Request By:
Hon. A. B. Chandler, III, Auditor of Public Accounts
Opinion
Opinion By: CHRIS GORMAN, ATTORNEY GENERAL; Gerard R. Gerhard, Assistant Attorney General
OPINION OF THE ATTORNEY GENERAL
The following questions, in substance, have been presented:
1. Does the reference to the Employers' Mutual Insurance Authority (EMIA) in KRS 12.020 obligate the Commonwealth in any way to stand behind any liabilities should EMIA become insolvent?
2. Conversely, if the Legislature were to remove EMIA from KRS 12.020, would that decrease the likelihood that the state would have to assume EMIA's liabilities in the case of insolvency?
Answer in Brief
In our view, the statutory listing of the Employers' Mutual Insurance Authority (EMIA) as an agency of the Kentucky Labor Cabinet does not obligate the Commonwealth for liabilities of the Authority should the Authority become insolvent. This is especially so given a specific statute declaring that neither the Authority, nor its liabilities, shall be deemed to constitute a debt or liability of the Commonwealth, or a pledge of the faith and credit of the Commonwealth. Discussion follows.
Listing of EMIA in KRS 12.020 Does Not Obligate Commonwealth
Kentucky Revised Statute (KRS) 12.020 is a general listing of departments, program cabinets and their departments, and major administrative bodies of Kentucky state government. KRS 12.020 (II)(9) lists administrative units associated with the Kentucky Labor Cabinet. The Employers' Mutual Insurance Authority (EMIA) (KRS 342.801 to 342.843), appears among the listing of agencies related to the Labor Cabinet as subsection (o). KRS 342.803(3) is a statutory provision specific to the liability of the Commonwealth in relation to the EMIA. It provides:
The authority or its liabilities shall not be deemed to constitute a debt or liability of the Commonwealth or a pledge of the faith and credit of the Commonwealth.
Whether the Commonwealth will be liable for certain obligations (as, for example, obligations of the EMIA) is a matter resting with the discretion of the General Assembly. This is so because of the pronouncement of Section 231 of the Constitution of Kentucky, which provides:
The General Assembly may, by law, direct in what manner and in what courts suits may be brought against the Commonwealth.
Since the General Assembly has the ultimate authority to determine whether it may be sued (which, of course, runs to the question of liability), it obviously has the authority to declare that the Commonwealth will not be obligated in relation to a given matter. In KRS 342.803(3), the General Assembly has specifically declared that neither the EMIA nor its liabilities shall constitute a debt or liability of the Commonwealth, or a pledge of the faith and credit of the Commonwealth. Under such circumstances we find no basis at law for suggesting that the general listing of the EMIA in KRS 12.020 somehow supersedes the specific terms of KRS 342.803(3). In our view, based upon the reasoning expressed above, the listing of the EMIA within KRS 12.020 cannot operate to render the Commonwealth obligated for liabilities associated with the EMIA, should the EMIA become insolvent.
Removal of EMIA from KRS 12.020 is Immaterial
We believe the answer above, to the first question, effectively answers the second question. In direct answer to the second question, however, given the discussion above, in our view, removal of the EMIA from KRS 12.020 is immaterial to whether the state would have to assume the EMIA's liabilities in the event of the EMIA's insolvency.
KRS 12.020Listing of Agency Does not Establish Liability of Commonwealth
The views expressed in this opinion should not be taken as indicating indirectly that the mere listing of an agency in KRS 12.020 renders the Commonwealth liable in relation to an agency so listed unless there is a statutory provision to the contrary. Whether the Commonwealth might be liable for the obligations of an agency is a matter to be determined on a case by case basis, upon evaluation of specific facts.
Comprehensive Annual Financial Report, GASB
By way of background, should future research related to the questions addressed here be required, we understand that the questions presented arise in relation to whether financial matters concerning the EMIA should be reflected in Kentucky's Comprehensive Annual Financial Report (KRS 48.800(3)). It is our understanding that this is a question to be determined by accounting personnel based upon criteria established by the Governmental Accounting Standards Board (GASB). In particular, the concern is whether the EMIA is a "component unit" of "primary government" for financial reporting purposes. This is a determination to be made in accordance with the GASB's Codification of Governmental Accounting and Financial Reporting Standards, Section 2100. See also, Statement No. 14, The Financial Reporting Entity, GASB, Norwalk, Conn., June, 1991. The answers given above in this opinion bear upon the determination to be made under GASB standards by accounting officials.