Request By:
Matthew R. Malone
Ms. Heidi Shultz
Alex P. Herrington
Opinion
Opinion By: Jack Conway, Attorney General; Amye L. Bensenhaver, Assistant Attorney General; David E. Spenard, Assistant Attorney General
Open Records Decision
The question presented in this appeal is whether the Murray-Calloway County Economic Development Corporation is a public agency for open records purposes and therefore violated the provisions of KRS 61.870 to 61.884 in denying Matthew R. Malone's August 11, 2009, request for records directly or indirectly relating to Executive Director Mark O. Manning's arrest in Frankfort, Kentucky on June 10, 2009. Here, as in 09-ORD-033, we acknowledge that the absence of specific parameters "for analysis within KRS 61.870(1)(h)," along with the absence of a specific grant of "authority to compel disclosure of financial records by 'bodies' disputing their status as public agencies . . . impede[s] our ability to effectively implement the apparent legislative intent. " 09-ORD-033; p. 8. Given these limitations, and the disputed record on appeal, we find that the Corporation has not "derive[d] at least 25% of its funds expended by it in the Commonwealth of Kentucky from state or local authority funds" in the current fiscal year, that it does not otherwise fall within the parameters of KRS 61.870(1) , and that it is not, therefore a public agency for open records purposes. Nevertheless, we find that because it expended $ 1.6 million in funds derived from the Kentucky Economic Development Finance Authority last year, it was a public agency for open records purposes in 2008. The records identified in Mr. Malone's request relate to 2009 expenditures and are not otherwise associated with functions, activities, programs or operations funded by state or local authority per KRS 61.870(2). Accordingly, the Corporation's denial of Mr. Malone's request did not constitute a violation of the Open Records Act.
In an official response dated August 21, 2009, 1 Chairperson Heidi Shultz notified Mr. Malone that the Corporation is "a 501C(6) private, not-for-profit Corporation organized under KRS 273.00," that it is not a board, commission, political subdivision, or department of the Commonwealth, that it was not created by Calloway County or the City of Murray, that its directors are not appointed by the county or the city, and that it is not, therefore, a public agency. Shortly thereafter, Alex P. Herrington, Jr., an attorney representing the Corporation, responded to Mr. Malone's assertion that because it derived at least 25% of the funds it expended in the Commonwealth from state or local authority funds in fiscal year July 1, 2008 through June 30, 2009, the Corporation was a public agency at the time of his request. Mr. Herrington explained that the Corporation operates on a calendar fiscal year and had not crossed the 25% threshold in the current fiscal year that included Mr. Manning's June 10 arrest and Mr. Malone's August 11 request. Mr. Malone immediately initiated this appeal, characterizing the Corporation's position as "without merit," questioning the Corporation's reliance on the "current . . . abbreviated fiscal year for the assertion that it has not crossed the 25% threshold, " producing the Corporation's IRS Form 990's for 2005, 2006, and 2007, which reflect that in recent years it received in excess of 25% of its funds expended in the Commonwealth from state or local authority funds, and expressing the belief that in the 2008 fiscal year the Corporation again exceeded the 25% threshold.
In supplemental correspondence directed to this office following commencement of Mr. Malone's appeal, Chairperson Shultz submitted an affidavit in which she stated that "0% of the funds expended by the Corporation in the Commonwealth of Kentucky for the year ending December 31, 2008, was derived from state or local authority funds." That determination was "based on [her] review . . . [of] the financial records of the Corporation for the year ending December 31, 2008, that can be utilized to calculate the percentage . . . ." 2 Mr. Malone responded to Chairman Shultz's affidavit, asserting that the Corporation's initial argument that it had not passed the 25% threshold for 2009 "is gutted with the now uncovered records of a Five Hundred Thousand Dollar ($ 500,000.00) payment from the Calloway County Fiscal Court . . . just two months ago," as well as "documents from the Purchase Area Development District [which] reveal that [it] was the recent recipient of $ 1.6 million dollars in funds from the Kentucky Cabinet for Economic Development. " In sum, Mr. Malone argued, the Corporation:
exists and maintains itself on money derived from Kentucky's taxpayers. It has dollars funneled to it from a variety of Kentucky sources, (including but not limited to the Calloway County Fiscal Court, Area Development District appropriations, Cabinet for Economic Development grants and transfers), all of which satisfy the 25% requirements of KRS 61.870 as well as providing for its continuing operations.
Pursuant to KRS 61.880(2)(c), and to facilitate our review of the issue on appeal, this office requested additional information from the Corporation by letter dated September 10, 2009. We asked:
In the current and last fiscal year, what amount of money was expended by the Corporation in the Commonwealth of Kentucky? What percentage of these total expenditures was derived from state or local funding?
The Corporation subsequently furnished a statement containing information responsive to the first inquiry, under terms of confidentiality, and answered the second inquiry as follows:
In the current fiscal year through July 31, 2009, 20.57% of the Corporation's total expenditures was derived from state or local authority funds. In the last fiscal year, 0% of the Corporation's total expenditures was derived from state or local authority funds.
Having answered our other inquiries concerning the application of KRS 61.870(1)(a) through (k) to the Corporation in the negative, and relying on 09-ORD-083, Mr. Herrington concluded that his client "is not subject to the Act."
Upon further inquiry, this office confirmed that the Corporation closed on a $ 1.6 million loan from the Kentucky Economic Development Finance Authority in 2008, calling into question its assertion that it derived "0% of [its] total expenditures . . . from state or local authority funds" in that year. In view of this apparent discrepancy, we asked that the Corporation "explain its position relative to the percentage of state or local authority funds expended in the 2008 fiscal year. " By letter dated October 16, 2009, the Corporation acknowledged receipt of the $ 1.6 million loan from KEDFA to purchase land for an industrial park, but maintained that "KEDFA loan proceeds do not fit within the Act's definition of public agency. " The Corporation reasoned:
For purposes of the Act, KRS 61.870(1)(h) defines as a public agency '[a]ny body which derives at least twenty-five percent (25%) of its funds expended by it in the Commonwealth of Kentucky from state or local authority funds.' (Emphasis added). This section looks only to the '[the body's] funds.' Id . Ownership of loaned funds is not transferred to the borrower. Cf. Comm'r v. Indianapolis Power & Light Co., 493 U.S. 203, 208 (1990) ('receipt of a loan is not income to the borrower' ) citing Comm'r v. Wilcox, 327 U.S. 404, 408 (1956) ('Nor can taxable income accrue from the mere receipt of property or money which one is obliged to return or repay to the rightful owner, as in the case of a loan or credit.'); Black's Law Dictionary 954 (8th ed. 2004) (defining a 'loan' as '. . . a grant of something for temporary use' and 'a thing lent for the borrower's temporary use; esp., a sum of money lent at interest . . .'). Thus, KEDFA loan proceeds are not part of the KRS 61.870(1)(h) calculation because they are KEDFA funds--not the Corporation's funds.
Continuing, the Corporation argued that inclusion of the KEDFA funds in KRS 61.870(1)(h) calculations "would not further the Act's purposes . . . [because] KEDFA loans do not involve the disposition of public funds [since t]he Corporation has an unconditional obligation to return the funds, plus fees and interest." The Corporation then focused on the unintended consequences of including KEDFA loans in KRS 61.870(1)(h) calculations concluding:
If KEDFA loan proceeds were considered under KRS 61.870(1)(h), a number of start-ups and businesses relocating to Kentucky would likely cross the 25% threshold. [Footnote omitted.] In such situations, all of their 'public records' may become subject to disclosure, as the Act's exception for confidential business information would appear to be facially inapplicable to such information of the public agency itself. KRS 61.878(1)(c). This result would dampen Kentucky economic development efforts because businesses would not want to risk having their confidential information being subject to disclosure under the Act.
In closing, the Corporation noted that the public may monitor how the Corporation expends KEDFA funds through KEDFA records. We find these arguments unpersuasive and the Corporation's position postulated on a semantic distinction without a difference.
In an open records decision issued earlier this year that dealt with the application of KRS 61.870(1)(h) to the Louisville Arena Authority's "construction manager-at-risk," M. A. Mortenson Company, the Attorney General parsed the language of that definitional section, as amended in 1992, observing:
The General Assembly altered KRS 61.870(1)(h) by expanding its language to encompass any 'body' receiving any state or local funding so long as that funding represents at least twenty-five percent of the total funds it expends in the Commonwealth. In so doing, the General Assembly did not fix the period within which this determination was to be made (calendar year, fiscal year, calendar year or fiscal year to date of request), or indicate who is responsible for tracing state or local authority funds and how state or local funds are to be traced. Nor . . . did the General Assembly invest this office with authority to compel disclosure of financial records by 'bodies' disputing their status as public agencies. 3 The absence of specific parameters within KRS 61.870(1)(h) has impeded our ability to effectively implement the apparent legislative intent. [Footnote omitted.]
09-ORD-033, p. 7-8 (copy enclosed).
In 09-ORD-033, the appellant argued that without supporting documentation there was no way to ensure that Mortenson "was properly applying the statutory standard . . .," and questioned Mortenson's calculations. Mr. Malone raises the same concerns, emphasizing that in past years the Corporation has regularly exceeded the 25% threshold, and that in the current fiscal year it has received at least $ 500,000.00 from the Calloway County Fiscal Court. We share these concerns, but are obliged to conclude under existing legal authority that the Murray-Calloway County Economic Development Corporation is not a "public agency" within the meaning of KRS 61.870(1)(h). Chairman Shultz acknowledges that 20.57% of the Corporation's total expenditures in the current fiscal year were derived from state or local authority funds. Absent evidence that this percentage will change during the course of the fiscal year, this figure falls short of the 25% statutory threshold.
In addition to the $ 500,000.00 infusion of county funds to the Corporation in the current fiscal year, Mr. Malone points to a 2008 Purchase Area Development District "Comprehensive Economic Development Strategy Update" indicating that the Corporation submitted a KEDFA loan application for $ 1.6 million. As noted, the Finance Cabinet confirms that the Corporation closed on the KEDFA loan on May 16, 2008, and the Corporation has since acknowledged that these funds were expended in 2008 "to purchase land for the development of an industrial park." The cases upon which the Corporation relies for the proposition that ownership of loaned funds is not transferred to the borrower are facially inapposite or have been overruled.
Comm'r v. Indianapolis Power & Light Co., 493 U.S. 203 (1990) dealt with the issue of dominion over funds, consisting of customer deposits, for purposes of their taxability. Funding for purposes of KRS 61.870(1)(h) is not the same as revenue or income for purposes of the Internal Revenue Code. Thus, we are spared debate on the question of whether the KEDFA loan is income or revenue. In addition to being inconsequent to this analysis,
Comm'r v. Wilcox, 327 U.S. 404 (1946), was overruled by
James v. U.S., 366 U.S. 213 (1961); therefore, the holding in Wilcox regarding the definition of taxable income is no longer good law.
Consistent with the longstanding principle that "as far as open records are concerned, it is apparently the policy of the legislature that wherever public funds go, public interest follows" OAG 76-648, we find that the infusion of state or local authority funds into an otherwise private entity, whether by grant, loan, or any other device, triggers the disclosure requirements of the Open Records Act if those funds represent 25% or more of the private entity's expenditures in a fiscal year and if the records sought relate to publicly funded functions, activities, programs, or operations. Because the Murray-Calloway County Economic Development Corporation borrowed funds to purchase land from a state authority, rather than a commercial lender, the Corporation derived its funds expended by it in the Commonwealth from a state authority. The loan proceeds are not KEDFA funds because the proceeds were used to pay a third party for land, much like a mortgage company's funds once they enter the mortgagor's hands. KEDFA is no longer the rightful owner of these funds but is instead the owner of the liability the Corporation has to repay the funds. That right of repayment is secured by collateral and does not remain tied or otherwise identified to the funds transferred to a third party. In our view, the use of these funds "is a matter of public stewardship . . . and brings the Corporation under the strictures of the Open Records Law." OAG 80-633. Accordingly, we find that in fiscal year 2008, the Murray-Calloway County Economic Development Corporation was a public agency within the meaning of KRS 61.870(1)(h).
The records to which Mr. Malone seeks access were generated in the current fiscal year and, according to the Corporation, do not relate to publicly funded functions, activities, programs, or operations per KRS 61.870(2). In its October 16, 2009, response to our KRS 61.880(2)(c) questions, the Corporation stated that it "uses funds derived from private sources to pay for its operating expenses, including employee expenses, telephone services, employee vehicle benefits, and other administrative costs." Simply put, there is nothing in the record on appeal that directly controverts the Corporation's position that it is not a public agency for open records purposes in the current fiscal year to date or that the requested records do not qualify as "public records" pursuant to KRS 61.870(2). 4 Because the Corporation is not a public agency, its denial of Mr. Malone's request cannot be deemed a violation of the Open Records Act. Accord, 09-ORD-083. 5 We concede that our decision is contrary to the growing demand for greater accountability amongst "bodies" receiving public funds, but are constrained by the language of the statute, and the inherent impediments to effective review, to reach this conclusion.
A party aggrieved by this decision may appeal it by initiating action in the appropriate circuit court pursuant to KRS 61.880(5) and KRS 61.882. Pursuant to KRS 61.880(3), the Attorney General should be notified of any action in circuit court, but should not be named as a party in that action or in any subsequent proceeding.
Footnotes
Footnotes
1 On August 18, Mr. Malone agreed to an extension of time for the Corporation's response.
2 We cannot discern the import, if any, of this limiting language.
3 At note 8 of that decision, we commented:
Our authority under KRS 61.880(2)(c) to "request additional documentation" extends to agencies, not to "bodies" that dispute their status as such. This puts the Attorney General in an untenable position relative to compulsory disclosure of supporting documentation.
4 An article that appears in the March 11, 2009, edition of the Murray Ledger & Times indicates that the Corporation received a $ 10,000 check from the West Kentucky Rural Electric Cooperative in the current fiscal year. The omission of this fact has relevance if WKREC is itself a public agency and these funds are factored into the Corporation's KRS 61.870(1)(h) calculations. Such a recursive inquiry is beyond the scope of our KRS 61.880(2) analysis, creating an endless loop from which there is no exit.
5 Because the issue presented in this appeal is resolved definitionally, we do not further address the Corporation's argument that the requested records are not "public records" insofar as they do not relate "to functions, activities, programs, or operations funded by state or local authority" per KRS 61.870(2). We note, however, the difficulties inherent in tracing the expenditure of state or local funds as required by the language of the existing statute.