Request By:
Mr. James A. Nelson
State Librarian and Commissioner
Department for Libraries & Archives
300 Coffee Tree Road
P.O. Box 537
Frankfort, Kentucky 40602
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your letter concerns the new library district in Taylor County, which we assume was formed by the petition method pursuant to KRS 173.720. It reads in part:
"The district was officially established in February, 1984. The library board needs to borrow money to operate the library now, until tax receipts are collected, which will begin after September, 1984. KRS 173.745(2)(b) states that the district may: 'Borrow money on the credit of the board in anticipation of the revenue to be derived from taxes levied by the district for the fiscal year in which the money is borrowed, and to pledge the taxes levied for the district for the payment of the principal and interest of the loan. The principal to be repaid annually shall not exceed fifty percent of the anticipated revenue for the fiscal year in which the money is borrowed. ' Does this mean that the District cannot borrow until July, 1984? If they cannot, would it be appropriate for the Board, as individuals, to sign a note now, which would be repaid in July when the Board can borrow money?
"If this is not acceptable, is there some mechanism by which the Board can legally finance the library until the 1985 fiscal year? They face closing the library immediately otherwise.
In connection with the powers of the library board, KRS 173.745(2)(b) reads:
"(2) The district, as a body corporate, by and through the board may:
* * *
"(b) Borrow money on the credit of the board in anticipation of the revenue to be derived from taxes levied by the district for the fiscal year in which the money is borrowed, and to pledge the taxes levied for the district for the payment of the principal and interest of the loan. The principal to be repaid annually shall not exceed fifty percent (50%) of the anticipated revenue for the fiscal year in which the money is borrowed. "
It can be seen from the literal provisions of KRS 173.745(2)(b) that the board's authority to borrow money for the district operation is clearly limited to the anticipation of the revenue to be derived from taxes levied by the district for the fiscal year in which the money is borrowed. Thus the anticipated revenue for the present fiscal year ending June 30, 1984, would have to be sufficient to fund the usual operative library budget as well as being sufficient to fund the loan now deemed necessary. We are bound by the literal words of the statute. See
Bailey v. Reeves, Ky., 662 S.W.2d 832 (1984) 834. If the board borrows money prior to July 1, 1984, obviously there will be no revenue coming in during the present fiscal year July 1, 1983, to June 30, 1984, since the district was only established in February, 1984. Thus a loan now would be clearly in violation of KRS 173.745(2)(b).
Under the literal terms of the statute, the board could borrow money to operate the library on and after July 1, 1984, provided that the anticipated revenue to be derived from the library tax for the fiscal year 1984-85 is sufficient to cover the proposed loan and still carry on the library operation as budgeted for that fiscal year, without deficit. The other restrictions contained in the statutory section, above, would also have to be strictly followed.
More importantly, § 157 of the Kentucky Constitution establishes the principle that indebtedness of such a taxing district cannot exceed the yearly tax revenue.
In
Boggs v. Reep, Ky., 404 S.W.2d 24 (1966), in connection with a library district created by petition under KRS 173.720, the Court of Appeals held that "the library tax is not a part of the county tax within the prohibition of § 157 [of the Kentucky Constitution] but is a tax levied by a new authorized taxing district created pursuant to statutory authority." Thus such a library district is a separate taxing district under §§ 157 and 158 of the Constitution.
A basic provision of § 157 of the Constitution is that no taxing district " shall be authorized or permitted to become indebted, in any manner or for any purpose, to an amount exceeding, in any year, the income and revenue provided for such year, without the assent of two-thirds of the voters thereof, voting at an election to be held for that purpose; . . ." (Emphasis added).
Thus regardless of the statutory restriction set forth in KRS 173.745 concerning borrowing of money, the requirements of § 157 of the Constitution must be observed. In other words, the district cannot obligate itself to spend more money in a particular year than the anticipated income and revenue provided for such year. Further, the entire principal indebtedness would govern, and not the amount of principal to be paid each year, in measuring an obligation of the library district against the requirements of § 157. See
Davis v. Board of Education of City of Newport, 260 Ky. 294, 83 S.W.2d 34 (1935). Also see § 158 of the Kentucky Constitution, which provides that a taxing district shall not be authorized or permitted to incur indebtedness to an amount, including existing indebtedness, in the aggregate exceeding two percent (2%) on the value of the taxable property therein, except in case of emergency based upon considerations of public health or safety.
The Court, in Payne v. City of Covington, 276 Ky. 380, 123 S.W.2d 1045 (1938), at 1047, stated the constitutional purpose of the finance provisions:
"Its manifest purpose [§ 157] was to inaugurate and perpetuate the 'pay-as-you-go' plan of government in the subordinate branches mentioned and to prevent fiscal authorities invested with the power to appropriate public moneys from incurring obligations in excess of the income and revenue actually provided for by levy or otherwise."
The power to borrow money does not belong to a library district inherently by virtue of its creation, but the power exists under the express constitutional and statutory sections mentioned above. 56 Am.Jur.2d, Municipal Corporations, § 580, pp. 630-631.
It is possible that donations for the library, to cover this interim period prior to the tax revenue coming in, could be sought from donors outside of the library management (board) and other personnel. However, such donors would be required to execute a signed written statement that such money could be expended for any lawful library purpose of the library district. See KRS 173.745(2)(a), which expressly authorizes the board to receive gifts of real and personal property. A gift of money comes within the term "personal property. "
Button v. Drake, 302 Ky. 517, 195 S.W.2d 66 (1946) 69.
The other alternative would be to temporarily suspend the library operation until the tax revenues will be adequate to resume the library operation.
We doubt that the old board, established under KRS 173.310 and 173.340(2) could be employed as you suggested. KRS 173.310 and 173.340(2) contemplate long term library operations, not for a few days. In addition, there is a serious question as to whether the old board exists. We assume from the facts given that the library district is the new legal entity, and thus the old board, created pursuant to KRS 173.310 and 173.340, came to an end. We find no authority for the district board's establishing a single purpose corporation for this kind of financial emergency. The holding company has been repeatedly upheld by the courts in connection with plans to finance school buildings, hospitals, recreational grounds, and similar projects. See