Request By:
Ms. Joyce A. Morse
President
Commonwealth Credit Union
316-318 St. Clair Mall
P.O. Box 978
Frankfort, Kentucky 40604-0978
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
On behalf of the Commonwealth Credit Union, you request our opinion as to whether or not it may purchase insurance through the Department of Insurance, covering the construction phase, and further whether or not, after the construction has been completed, the credit union may purchase insurance from the State Fire and Tornado Insurance Fund on its new building.
The Commonwealth Credit Union, Inc., was organized by and for state employees in 1951 pursuant to enabling legislation found in KRS Chapter 290. Thus it began its existence as a private corporation organized and operated for the exclusive benefit of state employees. See KRS 290.020 and OAG 78-780, copy attached.
In the 1982-84 state budget, appropriations were made to the Commonwealth Credit Union to be used for the corporation's operating costs, exclusive of the salaries of the corporate employees. The Executive Budget published to conform to the enacted state budget of 1982 under the term "Description" below the appropriations for the Commonwealth Credit Union contained this remark: "The Commonwealth Credit Union provides state employees with savings and loan services which are not permitted to be provided by other state agencies, but which are comparable to employee benefits provided by private industry." (Emphasis added).
In OAG 72-213, copy attached, when the Commonwealth Credit Union was operating in the Treasury Department building space, we noted that among the benefits of that credit union were loans and travel (official travel) money advancements extended to state employees. Further, state employees may buy shares in the corporation and thus may enjoy a reasonable return on their investment. This includes state employees' making deposits of money with the corporation at good interest rates. There we said in that opinion, and repeat it here, that in reality the state government, through using this corporate device, is extending "fringe benefits" to state employees. This can serve as an inducement to employees to come into and remain in state employment. We assume the annual turnover percentage of state employees is still substantial. In that opinion we pointed out that state employees who are carrying on full time the Commonwealth Credit Union business were being carried on the records and payroll as an administrative part of the State Department of Personnel.
It is our view that the expenditures for 1982-1984, mentioned above, for the Credit Union were legitimized by the General Assembly, since the supporting budget work sheets of the Department of Finance pinpoint and particularize money to fund the operating costs of the credit union, except for credit union employee salaries. The work sheet or descriptive information does not appear in the biennial budget. But Kentucky is not a "line item" state. Section 230 of the Kentucky Constitution provides in part that "no money shall be drawn from the State Treasury, except in pursuance of appropriations made by law . . ." KRS 41.110 merely implements the constitutional section. The court stated in
Ross v. Gross, 300 Ky. 337, 188 S.W.2d 475 (1945), that "the purpose of the constitutional provision and the statutory enactment cited (§ 230, Constitution and KRS 41.110) was to prevent the expenditure of the state's money without the consent of the Legislature." (Emphasis added). The court observed in
Commonwealth v. Johnson, 292 Ky. 288, 166 S.W.2d 409 (1942), that the language of § 230 of the Constitution does not undertake to prescribe the form to be used in making appropriations nor does it require that appropriations shall be detailed, definite, or specific." See KRS 45.040.
Although the Commonwealth Credit Union was created with the trappings of a private corporation, it is recognized by the General Assembly as a state agency, which exists for the recognized purpose of extending "fringe benefits" to state employees. Such a purpose is a public purpose, as envisioned in §§ 3 and 171 of the Kentucky Constitution. See
Lexington v. Hager, Ky., 337 S.W.2d 27 (1960). The credit union was created under authority of an enabling act, i.e., KRS Chapter 290. For several years it has been funded in part out of the state treasury. The credit union is under the supervision of the Commissioner of Banking, pursuant to KRS 209.070, 209.100, and 287.011. In addition, we are informed that the employees of the credit union are contributing members of the Kentucky Employees Retirement System. See KRS 61.510(3) and 61.520. KRS 61.510(3) includes agencies designated by the Governor as participants in the Retirement System, regardless of whether the agency is an integral part of state government. We are informed that the employees of the credit union are eligible for the Public Employees Deferred Compensation Plan. See KRS 18A.230(1) and 18A.250.
Thus if a state agency, such as the Department of Insurance, procures the construction insurance for the credit union, § 177 of the Kentucky Constitution (which prohibits the lending of the state's credit) would not be applicable. Here the procurement transaction would concern two state agencies. See
Louisville Bd. of Ins. Agents v. Jefferson Co. Bd. of Ed., Ky., 309 S.W.2d 40 (1958) 41.
CONCLUSIONS
(1) In view of the above history and purpose of the Commonwealth Credit Union, its being funded in part by state appropriations, the statutory tie-in with its employees, and the fact that the building will be built upon state land under a 99-year lease, it is our opinion that the credit union may properly purchase insurance covering the building when completed from the State Fire and Tornado Insurance Fund. Such building, in terms of KRS 56.070(1), qualifies as property "used by the state or any agency of the state." The premium to be charged against this agency (Commonwealth Credit Union) is determined by the Department of Insurance, pursuant to KRS 56.090. Pursuant to KRS 56.100, the premium chargeable to the credit union may be taken out of the state budget appropriations to the credit union, the profits of the credit union, or a combination of both.
(2) As relates to whether or not the Department of Insurance can purchase Builders Risk insurance covering the construction phase, it is our opinion that pursuant to KRS 56.070(2), the procurement of a Builders Risk policy (Builders Risk Form) may be properly made under that subsection. The policy would be effective at the start of construction of the credit union building and would end at the end of construction. Thereafter, the coverage under the Fire and Tornado Fund would be effected. Thus, since the building would be one "used by the state or an agency of the state", and assuming the approval of the Secretary of Finance and the Department of Insurance is obtained, a Builders Risk policy could be procured by the credit union through the Department of Insurance. In that way, as we are informed, a premium at 55% of the normal rate for private enterprise could be obtained. OAG 71-363 is distinguishable, in its holding on nonapplication of state insurance as applied to the Racing Commission, on the ground that the Commission was in no way funded out of the state budget. And by statute it was created as "an agency independent of state administrative departments." None of the statutory tie-ins as relates to employees were present.