Request By:
Mr. A. Wallace Grafton, Jr.
Wyatt, Tarrant & Combs
Citizens Plaza
Louisville, Kentucky 40202
Opinion
Opinion By: David L. Armstrong, Attorney General; By: Charles W. Runyan, Assistant Deputy Attorney General
Your law firm requests the opinion of this office regarding whether or not variable rate bonds may be issued under KRS Chapter 58 of the Kentucky Revised Statutes.
You point out that variable rate bond issues would benefit public issuers because such issues carry a lower effective interest rate and would be competitive with similar issues in other states. See KRS 58.410(1)(c). A variable rate tender bond, you write, is a bond in which the interest rate is adjusted periodically to meet short-term fluctuations in interest rates and which enables bondholders to tender their bonds at par value if they are not satisfied with the interest rate being paid. Thus variable rate provisions permit the adjustment of the interest rate to current market conditions and permit the remarketing of the bonds at par.
LEGISLATIVE INTENT TO PROVIDE FOR VARIABLE RATE BONDS
The polar star that illuminates this whole question is found in KRS 58.420 and 58.430 and the preamble to Senate Bill 96 (Acts 1970., Ch. 24), which was entitled an Act concerning interest rates which public bodies shall be permitted to pay upon their public obligations.
KRS 58.430 reads:
"From and after March 9, 1970, notwithstanding any other acts or laws of other import which may presently prevail, wherever the same may be found in the Kentucky Revised Statutes as of such date, it shall be lawful for public bodies to establish, agree and bind themselves to pay interest upon their public obligations at any rate or rates which may be determined upon by the governing bodies of the respective public bodies which are the issuers thereof; but subject, nevertheless, to such approvals as may now or hereafter be applicable thereto according to law."
KRS 58.420 reads:
"It is hereby determined and declared to be the public policy of the Commonwealth that interest rates payable by public bodies upon public obligations be such as to be competitive with those rates which are permitted by other states, in order that necessary public projects may be financed and may be undertaken in the interest of the public health, safety and general welfare."
This portion of the preamble to Senate Bill 96 clearly reflects the legislative intent in the enactment of the legislation to remove any prior restrictions upon interest rates of such public obligations, and indeed to authorize any interest rate structure which would meet prevailing interest rate competition, including, by the strongest implication, variable interest rate bonds. That portion of the preamble reads:
"WHEREAS, the cost of money as represented by prevailing interest rates in the financial market places has steadily increased in recent years, and is now higher than at any time in more than fifty years; and
"WHEREAS, inflationary pressures, and competition for money among all sectors of the national economy, have been in recent months, and continue to be, such that the Commonwealth, its political subdivisions, its municipalities, school and other taxing districts, non-taxing public podies and public bodies and institutions, and agencies and instrumentalities thereof, have been and are, in increasing numbers, unable to market their bonds, notes, warrants or other lawful obligations within the various statutory limitations respectively applicable thereto; with the result, as demonstrated by numerous failures to receive purchase bids at public offerings, that the construction, acquisition or other undertaking of essential public projects (such words including, as examples only and without limiting their generality, school buildings, other buildings, structures and appurtenant facilities for public purposes, water systems, sewer systems, sewage treatment and disposal plants, and hospitals), cannot be financed and are of necessity being abandoned or postponed indefinitely, solely because prevailing statutory interest rate limitations are unduly and unrealistically restrictive; and
"WHEREAS, it appears to the General Assembly that it is in the interests of the public health, safety and general welfare of the Commonwealth and its citizens, that financing of public projects to serve proper public needs and demands be made possible by permitting public bodies to meet prevailing interest rate competition, and it has been caused to appear that certain adjoining states have enacted laws of this nature, thus placing the Commonwealth and its citizens at an additional disadvantage which further compounds already existing difficulties in the financing of urgently needed public projects; and . . ."
The general rule is that the preamble to an Act may be resorted to in interpretation of the statute when there is an ambiguity in the statute. Louisville Memorial Gardens v. Carpenter, Ky., 261 S.W.2d 627, 628 (1953). KRS Chapter 58 is ambiguous to the degree that provisions for variable rate bonds are not expressly made out. However, in order to make effective the express terms of the chapter, principally KRS 58.420 and 58.430, the implication of variable rate bonds is a high level necessity. A statute need not expressly state what is necessarily implied. National Surety Co. v. Commonwealth ex rel. Coleman, 253 Ky. 607, 69 S.W.2d 1007, 1009 (1934). Stated another way, the case of Commonwealth ex rel. Breckinridge v. Nunn, Ky., 452 S.W.2d 381, 383 (1970), holds that the express power in a statute carries with it all powers essential to its exercise. Here the power to make use of variable rate bonds is essential in the exercise of a public body's power to use those rates that are competitive with rates permitted by other states and rates which are in the interest of the public health, safety and general and economic welfare (see KRS 58.420 and 58.430).
In further support of the permissibility of variable rate bonds, the home rule statute relating to counties emphasizes that such governments are provided with the necessary latitude and flexibility to provide and finance various governmental services within those functional areas thereafter specified in KRS 67.083(3), which includes expressly bond issues. The phrase "necessary latitude and flexibility" clearly supports the concept of use of variable rate bonds, and thus may be considered integral with KRS Chapters 58 and 103. Also see the broad powers statutes, KRS 82.082 and 83.520 enacted for cities.
VARIABLE RATE BONDS ARE PROVIDED IN KRS CHAPTER 103
It is established law that two or more acts dealing with the same subject matter must be considered in pari materia as a part of a connected system. See Dieruf v. Louisville & Jefferson County Bd. of Health, 304 Ky. 207, 200 S.W.2d 300 (1947); and Sumpter v. Burchett, 304 Ky. 858, 202 S.W.2d 735 (1947). Both Chapter 103 and 58 relate to public project financing through revenue bonds and bond interest rates. Under that doctrine of in pari materia, two or more pieces of legislation may be integrated so as to produce a harmony. In Sands, Sutherland Statutory Construction (4th ed.) Volume 2A, § 53.01, this is written: "Harmony and consistency are positive values in a legal system because they serve the interests of impartiality and minimize arbitrariness. Construing statutes by reference to others advances those values. In fact, courts have been said to be under a duty to construe statutes harmoniously where that can reasonably be done." See also Stockton Plumbing & Supply Co. v. Wheeler, 68 Cal.App. 592, 229 P. 1020 (1924); and E.I. Dupont de Nemours & Co. v. Clark, 32 Del. Ch. 527, 88 A.2d 436 (1953).
We concluded in OAG 84-257, copy attached, that any bonds issued under KRS Chapter 103 may bear interest at a fluctuating or variable rate, adjustable in accordance with whatever formula is agreed upon by the Issuer, the Borrower, and the Purchaser. Our conclusion was supported by the literal terms of KRS 103.200(2), which defined "bonds", and which explicitly mentions "variable rate bonds" as being included in the term bonds, although it is in the context of pollution control facilities, and KRS 103.220(1) (at a rate fixed by the governing body) . The amendment of KRS 103.220(2) in 1984, in using the term "variable rate bonds", had the effect of ratifying the validity of all previous variable rate bonds issued by cities and counties under KRS Chapter 103. In that opinion we felt that when reading the entire 1984 legislation, and considering the history and purpose of KRS Chapter 103 (industrial revenue bonds) and in connection with any industrial revenue bonds covered by KRS 103.200 to 103.285, an agreed fluctuating or variable rate of interest was permissible. We concluded that to construe KRS 103.200 and 103.220 as permitting a variable interest rate for pollution control projects only would constitute an unreasonable and absurd premise, especially when considering the realities of the present day use of KRS Chapter 103 in Kentucky. Thus when Chapter 103 is considered as a whole, the concept of variable rate must inevitably be applied to any bond issues under Chapter 103. Budget Marketing, Inc. v. Com. ex rel. Stephens, Ky., 587 S.W.2d 245 (1979).
Also in OAG 84-257, we were of the opinion that KRS 58.430 is so flexibly worded as to support variable rate structures in the issuance of public bonds. In any event, we pointed out that where the bonds are issued under KRS Chapters 103 and 58, the specific language of KRS 58.430 would control over KRS Chapter 103 (even if the latter as a whole was deemed to be in some conflict with KRS 58.430). The specific statute controls a more general statute. Heady v. Commonwealth, Ky., 597 S.W.2d 613 (1980).
OAG 84-377, copy attached, related to the Industrial Revenue Bond Issue of the city of Louisville involving the financing of the construction and equipping of airport facilities operated by United Parcel Service of America. The bond issue was under KRS Chapters 103 and 58. The bonds were issued as variable rate bonds. The interest rate will be adjusted periodically to reflect the then-current market yields for comparable securities.
KRS 103.200(2), that chapter as a whole, and KRS 58.430 reflect in clear unambiguous language that the overall purpose of such bonds encompasses the concept that the lowest available average interest cost on the bonds should be obtained. The preamble of the 1984 amendment to Chapter 103 stated explicitly that prior bond issues of cities and counties under the chapter involving a variable rate were ratified and confirmed. The legislative intent to concentrate on the variable rate could not have been stated any clearer.
Thus the related nature of KRS Chapter 103 and Chapter 58, the language of the key statutes in both chapters as mentioned above, and the expressly announced legislative policy contained in the preambles to the above named Acts, involving Chapters 103 and 58, eloquently suggests a legislative wedding, described as the doctrine of in pari materia. We are saying that Chapters 103 and 58 separately, and when considered in pari materia, provide for variable interest rate bonds.
Finally, as we said in OAG 84-377, KRS 58.430, as a specific statute on public bond interest rates, clearly authorizes the issuers of the bonds to bind themselves to pay interest at "any rate or rates which may be determined by the governing body" issuing the bonds. That flexible language was designed to provide the issuers with rates competitive with other states and to give the issuer the flexibility of staying abreast of developing market conditions as to interest rates. In such manner, the lowest available average interest cost on the bonds may be obtained.
The term "at any rate or rates" in KRS 58.430 is sufficiently broad to encompass variable rates arrived at under agreement. Generally, a statute expressed in general language must be applied to all cases within its terms, and the court may not restrict or qualify it. Commonwealth v. Trousdale, 297 Ky. 724, 181 S.W.2d 254 (1944).
As you pointed out, since 1970, the U.S. economy has experienced a number of economic cycles which have resulted in extreme fluctations in interest rates. In reaction to that environment, public and private institutions have increasingly turned to variable rate issues. Consequently, in order to "meet prevailing interest rate competition", we feel the courts, if presented with this interpretive problem, would be inclined to follow the above lines of analyses reflecting a compelling, clear and necessitous implied power encompassing variable rate interest bonds. The courts have held that "Where a statute confers powers or duties in general terms, all powers and duties incidental and necessary to make such legislation effective are included by implication." Sands, Sutherland Statutory Construction, Volume 2A, § 55.04, page 605. Also see United States v. Sischo, 262 U.S. 165, 67 L. Ed. 925, 43 S. Ct. 511 (1923), in which Justice Holmes wrote that "But there is no canon against making explicit what is implied, and adding a little emphasis to the endeavors to make the proposition broad." In Pittsburg P. Glass Co. v. National Labor Rel. Bd., 313 U.S. 177, 85 L. Ed. 1271, 61 S. Ct. 845 (1941), Justice Frankfurter, for the majority, spoke of pragmatic interpreting of statutory law within the confines of the court's constitutional function. He wrote this: "Unlike mathematical symbols, the phrasing of such social legislation (unfair labor practices) as this seldom attains more than approximate precision of definition. That is why all relevant aids are summoned to determine meaning. Of compelling consideration is the fact that words acquire scope and function from the history of events which they summarize." Such is the case in connection with KRS 58.420 and KRS 58.430. As we cited earlier, "What is necessarily implied need not be expressly stated." National Surety Co. v. Commonwealth, 253 Ky. 607, 69 S.W.2d 1007, 1009 (1934). In Long v. Mayo, 271 Ky. 252, 111 S.W.2d 633 (1937), the former Court of Appeals of Kentucky observed that it is an accepted rule recognized often by the court that not only those powers expressly granted by the statute, but such powers as are necessarily or fairly implied in, or incident to, the accomplishment of the things which are expressly authorized to be done, will be effectively recognized.
Thus the power of using variable rate interest bonds is a vital implication of KRS 58.420 and 58.430. In such manner the issuers will be provided with rates competitive with other states and they will be given the flexibility of staying abreast of fluctuating market conditions as to interest rates. Ultimately, the lowest available average interest cost on the bonds may be obtained. You have pointed out that Illinois and Tennessee are using variable interest rates with statutes similar to those in KRS Chapter 58. Thus the national trend unfolds. Rate competition is central in this appraisal.
Finally, in considering that public bodies have for several years used variable interest rates under KRS Chapter 58, the courts could apply the doctrine of contemporaneous construction. See City of Louisville v. Kesselring, Ky., 257 S.W.2d 599 (1953); and Burbank v. Sinclair Prairie Oil Co., 304 Ky. 833, 202 S.W.2d 420 (1947).