Request By:
Hon. Dale Wright
Anderson County Attorney
Main and Court Place
Lawrenceburg, Kentucky 40342
Opinion
Opinion By: Steven L. Beshear, Attorney General; Charles W. Runyan, Asst. Deputy Attorney General
Anderson County owns a building and surrounding land called "Sunset Hill." It has for many years been operated as a home for the aged. Apparently, the fiscal court contemplates leasing the property to a private concern for five years. You are thinking of including a provision to the effect that "The lessor agrees to keep all buildings on the premises in good repair and to make necessary improvements to buildings."
Question No. 1 reads:
"If a county enters into a lease with a third party for the conduct of a business venture by the third party and the terms of said lease (number one) mandate that the county shall have certain expenses such as maintenance and repair, and (number two) that the term of said lease is for more than one year, would that lease be in violation or even in conflict with Kentucky Constitution Section 158?"
The fiscal court has the power to sell and convey any real estate belonging to the county. KRS 67.080(1)(b). The Court of Appeals of Kentucky, in Burns v. Moore, 307 Ky. 167, 209 S.W.2d 735 (1948) 737, held that the power to sell includes the power to lease.
As to whether the county's contracting to provide for the maintenance and repair of the property during the life of the lease would constitute a constitutional indebtedness, as envisioned by §§ 157 and 158 of the Constitution, the answer is "yes." As the Supreme Court of Appeals of Virginia said in Board of Supervisors of Fairfax County v. Massey, Va., 169 S.E.2d 556 (1969), any unconditional obligation requiring the payment of money is a debt within constitutional limitations. See also Benjamin v. City of Mayfield, 170 Ky. 446, 186 S.W. 169 (1916), holding that the City, in agreeing to purchase or re-rent certain property, created a constitutional obligation. An indebtedness under the Constitution was said to be a liability voluntarily incurred by the local government by express contract, and which it is bound to pay in money. Overall v. City of Madisonville, 125 Ky. 684, 102 S.W. 278 (1907).
Thus your fiscal court can lease the real property in question, if not needed by the county for county governmental purposes, to some private entrepreneur for a five-year term, provided that the contractual obligation in totality for the five-year period can be funded out of "current" revenues available to the county (the year the lease is executed). Otherwise, under § 157 of the Kentucky Constitution, the proposed lease would have to be submitted to the voters, and the assent of two-thirds of the voters voting at an election held for that purpose would be required to validate it. The purpose of § 157 is to require counties to adopt the pay-as-you-go plan and not to incur financial obligations in excess of their current revenues. Payne v. Covington, 276 Ky. 380, 123 S.W.2d 1045 (1938). See also maximum indebtedness of counties at § 158, Kentucky Constitution (2% of value of taxable property, except for certain specified emergencies) . Thus the total contractual financial obligation of the county occasioned by the five-year lease would have to be considered along with other current county obligations and then measured against the restrictions of §§ 157 and 158 of the Constitution, as mentioned above. It must be noted that even a vote of the people cannot authorize an indebtedness which would exceed two percent (2%) of the value of taxable property in the county, unless an emergency, involving the public health or safety is present. See Rodgers v. Crittenden County, Ky., 337 S.W.2d 728 (1960), involving county general obligation bonds to build a new courthouse. The Court held that the present "Crittenden County Courthouse constituted an emergency of long standing within the constitutional meaning."
Question No. 2 reads:
"Same as question 1 only the term of the lease is for a simple one (1) year period?"
The principles stated under question number one govern here. In the one-year lease situation, the contractual obligation is obviously much less than in the five-year lease situation.
Question No. 3 reads:
"Can a county enter into such a lease regardless of the term of lease if there are no expenses required on part of the county, and if so, would that type of terminology in a lease alleviate any potential conflict with the aforementioned Section 158?"
Where there is no contractual financial obligation created on the part of the county, the limitations of §§ 157 and 158 of the Kentucky Constitution do not come into play.
Even if no contractual obligation is created, the fiscal court must use its good business judgment in entering into such a lease, and the lease must be considered as involving a public purpose and in the public interest, as relates to the rental aspect and use of the property. See §§ 3 and 171, Kentucky Constitution; McQuillin, Municipal Corporations, Vol. 15, § 39.31. See also Bennett v. City of Mayfield, Ky., 323 S.W.2d 573 (1959); Baird v. City of Adairville, Ky., 426 S.W.2d 124 (1968); and McQuillin, Municipal Corporations, Vol. 10, § 28.42. Thus unconditional private uses of public property are not favored.
Where the county receives a rental that approaches a commercial rental basis, measured by the appraisal of two experts as to what a fair commercial rental would be, the particular use of the property is not so critical in terms of the constitutional treatment of public purpose, since the county would be paid for the private use of the county property and would not be giving away anything. Cf. Kentucky Building Commission v. Effron, 310 Ky. 355, 220 S.W.2d 836 (1949). However, the fiscal court must carefully consider whether such lease is in the county's interest, especially as relates to the length of the lease, and involves a legitimate exercise in private enterprise, such that the public interest is served or is at least not destroyed or diminished thereby.