Request By:
Representative Brent Yonts
15th Legislative District
Opinion
Opinion By: Gregory D. Stumbo, Attorney General; James M. Herrick, Assistant Attorney General
Opinion of the Attorney General
Representative Brent Yonts has requested an opinion as to whether a state agency may lawfully enter into personal service contracts whose duration extends beyond the end of the budgetary biennium. Specifically, the following questions are posed:
1. Whether the Transportation Cabinet may enter into personal service contracts for periods extending beyond the current biennium.
2. What constitutes the "approval of the Legislature" for purposes of allowing a personal service contract to cross over the biennium.
3. Whether a personal service contract containing a "funding out" or termination clause satisfies Section 230 of the Constitution of the Commonwealth of Kentucky.
4. Whether a member of the Government Contract Review Committee violates his/her oath to uphold the Constitution of the Commonwealth of Kentucky by voting for a personal service contract that clearly extends beyond the biennium, and thereby authorizes money to be drawn on the treasury, regardless of statute, "funding out" clause or termination provision.
5. Whether the Government Contract Review Committee's jurisdiction includes the ability to approve personal service contracts that contain effective dates crossing over the current biennium for purposes of Section 230 of the Constitution.
In OAG 89-16, we had occasion to consider a very similar issue and opined, in part, as follows:
Section 230 of the Kentucky Constitution prohibits money from being drawn from the State Treasury except in pursuance of an appropriation made by law. An appropriation may only be made while the General Assembly is in session. OAG 82-154.
?
There is no constitutional provision of which we are aware that prohibits the state from entering into a contract for more than two years. However, one who contracts with the state is chargeable with the knowledge of the limitations imposed on any state contract. 72 C.J.S. Supp. Public Contracts § 4. Thus, the General Assembly is not required to appropriate funds after the biennium, if, in fact, general funds are required.
The General Assembly's power to authorize the expenditure of state funds from the Treasury is inherent and based in the Kentucky Constitution. Com. ex rel. Armstrong v. Collins, 709 S.W.2d 437 (Ky. 1986). Therefore, the legislature would not be bound to continue funding a personal service contract beyond the current fiscal biennium, regardless of the presence or absence of a "funding out" provision. The fact that the term of the contract exceeds the biennium does not in itself authorize the drawing of funds from the State Treasury. "[A]lthough an agency may contingently obligate the Commonwealth, the General Assembly has the final authority to ignore the obligation during the biennial budget process by not funding that particular obligation." OAG 96-10.
The purpose of a "funding out" provision is to ensure, for the contract holder's benefit, that the contract holder has actual knowledge of the General Assembly's power to refuse funding for the contract in future budgets. Since any contractor is already legally "chargeable with the knowledge of the limitations imposed on any state contract," actual knowledge is not strictly essential; however, actual knowledge prevents any misunderstandings and ensures equitable dealing on the part of the Commonwealth. A "funding out" provision would accomplish this purpose more effectively than the termination provision alone (mandated by KRS 45A.695(1)).
Accordingly, as we concluded in OAG 89-16, an agency may enter into contracts for periods extending beyond the current fiscal biennium without offending Section 230 of the Kentucky Constitution. "The only caveat ? is that to be constitutional, the administrator must be scrupulously careful to see that actual contract financial commitments do not go beyond available appropriations of a biennium. " OAG 78-102.
Regarding the mechanism for approval of such a contract by the General Assembly, there need not be any special type of approval beyond what is routinely used for personal service contracts in general. The ordinary process of the Government Contract Review Committee is sufficient, since the actual funding of the contract in each biennium would be determined by the full membership of the General Assembly during each subsequent budgetary session.