Request By:
Honorable Vic Hellard, Jr.
Director, Legislative
Research Commission
State Capitol
Frankfort, Kentucky 40601
Opinion
Opinion By: Frederic J. Cowan, Attorney General; Nathan Goldman, Assistant Attorney General
In your letter to the Attorney General you ask the following question:
"Is the approval of the state local finance officer required for any bond or obligation of a county exceeding the one-half of one percent (.5%) value of the taxable property or is direct circuit court approval permitted as an alternative?"
You refer to a possible conflict between KRS 66.310(1) and KRS 66.210 as regards approval of county bond issues. KRS 66.310(1) states, in part:
"No county may contract an indebtedness which, together with all other indebtedness of the county, is in excess of one-half of one percent (.5%) of the value of the taxable property therein . . . without having first secured the written approval of the state local finance officer."
KRS 66.210 states, in part:
"No county, city or taxing district shall issue and offer to sell any of its bonds or obligations until the issuance thereof has been approved as provided in KRS 66.310, where applicable to a county, or by a circuit court of competent jurisdiction, declaring the bonds or obligations are based upon and cover a valid indebtedness of the county, city or taxing district within the constitutional limitation governing the creation of the indebtedness. "
In order to answer your question, we must first review the statutory history of the two statutes.
In 1932, the General Assembly passed Chapter 22 of the Acts -- "An Act relating to suits or actions by and against a County, City, Municipality, and other Taxing Districts, to enjoin the issuance of bonds thereof, and forbidding the issuance thereof, except on the approval of a court of competent jurisdiction, prescribing the practice and fixing the burden of proof." A full copy of the Act is attached hereto.
In Fox v. Boyle County, 245 Ky. 27, 53 S.W.2d 192 (1932), the Court construed Chapter 22 of the Acts of 1932 to mean that the court of competent jurisdiction (i.e., the circuit court) must approve a county bond issue before its issuance by finding that it does not exceed the Constitutional limitation of § 158 of the Kentucky Constitution. "The circuit court is not authorized to review or revise the discretion of the fiscal court, but is limited to the ascertainment and declaration of facts regarding the validity of the debt under the constitutional restrictions." Id at 194.
In Rohde v. City of Newport, 246 Ky. 476, 55 S.W.2d 368-370 (1932) the court elaborated on its interpretation of Chapter 22:
"The act forbids the city from issuing or offering for sale any bond until its constitutional validity has been determined by a court of competent jurisdiction.
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"As already pointed out, the effect of the act is merely to require a judicial determination in advance of a sale of the bonds that the debts to be funded are valid and within the constitutional limitations. In the light of that construction there is no room for the contention that the statute attempts to confer upon a court functions of a nonjudicial character. It requires merely that the adjudication must precede a sale.
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"The right of the city to issue bonds to fund a valid debt is not denied or impaired. An additional step in procedure is required in order to assure the validity of the act and to require obedience to the constitutional limitations. The power of the city to pay or to fund its valid debts is not affected, but the procedure for issuing bonds is regulated."
In 1938 the General Assembly passed the County Debt Act codified at K.S. 938 q. Section 938 q-3 created the County Debt Commission. Section 938 q-4 provided for approval of county bonds by the state local finance officer as follows: "No county may contract an indebtedness in excess of one-half of one percent (.5%) of the value of the taxable property therein . . . without having first secured the written approval of the State Local Finance Officer." (The complete text of Sections 938 q-3 & 4 are attached hereto.) The statute provided for a hearing before the State Local Finance Officer with an appeal to the County Debt Commission and then to the Franklin Circuit Court.
In upholding the constitutionality of the Act, the Court stated the reasoning behind the Act:
"It had almost become a custom for suits to be filed where those attacking the validity of the indebtedness of a county desired the indebtedness upheld, and the attack therein was a mere sham. Oftentimes, the allegations of their pleadings and their proof were so made as to present the appearance that the indebtedness was valid when in reality it was not. This was one of the abuses which the General Assembly sought to stop by this act. If the State Local Finance Officer will delve deep into the records of counties desiring to fund or refund their indebtedness, and have a complete and accurate report made of the hearings, such abuses will be stopped and the valid indebtedness of counties can be separated from debts which are invalid."
County Debt Commission v. Morgan County, 279 Ky. 476, 130 S.W.2d 779, 782 (1939).
It appears that, prior to the passage of the Act, many counties were in "a deplorable financial condition due to improvident spending . . . and due to the unbusiness-like manner in which their fiscal affairs [were] handled." Id at 782.
The Kentucky Statutes were revised in 1942. KRS 66.210 read as follows:
"No county, city or taxing district shall issue and offer to sell any of its bonds or obligations until the issuance thereof has been approved as provided in KRS 66.310, or by a court of competent jurisdiction, declaring the bonds or obligations are based upon and cover a valid indebtedness of the county, city or taxing district within the constitutional limitation governing the creation of the indebtedness. Any bond sold, assigned or transferred without being so approved in advance of its issuance is void, and shall not thereafter, directly or indirectly, be assumed or paid by the county, city or taxing district. " 1
According to the Reviser of Statutes, KRS 66.210 was taken from K.S. 186 c-6 (Acts 1932, Ch. 22, § 1) and 938 q-4.
KRS 66.310(1) in the newly revised statutes is identical to the present form of that Statute. The remainder of the Statute is substantially similar in providing for a hearing before the State Local Finance Officer and an appeal to the County Debt Commission and to circuit court. According to the Reviser, KRS 66.310 was taken from K.S. 938 q-4 & 938 q-5.
In Lincoln National Bank v. County Debt Commission, 294 Ky. 642, 172 S.W.2d 463, 466-467 (1943) the court discussed both KRS 66.210 and KRS 66.310:
"It is argued that the County Debt Act was not intended to substitute the judgment of the State officials for the judgment of the fiscal court elected by the citizens of a county. Reliance is put on Fox v. Boyle County, 245 Ky. 27, 53 S.W.2d 192. The case involved the construction of two acts of 1932, Chaps. 22 and 23, dealing with the issuance of county bonds and making judicial approval prerequisite of validity. We referred to the absence of power of the legislature to cut down or nullify the provisions of the Constitution respecting county financing. One of the acts, Chap. 23, was held unconstitutional and the other, now KRS 66.210 et seq., was construed as defining the power of the judicial courts not to extend to the invasion of discretionary powers of fiscal courts in relation to issuing renewal bonds or the terms thereof. The legislature in that act had not limited or restricted the fiscal courts in those respects. It has done so in the County Debt Act, under review here, and given supervisory authority to the State officials. As pointed out in Rentz v. Campbell County, 260 Ky. 242, 84 S.W.2d 44, § 144 of the Constitution merely creates the fiscal courts and does not define or prescribe their jurisdiction or powers. That is left to legislation. So it was held competent for the legislature to establish a commission to handle funds derived from the sale of bridge bonds instead of a fiscal court. In County Debt Commission v. Morgan County, supra, we held the County Debt Act to be constitutional, and regarded as untenable the ground that it supplanted the fiscal courts with the commission. The design of the statute is to assist counties whose financial affairs have become so involved that they have seemed to be beyond local solution and to afford state relief through the agency and in the manner prescribed. Another design is to curb deplorable practices due to inefficiency, carelessness, or in some instances, quasi criminality in the handling of county finances in utter disregard of the public welfare. Reference to these conditions is made in County Debt Commission v. Morgan County, supra, and in Fulton County Fiscal Court v. Southern Bell Tel. & Tel. Co., 285 Ky. 17, 146 S.W.2d 15, and in several other opinions. Another purpose is to protect investors in County bonds. The chaotic and almost hopeless condition of Magoffin County's finances is another evidence of the need for state assistance and supervision. While the debt is that of the taxpayers of the county, the condition, with its consequence, affect in some degree the entire body politic of the commonwealth. We are of opinion, therefore, that it was within the power of the legislature to confer upon the State Local Finance Officer and the County Debt Commission the authority contained in KRS 66.310(2) quoted above. It need scarcely be added that the power is not an arbitrary one. This is recognized by the provisions for judicial review."
The legislature intended that all county bond issues that exceed the statutory limit must receive approval from the state local finance officer. KRS 66.310. This provision was meant to give the state a certain degree of control over county bond issues. The intent of KRS 66.210 was not to control the bond issue but to provide a vehicle for the determination that the Constitutional limitations of § 158 were not violated. Obviously, this would be one of the factors which the state local finance officer would review prior to granting his approval. Thus, the reference in KRS 66.210 to KRS 66.310 fulfills the legislative intent of that statute. The provision for the circuit court to review bond issues must, of necessity, refer then to non-county bond issues which do not receive review by the state local finance officer.
Interpreted in this manner, all parts of both statutes are given full and logical effect. George v. Scent, Ky., 346 S.W.2d 784 (1961). Furthermore, this interpretation is buttressed by the principle that specific statutes control more general statutes. Heady v. Commonwealth, Ky., 597 S.W.2d 613 (1980). KRS 66.310 is a much more specific statute vis-a-vis county bond issues than KRS 66.210. It was also enacted after KRS 66.210 to address a problem apparently not resolved by KRS 66.210. A later statute controls an earlier one. Commonwealth v. Schindler, Ky., 685 S.W.2d 544 (1984).
It is, therefore, our opinion that a county must obtain the approval of the state local finance officer for any bond or obligation exceeding one-half of one-percent (.5%) value of the taxable property. KRS 66.210 does not offer an alternative to the approval of the state local finance officer for county bond issues.
Footnotes
Footnotes
1 The Statute remains substantially the same today except for two changes. In 1962 (Acts 1962, Ch. 25, § 1) the words "where applicable to a county" were added after "as provided in KRS 66.310". In 1976 (Acts 1976, Ex. Sess., Ch. 14, § 45) the word "circuit" was added before "court of competent jurisdiction" .