Request By:
Mr. James R. Ramsey
Director
Division of Investment and Debt Management
Office for Policy and Management
Finance and Administration Cabinet
Capitol Annex
Frankfort, Kentucky 40601
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Industrial Revenue Bonds issued by the Kentucky Development Finance Authority are the subject of your recent request for the opinion of this office.
Your letter reads:
"Recently a question has been raised relative to the Kentucky Development Finance Authority of the application of KRS 42.420 as it relates to Industrial Revenue Bonds issued by the KDFA. The question is, do Industrial Revenue Bonds issued by that state agency require the approval of the Office of Investment and Debt Management pursuant to KRS 42.420, even though no General Fund appropriation for debt service is contemplated and even though the Kentucky Development Finance Authority is authorized to issue debt pursuant to KRS 103.200?
"An earlier opinion, OAG 81-242, states that all state agencies' debt issuance is to be reviewed and approved by this office when that agency is representing the Commonwealth.
"In order that this office may act consistently among all debt issuing authorities, it is necessary that this question be addressed."
KRS 42.420 reads:
"All other provisions of the Kentucky Revised Statutes notwithstanding, all state agencies and all individuals, agencies, authorities, boards, cabinets, commissions, corporations, or other entities of, or representing the Commonwealth with the authority to issue bonds, shall submit all proposed bond issues, bond anticipation notes, or interim debt financing to the office for investment and debt management for review and approval prior to issuance of such debt." (Emphasis added).
KRS 154.020(1) explicitly provides that "There shall be a development finance authority in the state government which shall be known as the Kentucky Development Finance Authority, which shall be an independent agency of the Commonwealth reporting to the Secretary of the Commerce Cabinet, but not attached to any administrative department." (Emphasis added).
Clearly under the language of KRS 154.020(1), K.D.F.A. is a "state agency. " Thus under the specific and explicit language of KRS 42.420, any proposed Industrial Revenue Bonds to be issued by the Kentucky Development Finance Authority (see KRS 154.010(17), 103.210(2), and 103.200) must be submitted to the Office for Investment and Debt Management for review and approval prior to the issuance of such debt. While the purpose of K.D.F.A. is to promote and develop business, industrial and other enterprises in local communities (KRS 154.005), and while it is an independent agency of the Commonwealth (KRS 154.020), it remains an "agency of the Commonwealth." Although, under KRS 154.040(13), K.D.F.A. has the authority to issue revenue bonds under the provisions of KRS Chapter 103 (see also KRS 103.210(2)) to finance the acquisition or construction of an "industrial building", as defined in KRS 103.200, in the same manner as a city or county, the sheer fact that it is a state agency brings it within the application of KRS 42.420.
The courts have declared that they have a duty to construe statutes literally, if it is reasonably possible to do so. That is paramount in considering that courts were not given legislative powers in our constitution.
Barrett v. Stephany, Ky., 510 S.W.2d 524 (1974).
In addition, the specific nature of KRS 42.420 (proposed bond issues of state agencies must be reviewed by the Office for Investment and Debt Management) governs over any general statute relating to state agency bond financing.
Heady v. Com., Ky., 597 S.W.2d 613 (1980) 614.
You point out that in connection with Industrial Revenue Bonds issued by K.D.F.A., no General Fund appropriation for debt service is contemplated. As we pointed out in OAG 81-242, revenue bonds do not constitutionally constitute an indebtedness of the Commonwealth. See §§ 49, 50 and 171, Kentucky Constitution; and
Turnpike Authority of Kentucky v. Wall, Ky., 336 S.W.2d 551 (1960). However, in terms of political and economic reality, and in terms of Kentucky's future issues of both government obligation and revenue bonds and the future various financial dealings of the state and its political subdivisions, the state must now think of its good faith to bondholders. We simply cannot tolerate, for the sake of our future bond markets, any loan defaults in connection with revenue bond financing. Although state revenue bonds do not constitute an indebtedness of the state under the statutes and constitution, we are informed that most debt service on such bonds are paid from general state revenues.
As we said in OAG 81-242, when KRS 42.420 and 42.410 (duties of the Office for Investment and Debt Management) are read together, it is our opinion that KRS 42.420 requires that all of the proposed debt issues of state government be reviewed and approved by the Office for Investment and Debt Management prior to issuance. Thus KRS 42.420 applies to all state agencies issuing revenue bonds. Note that KRS 42.410(1)(e) and (f) prescribe the following duties for the Office for Investment and Debt Management.
"(e) The evaluation of revenue projections relative to proposed revenue bond issues.
"(f) The responsibility for liaison with the general assembly on all investment and debt matters, including, but not limited to, new bond issues, the status of state debt, and the status of state investments."
CONCLUSION
It is our opinion, under the above analysis and authorities, that Industrial Revenue Bonds issued by the Kentucky Development Finance Authority require the approval of the Office for Investment and Debt Management, pursuant to KRS 42.420. Under the express declarations of KRS 154.020, K.D.F.A. is an agency of the Commonwealth, though it performs a public purpose in local communities. It was not characterized by the General Assembly as a political subdivision. Thus it inevitably represents the Commonwealth, in spite of its being called an independent agency of the Commonwealth, and performs a function for state government in the basic sense envisioned in KRS 42.420, in the latter's use of the term "all state agencies. " In spite of the somewhat autonomous role of K.D.F.A., KRS 42.420 makes it clear that the revenue bond indebtedness of all state agencies must come under a uniform system. In addition, consistent with that uniformity concept is KRS 12.200, bringing independent state agencies under the term "department", as used in KRS 12.210 to 12.230. See OAG 80-245, published, Banks-Baldwin. In that opinion we concluded that K.D.F.A. may not procure legal services in carrying out its statutory functions without following the usual state requirements relating to personal service contracts.