Request By:
Mr. George F. Harris
Board Chairman
Livingston County Hospital
P.O. Box 138
Salem, Kentucky 42078
Opinion
Opinion By: Steven L. Beshear, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
The Livingston County Fiscal Court in 1974 purchased the Salem Medical Center Hospital physical plant so that the long-term debt of that hospital could be retired. The hospital is presently operated as the Livingston County Hospital. The purchase, you say, was necessary because of the lack of sufficient cash-flow to facilitate long-term debt retirement. The fiscal court used federal revenue sharing funds in order to effect the purchase transaction. The fiscal court leased the physical plant back to the Board of Directors of the Salem Community Medical Center. The purchase did not include the business rights, waivers, or operating equipment utilized in the daily operation of a health care institution.
The present hospital is being operated as a non-profit corporation. It is not a county hospital in legal reality.
In recent years the fiscal court, because of diminishing revenues, has had increasing difficulties in meeting its obligations involving the hospital physical plant. It seems now that a major renovation and construction of hospital facilities needs to take place in order to retain the institution's medical staff.
You raise the question of whether or not the fiscal court may transfer the title to the physical plant to the hospital corporation without consideration, or sell the physical plant to the corporation for consideration.
KRS 67.083(3)(d) provides that a fiscal court may appropriate funds for hospitals as a "public function. " The hospital in question is not a county hospital. We are not aware of any statute converting the subject hospital into a "public function" in the technical sense used in KRS 67.083(3)(d). An authorized public use of property by a governmental unit is said to be the exercise of a public function.
Jefferson County v. Clausen, 297 Ky. 414, 180 S.W.2d 297 (1944) 300. This is to be carefully distinguished from a private corporation's performing a "public service. "
Consolidation Coal Co. v. Martin, (U.S.C.C.A. -6, 1940) 113 F.2d 813, 816, 817.
In
Jones v. Eastern Maine Medical Center, (U.S.D. Ct. N.D. - 1978) 448 F.Supp. 1156, the defendant hospital, in a civil rights case, was a private non-profit corporation operating as a general hospital. 42 U.S.C. § 1983 requires that a state, not a private party, act to deprive one of constitutionally protected rights. The hospital received government aid and was subject to state government licensing regulation. The court held that state involvement was not sufficient to cast the hospital in the role of conducting a public function and imbue the hospital with state action such that it would give rise to a cause of action under Section 1983. It cited in support
Greco v. Orange Memorial Hospital Corporation, (5th Circuit) 513 F.2d 873, cert. denied, 423 U.S. 1000, 96 S. Ct. 433, 46 L. Ed. 2d 376 (1975). The court, in Jones v. Eastern Maine Medical Center, above, rejected the argument that the hospital's providing free medical assistance to indigents provided an essential "public service" which equated into a "public function. " The court said that the Supreme Court of the United States found state action present when a private entity exercises powers "traditionally exclusively reserved to the state." See
Evans v. Newton, 382 U.S. 296, 86 S. Ct. 486, 15 L. Ed. 2d 373 (1966). In
Jackson v. Metropolitan Edison Co., 419 U.S. 353-54, 95 S. Ct. 449, the Supreme Court specifically rejected the contention that a private entity which in some way serves a public function or whose business is "affected with the public interest" is a state actor in all its actions.
In
Building Inspector of Lancaster v. Sanderson, Mass., 360 N.E.2d 1051 (1977), the Supreme Judicial Court of Massachusetts wrote that the status of that of an entrepreneur engaged in the operation of a privately owned commercial airport, subject to state licenses, did not change its status from that of private enterprise to a governmental function entitled to exemption from zoning laws and ordinances. The case of
Sampson v. City of Cedar Falls, Iowa, 231 N.W.2d 609 (1975), held that the procurement by a city of an adequate supply of electric power for the needs of its consumers is a "public function. "
Thus we conclude that we find no basis in KRS 67.083(3)(d), nor in any other statute, for the fiscal court's subsidizing this private corporate hospital by selling the county's hospital physical plant to the hospital for no consideration. Cf. KRS 273.167 (corporations organized for charitable purposes). Thus we do not believe the fiscal court can legally transfer the title to the hospital physical plant without consideration.
Section 179 of the Kentucky Constitution prohibits a county from appropriating money or lending its credit to any person or corporation. The purpose of this section was to prevent the investment of public funds in private enterprises and to thereby forestall local tax revenues from being diverted from normal governmental channels.
Louisville Bd. of Ins. Agents v. Jefferson Co. Bd. of Ed., Ky., 309 S.W.2d 40 (1958) 41. Thus § 179 of the Constitution would prohibit the county's use of its tax resources or other resources to fund the hospital physical plant.
The fiscal court clearly has the authority to sell the hospital physical plant, since you have indicated that it is surplus or excess to the county's needs. See KRS 67.080(1)(a), providing that a fiscal court may sell and convey any real estate belonging to the county. The statutes do not detail the price level of consideration to be paid the county in the event of sale. Cf. KRS 45A.425, relating to sale of surplus or excess personal property of a local government. The courts have described the power to sell the county's real estate a broad power.
Abernathy v. City of Irvine, Ky., 355 S.W.2d 159 (1962). See
Cardwell v. Hargis, Ky., 71 S.W. 488 (1903) 489, where the county sold a piece of land primarily for the price they previously paid for it. See 56 Am.Jur.2d, Municipal Corporations, § 552, which states that the power to sell does not include the power to make a gift of government property, nor does it permit the county to lawfully sell its property for a grossly inadequate price, since such a transaction would amount to a gift of public funds.
Thus the Kentucky law presently lays down no precise standard as to the consideration necessary for the sale of excess county real estate. Considering this situation, it is our view that the fiscal court may sell the hospital physical plant, if it desires, to the subject corporation for at least its fair market value. "Fair market value" has been defined as the price at which an owner who desires to sell, but is not required to do so, would sell the property in its then condition to a purchaser who desires to purchase but is not compelled to do so.
City of Newport Mun. H. Com'n v. Turner Advertising, Ky., 334 S.W.2d 767 (196) 769; and
Commonwealth, Department of Highways v. Darch, Ky., 374 S.W.2d 490 (1964). Since the "fair market value" concept is used in condemnation, we believe that a sale of surplus land for fair market value would satisfy § § 3, 171 and 179 of the Kentucky Constitution, as relates to prohibited gifts of county money. See also § 13 (no property taken without just compensation).
The taxation of property is based upon its being assessed for taxation at its "fair cash value" , estimated as the price it would bring at a fair voluntary sale, pursuant to § 172, Kentucky Constitution. The old
Court of Appeals in Lynch v. Kentucky Tax Commission, Ky., 333 S.W.2d 257 (1960), pointed out that the phrase "fair cash value" refers to a fair voluntary sale. The court said that a fair voluntary sale embraces the idea that neither the seller nor the purchaser is compelled to sell or buy and that the transaction is free from the assumption of any obligation except the transfer of the property for the amount agreed to be paid.
It appears that in the fields of condemnation and taxation, the terms "fair market value" and "fair cash value" are equated in terms of a "fair voluntary sale."
You have raised the additional question of whether or not the fiscal court is required to sell this surplus county realty under bidding procedures. As we said earlier herein, the Kentucky statutory law lays down no precise standard or conditions relating to the sale of county surplus realty. Your fiscal court is under KRS 424.260, unless it has specifically adopted, pursuant to KRS 45A.343, the provisions of KRS 45A.345 through 45A.460. Those statutory sections, however, relate to county purchases, not sales, with the exception of KRS 45A.425 (dealing with the sale of surplus county personal property) .
Under the above analysis, it is our opinion that the fiscal court can sell the surplus realty to the Hospital Corporation without any bidding procedure. In other words, the fiscal court may sell that property to that corporation by negotiation for at least its fair market value.
We hope this may be helpful to you, the hospital, and the county.