Request By:
Mr. Merl M. Hackbart
State Budget Director
Governor's Office for Policy and Management
201 Capitol Annex
Frankfort, Kentucky 40601
Opinion
Opinion By: Frederic J. Cowan, Attorney General; Anne E. Keating, Assistant Attorney General
In your recent letter to this office you requested an opinion of the Attorney General interpreting provisions of House Bill 799, the Executive Branch Appropriations Act, in conjunction with various provisions of House Bill 940, the Kentucky Education Reform Act of 1990. House Bill 799 contains appropriations for specific school equity and reform initiatives, including $ 15 million in general fund dollars in fiscal year 1990-91 and $ 33 million in general dollars in fiscal year 1991-92 for educational technology. House Bill 940 establishes, in Section 21, the Council for Education Technology, an advisory group attached to the State Board for Elementary and Secondary Education. The Council has, among other responsibilities, the duty to invest and administer all funds received by the Council. House Bill 940 provides in Section 103 that the Kentucky Successful Schools Trust Fund is to be established in the Finance and Administration Cabinet where funds appropriated by the General Assembly for payments of rewards to successful schools shall be credited to the fund and invested by the Cabinet with all interest to be retained in the trust fund for reinvestment. You note that while there is specific language with regard to the Successful Schools Trust Fund in House Bill 940 establishing an account in the Finance and Administration Cabinet to which appropriations are to be credited and invested until needed, there is no specific language in either House Bill 799 94 House Bill 940 directing the establishment of an investment account relating to the $ 15 million and the $ 33 million appropriated for education technology.
You ask, in particular, for an interpretation on these Acts as to the legal intent regarding the stewardship of the funds appropriated for the purposes of educational technology. Currently, the funds are allotted to a separate account within the Department of Education, with a small amount to be utilized for operations of the Council for Education Technology. You ask if such funds are to be invested by the Finance and Administration Cabinet on behalf of the Council for Education Technology and whether the investment proceeds should accrue to the "escrow" account.
First we will review the pertinent language of House Bill 799 and House Bill 940. House Bill 799 is codified in KRS Chapter 47, Appropriations. The executive budget is located in Appendix A and provides in pertinent part:
D. 34. Department of Education
n. School Equity and Reform Initiatives General Fund1990-911991-92260,563,700341,590,200
The above appropriations are for various school equity and reform initiatives as defined and enacted by the General Assembly. The appropriations are to be distributed among those units of government created or designated by the General Assembly to implement the initiatives . . . These funds will be distributed to the following units:5. Escrow Accountsa. School Rewards15,000,00015,000,000b. Technology15,000,00033,000,000
. . . .
Any funds which have been appropriated by the General Assembly to finance the technology strategic plan during the 1990-92 biennium which have not been expended or legally committed to implement the programs required by KRS 156 may only be expended by the chief state school officer to accelerate completion of the networked system in all classrooms and administrative offices of the state.
$ 15,000,000 in fiscal year 1990-91 and $ 15,000,000 in fiscal year 1991-92 is appropriated to the Kentucky Successful Schools Trust Fund . . . . [Emphasis added.]
House Bill 940, Section 21, has been codified in KRS 156.665. In particular, in subsection 7(f), the statute lists duties and responsibilities of the Council for Education Technology as including, inter alia,
(f) Receiving, holding, investing, and administering all funds received by the council for the purpose of carrying out its duties and responsibilities as set out in this section. These funds shall be spent with the aim of achieving a quality of education throughout the Commonwealth.
House Bill 940, Section 103, is codified in KRS 157.067, which provides in subsection 1:
To carry out the purpose of rewarding successful schools as provided in KRS Chapter 158, the Kentucky successful schools trust fund is hereby established in the Finance and Administration Cabinet. Funds appropriated by the General Assembly in each biennial budget for payments of rewards to successful schools shall be credited to the fund and invested until needed for payments to successful schools. All interest earned on moneys in the fund shall be retained in the fund for reinvestment.
Another statute important to this inquiry is KRS 42.500 which sets forth the broad general powers of the State Investment Commission located in the Finance and Administration Cabinet. KRS 42.500 states, in pertinent part:
(6) The commission shall have authority and may, if in its opinion the cash in the State Treasury is in excess of the amount required to meet current expenditures, invest any and all of the excess cash . . . .
This authority is not without limit, however. Subsection 10 of the same statute continues:
The authority granted by this section to the State Investment Commission shall not extend to any funds that are specifically provided by law to be invested by some other officer or agency of the state government.
To understand how this provision applies, it is necessary to identify whether the money appropriated to the Council for Education Technology constitutes part of the common school fund. Section 184 of the Kentucky Constitution describes the common school fund and sets specific limits on how it may be expended:
The bond of the Commonwealth issued in favor of the Board of Education for the sum of $ 1,327,000 shall constitute one bond of the Commonwealth in favor of the Board of Education, and this bond and the $ 73,500 of the stock in the Bank of Kentucky, held by the Board of Education, and its proceeds shall be held inviolate for the purpose of sustaining the system of common schools. The interest and dividends of said fund, together with any sum which may be produced by taxation or otherwise for purposes of common school education, shall be appropriated to the common schools, and to no other purpose . . . .
[Emphasis added.] Clearly, the common school fund consists of all sums produced by taxation or otherwise for common school purposes in addition to the interest and dividends of the fund. Section 184 of the Kentucky Constitution and Talbott v. Kentucky State Board of Education, 244 Ky. 826, 52 S.W.2d 727 (1932). Those sums are to be spent exclusively on public education. This fund has been provided by law, KRS 156.665, to be invested by the Council. Accordingly, KRS 42.500 does not apply, as the authority granted to the State Investment Commission is limited by KRS 156.665.
Two other statutes suggest that the legislature fully expects the Council (in its advisory capacity to the State Board) to invest the education technology funds, as opposed to the State Investment Commission.
KRS 42.535 provides:
Each agency holding funds listed in this section shall make a report according to generally accepted accounting principles of all money received and disbursed by the listed funds during each fiscal year, on or before the 15th of July, showing the receipts, expenditures, depositories, rates of interest paid by depositories, investments, and rates of return on investments by each listed FUND to the state investment commission. The funds which shall be reported are: . . .
* * *
(6) The common school FUND.
In addition KRS 42.550 states:
The Department of Education shall make a report according to the generally accepted accounting principles of all money received and disbursed from the common school fund and Support Education Excellence in Kentucky (SEEK) program, to local school districts showing their receipts, expenditures, depositories, rates of interest paid by depositories, investments, and rates of return on investments by each fund to the State Investment Commission for each fiscal year on or before the 15th of July.
In conclusion, based on § 184 of the Kentucky Constitution, it is the opinion of this office that the appropriations in House Bill 799 for educational technology constitute part of the common school fund. The technology escrow account in question has been placed under the authority of the Council for Education Technology pursuant to KRS 156.665. Those funds are to be used for carrying out the duties of the Council, which, of course, would include administrative costs. KRS 156.665. The statute also provides the Council with express authority and, in fact, a mandatory responsibility to invest and administer those funds pursuant to KRS 156.665(7)(f). Not only is the Council an advisory group attached to the State Board for Elementary and Secondary Education, but under House Bill 799, any funds not expended by the Council for Education Technology, with the approval of the Board, may only be expended by the Chief State School Officer for the purpose of accelerating completion of educational technology in Kentucky classrooms and administrative offices.
In view of the fact that the Council has the duty to invest funds appropriated for educational technology, the State Investment Commission would not have authority under KRS 42.500 to invest those same funds. Moreover, the language of KRS 42.535 and KRS 42.550 contemplates the investment by the Council for Education Technology of the money appropriated for education technology when requiring each agency to report to the State Investment Commission concerning expenditures and investments. By statute each agency holding common school funds is required to account to the State Investment Commission for all receipts, expenditures, investments, and rates of return on investments for the common school fund, which clearly includes the Council's investment of the Education Technology escrow account. This arrangement contrasts with the arrangement set forth in KRS 157.067 establishing the Kentucky Successful School Trust Fund in the Finance and Administration Cabinet, granting that Cabinet authority to invest the School Rewards fund with all interest to be retained in the fund. Therefore, it is the opinion of this office that only the Council, not the Finance and Administration Cabinet, may invest the funds for education technology.
Finally, in view of the requirement of Section 184 of the Kentucky Constitution that money appropriated to the common school fund may be used for no other purpose, and in view of the mandate of KRS 156.665 to receive and administer the funds only for educational technology, any proceeds from investments by the Council must go back into the technology escrow account.