of its property no longer needed for public use for a reasonable consideration pursuant to KRS 82.081, and of course under its general home rule power, KRS 82.082. Also it's a general principle that a municipal corporation may transfer its property for a particular public use provided the purpose would advance the interest of the municipality and its welfare. See McQuillin, Municipal Corporations, Vol. 10, § 28.43. Of course § 179 of the Constitution restricts a municipal corporation from making donations to projects for which no benefit will be received by the city or in which it may not independently engage. See Valla v. Preston Street Water Station No. 1, Ky., 395 S.W.2d 772 (1965).
Apparently under the initial contractual agreement between the city and county, the county failed to carry out its obligation, which could possibly be enforced by legal action on the part of the city if it is so disposed. Now the county wants the city to deed its fire station which it alone improved to the county that will in turn deed it to the holding company established on behalf of the county to assist in securing the bond issue, the proceeds of which go to the construction and maintenance of buildings and equipment to furnish fire protection for the county. As far as we can determine from the deed, the city receives little or no consideration for divesting itself of its property, or at least there is no clear indication that in return it receives fire protection. In other words, what benefit does the city receive from this transfer that it does not already have insofar as fire protection is concerned. Also, the holding company was not created for the benefit of the city but for the benefit of the county, and there exists a legal question as to whether a city can in any event transfer its property that will eventually be deeded to such a holding company.
True, the utilization of public holding corporations to assist local governments in acquiring public facilities has been approved numerous times by the courts. An example is the case of Baker v. City of Lexington, Ky., 273 S.W.2d 34 (1934), which involved a plan whereby city property would be conveyed in fee simple to a nonprofit corporation which would in turn construct a swimming pool thereon after having financed the pool through bond issues. Park property was used as security and would be leased and eventually reconveyed back to the city. As indicated above, however, the proposed plan of the county appears to be substantially different from the local holding company project in the Baker case whereby the corporation was specifically formed for the benefit of the city with which it dealt. Therefore, in view of the apparent problems raised with respect to the proposal, we must question the legality of such a transfer on the part of the city and would suggest if the city is so inclined to proceed in this direction, a declaratory judgment suit be filed.
We also might call your attention to the possible utilization of the Interlocal Cooperation Act, KRS 65.210 to 65.300, as a means of accomplishing mutual fire protection benefits for the various participating local and county governments, pursuant to which revenue bonds may be issued to construct the necessary facilities pursuant to a joint agreement.