Request By:
Kelly Downard
Hal Heiner
Tina Ward-Pugh
Louisville Metro Council
Opinion
Opinion By: JACK CONWAY, ATTORNEY GENERAL; Tad Thomas, Assistant Deputy Attorney General
Opinion of the Attorney General
Three members of the Louisville Metro Council (hereinafter referred to as the "requesting Council members") have presented a number of issues to this office which arise from two separate economic development agreements entered into by Mayor Jerry Abramson on behalf of Louisville Metro. The first agreement, formally known as the "Louisville Expansion Development Agreement" (hereinafter the "Center City Agreement"), is a contract between Louisville Metro and a private development group, the Cordish Company ("Cordish"). The agreement requires Cordish to develop a retail/entertainment/ office complex to be known as "Center City" on the old Louisville Water Company block in downtown Louisville. The requesting Council members ask whether certain terms of this contract, requiring the expenditure of Metro funds and the transfer of City held property rights, violate the separation of powers between the Mayor, as Metro Louisville's chief executive, and the Council, as the city's legislative body.
The second agreement at issue is an assignment of rents generated from the lease of the downtown baseball stadium to the Louisville Baseball Club. These rents were initially payable to Louisville Metro, but were assigned by the Mayor to the Downtown Development Corporation, a private, IRC Sec. 501(c)(3) non-profit corporation established to assist in the redevelopment and revitalization of downtown Louisville. The requesting Council members have asked for an opinion of this office regarding the authority of the Mayor to make this assignment.
Each of these agreements and the individual issues presented by the requesting Council members will be discussed in turn. Pursuant to the usual practice of this office, comment was sought and received from the interested parties, in this instance the requesting Council members, the Mayor and the Downtown Development Corporation. 1
Center City Agreement
The Center City Agreement is a ninety-plus page contract between Louisville Metro and Cordish which was executed on August 11, 2008, by the Mayor on behalf of the city. The Cordish Company is a private, for-profit corporation based in Baltimore, Maryland, which previously redeveloped the Galleria area of downtown Louisville into an entertainment venue known as "Fourth Street Live." The Center City Agreement is an extension of that project and generally provides the following:
. Louisville Metro will acquire title to parcels of property located on the "Water Company Block" which would, in turn, be leased to Cordish for rental payments of $ 1 per year. The company would then be responsible for the development of the property into a complex including a minimum of 200,000 square feet of retail, entertainment, office and residential space.
. Louisville Metro will make a forgivable loan of $ 1,800,000.00 to Cordish which would be used to remodel portions of the Starks Building located near Fourth Street Live.
. Through a series of transactions between the parties, Louisville Metro will pay $ 2,000,000 to Cordish to market available space at Fourth Street Live.
. Louisville Metro would lease to Cordish the Louisville Gardens which the company has agreed to remodel and rehabilitate into an entertainment venue.
. Louisville Metro would cause the Parking Authority of the River City (PARC) to transfer fee simple title of the Galleria parking garage to Cordish for $ 2,700,000. The company would then make $ 500,000 of improvements and continue to operate the structure as a parking garage.
. Cordish has the option of entering into a lease of a parcel of land commonly referred to as "Founders Square" during the first eight years of the project for $ 1.00 per year in rent.
. To fund the project, Louisville Metro would issue bonds.
. Louisville Metro would contribute to Cordish $ 2,500,000.00 for "soft costs" related to the project. These "soft costs" consist of design, engineering and planning costs, market studies and marketing.
The parties agree that the Center City Agreement, as a whole, has not been presented to the Metro Council for approval. And while the agreement requires Louisville Metro to issue bonds, expend a substantial amount of funds, enter into long term leases and transfer the ownership of property, there are no express provisions within the contract requiring the approval of the agreement by the Metro Council at any point. This is not to say the role of the Metro Council is entirely ignored. The contract does require Louisville Metro to use "its best efforts to cause the Metro Council to enact an ordinance authorizing the issuance of tax exempt tax increment finance revenue bonds for the project. . ." Pg. 39.
The requesting Council members question the authority of the Mayor to enter into the Center City Agreement on the grounds that the agreement requires the expenditure of public funds without prior approval of the Council, and that it does not contain an express provision which requires Council approval before the contract can be fully executed. They claim that contracting for these expenditures violates the separation of powers between the executive (the Mayor) and the legislative (Council) branches of government.
Specifically, the requesting Council members seek the opinion of this office asking: (1) whether the Mayor has the authority to enter into a contract which requires the expenditure of public funds when those funds have not previously been appropriated by the Council; (2) whether the Mayor has the authority to enter into long term leases of Metro property for nominal amounts; (3) whether the Mayor has the authority to transfer fee simple title of the Galleria parking garage to Cordish without Council approval; (4) whether the Mayor has the authority to enter into the Center City contract without allowing for bidding on the contract by multiple bidders; (5) whether the Mayor has the authority to contractually pledge his "best efforts" to encourage legislative action; and (6) whether the Mayor has the authority to enter into a lease for Founders Square.
In his response, the Mayor points to the fact that economic development agreements, such as the Center City Agreement, entail "multiple authorizations, agreements, easements, deeds and other documents that create the entire economic development deal." The Mayor concedes that various portions of the agreement must be presented to the Metro Council and further points to the fact that some have already been presented, and approved.
Discussion
This is the first opinion of the Attorney General construing the provisions of KRS 67C which were enacted by the General Assembly in 2000. The chapter created a new, consolidated form of government by allowing the merger of the former City of Louisville and Jefferson County. Merger was placed on the ballot and approved by voters in November 2000, and the merger became effective on January 3, 2003.
Chapter 67C transferred all of the governmental and corporate functions of the previous city and county governments to the new Metro Government. KRS 67C.101. To exercise those functions, the new consolidated local government was given all of the powers and privileges of both cities of the first class and their counties. KRS 67C.101(2).
Following merger, the Metro Louisville Mayor was vested with all executive and administrative powers and those powers "shall be construed broadly." KRS 67C.105(1). In addition, the Mayor retained any authority previously vested in both the mayor of the City of Louisville and the Jefferson County Judge Executive. KRS 67C.105(4). Louisville Metro's Mayor shall, "Execute written contracts or obligations of the consolidated local government. " KRS 67C.105(5)(h) .
The powers of the Mayor must be viewed relative to the powers of the legislative body which, in the case of Louisville Metro's consolidated form of government, is the Metro Council. KRS § 67C.103 sets forth the legislative powers of the Council. In relevant part it provides:
(1) The legislative authority of a consolidated local government, except as otherwise specified in KRS 67C.101 to 67C.137, shall be vested in a consolidated local government council.
. . .
(13) All legislative powers of a consolidated local government are vested in the consolidated local government council. The term 'legislative power' is to be construed broadly and shall include the power to:
KRS § 67C.103.
KRS 67C.141 provides additional clarification of the roles and authority of both the Louisville Metro Mayor and Metro Council providing:
(1) Notwithstanding any provision to the contrary, any statute which confers any rights, powers, privileges, immunities, or responsibilities upon the county judge/executive in a county formerly containing a city of the first class and presently having a consolidated local government, is hereby deemed to confer such rights, powers, privileges, immunities, and responsibilities upon the mayor of the consolidated local government.
(2) Any statute which confers any rights, powers, privileges, immunities, or responsibilities upon a fiscal court in a county formerly containing a city of the first class and now having a consolidated local government, is hereby deemed to confer such rights, powers, privileges, immunities, and responsibilities upon the officer or officers in whom such functions are vested in the consolidated local government by KRS 67C.103(1) and 67C.105(1), respectively. This provision applies to the general statutes applicable to counties, as well as applying to statutes applicable only within a county formerly containing a city of the first class.
Appropriation of Metro Funds
We now turn to the specific questions posed by the requesting Council members. The first three questions pertain to contractual provisions in the Center City Agreement which require the expenditure of Metro funds. The requesting Council members ask the following:
1. "[A]re the provisions of the Center City Agreement concerning the $ 2 million transfer (Sections 2.23 and 3.13) invalid on grounds that they constitute a unilateral appropriation by the Mayor in violation of the separation of powers between the Mayor and the Council?"
2. "Does the Mayor have the authority to execute a written contract on behalf of Metro Government, such as the Center City Agreement, that purportedly obliges the city to 'contribute' $ 2,500,000 to a private developer, even though the 'contribution' has not been approved nor appropriated by the Council? Or, alternatively, is the Mayor's authority to spend Metro's funds limited to those monies actually appropriated by the Council?" 2
3. "Can the mayor make a $ 1,800,000 interest-free 'forgivable loan' of Metro funds to a private real estate developer without Council approval and a corresponding appropriation? " 3
While Chapter 67C provides for a new form of government and provides specific statutory authority for the roles of the Mayor and the Metro Council, the statutes do not alter the long standing principle that the chief executive's spending is limited to the authority given to him by the legislative body in a budget ordinance. See KRS 91A.030(1) which provides that a city shall operate under an annual budget ordinance adopted and administered pursuant to the provisions of the budget act and no city shall expend any monies from any governmental or proprietary fund except in accordance with the budget ordinance. Nor does Chapter 67C alter the rule that only the chief executive has the authority to enter into contracts on behalf of the city. Therefore, in order for any contract requiring the expenditure of funds on the part of Metro government to be valid, two separate actions are required, signature of the Mayor and approval by the Metro council.
Here, the requesting Council members do not question the authority of the Mayor to sign contracts on behalf of the City. This power is clearly vested in his executive authority under KRS 67C.105(5)(h). However, they challenge the authority of the Mayor to enter into the Center City agreement which requires the expenditure of city funds without the agreement first being presented to the Council for their approval.
They have also asked the Attorney General to issue an opinion holding that any contract entered into by the Mayor must contain express language requiring Council approval for those provisions requiring appropriations. "The undersigned [requesting Council members] contend that in order to enter into any contract like the Center City Agreement, which unequivocally promises the payment of Metro Government funds, any and all such payments must first have been appropriated by Metro Council." The Council members then express concern about potential breach of contract actions against Louisville Metro due to the lack of clarity between those provisions which pertain to funds already appropriated by Metro Council and those which still require legislative approval.
Contrary to the position of the requesting Council members, we find that there is no restriction on the Mayor entering into a contract, like the Center City Agreement, which contains provisions requiring the expenditure of funds, before those funds have been appropriated by the Metro Council. However, despite containing the signature of the Mayor, those provisions of the Agreement which require appropriations are not effective until such time as the Council affirmatively approves them.
In response to this office's request for legal opinions in support of their respective legal positions, the Mayor concedes that he does not have the power to appropriate funds, but asserts that those portions of the Center City Agreement which require appropriations will be presented to the Metro Council for their approval. We think this is a proper course of action. It is clear that in most instances, and indeed in this one, the Mayor has the sole authority to enter into contracts on behalf of the city. It is also clear that the Council will need to approve any provisions of the contract which require the expenditure of funds. However, there is no controlling authority which requires one of these two prerequisites to be completed before the other. Because the Mayor does not have the authority to appropriate funds, those provisions of the contract are simply not effective until such time as the contract as a whole, or those specific provisions requiring governmental spending, are approved by the Council.
There should be no concern on the part of the requesting Council members that by entering into a contract requiring the expenditure of funds the Mayor would be exposing the City to a breach of contract action. It has been a long established rule of law that a party entering into a contract with a governmental entity is required to know the law and understand when they may be entering into an agreement in which the governmental entity promises consideration it has no authority to offer.
The laws provide how municipalities may bind themselves, and the contracts to be obligatory must be made in the manner the laws prescribe. A different rule prevails in regard to municipalities to that which governs private persons and private corporations. The persons who contract with municipal corporations must, at their peril, know the rights and powers of the officers of such municipalities to make contract and the manner in which they must make them. Any other rule would destroy all the restrictions which are thrown around the people of municipalities for their protection by the statute laws and the Constitution, and would render abortive all such provisions. The rule in certain instances may be harsh, but no other is practical.
City of Princeton v. Princeton Electric Power Co., 179 S.W. 1074, 1079 (Ky. 1915). [Emphasis added.]
This principle remains the law in Kentucky. "A party deals with a public agency at its peril if it contracts with one and fails to inquire into the power of the agency to execute it." Hacker Bros. Cont. Co., Inc. v. Board of Ed. of Whitley County, 590 S.W.2d 897 (Ky. App. 1979).
Since the Mayor admittedly had no power to bind the city to appropriations that had not yet been approved by the Metro Council, Cordish was acting at its own peril when contracting with the Mayor and including contract provisions which require Council approval. If the Metro Council chooses not to approve those facets of the agreement requiring expenditure of public funds it is unlikely that Cordish would prevail in a breach of contract action. Nor does it appear that Cordish was ignorant of this fact when entering into the Center City Agreement. The plain language of the contract requires the Mayor's cooperation in obtaining Council approval for certain portions of the agreement such as bonding. Thus Cordish was clearly aware that the failure of the Metro Council to affirm specific provisions of the agreement by way of appropriations would render those provisions unenforceable.
We also must respectfully decline the requesting Council members' invitation to establish a new rule of law which would require a local government executive to obtain advance approval for appropriations provisions in contracts. First, this office is unable to overrule actions of the General Assembly which clearly gave the Mayor the authority to enter into contracts. KRS 67C.105(5)(h). Second, such a rule as the one proposed by the Council members is not needed here. It is clear that the Mayor under his executive authority was permitted to enter into the Center City Agreement, despite the fact that certain provisions of the agreement require Metro Council approval. As we have stated, those provisions requiring governmental spending are only valid upon affirmative action by the Council. 4 To the extent the requesting Council members ask this office to create a rule of law contrary to the statutes in place, we are unable and unwilling to do so. 5
Lease and Sale of Real Property
The Center City Agreement provides for the lease of the Water Company block to Cordish for a term of 99 years at an annual rent of $ 1.00. It also grants Cordish the right to lease property known as Founders Square for a period of eight years from the inception of the contract, also at a rent of $ 1.00 per year. Finally, the agreement calls for the fee simple transfer of the Galleria parking garage to Cordish for the sum of $ 2,700,000 with Cordish's agreement to perform $ 500,000 in renovations. The Council members first ask whether "leases of this nature and length and for this purely nominal amount, violate Section 164 of the Kentucky Constitution, the Model Procurement Code, or any other applicable law regarding the conveyance of public land."
Local governments have the option of adopting Kentucky's Model Procurement Code and Louisville Metro has indeed done so. KRS 45A.343(1). However, we have previously held that the Model Procurement Code does not apply to situations where government is the lessor of property. See OAG 80-117. KRS 45A.345(17) defines procurement as,
the purchasing, buying, renting, leasing, or otherwise obtaining any supplies, services, or construction. It also includes all functions that pertain to the obtaining of any public procurement, including description of requirements, selection, and solicitation of sources, preparation and award of contract, and all phases of contract administration.
[Emphasis added.]
The Model Procurement Code applies only where the governmental entity is a purchaser, buyer or lessee. It has no application where the city is the lessor. We have found no published case or enactment of the General Assembly which would override our prior opinion. Nor do we see any reason to deviate from that previously established rule. Therefore, the Model Procurement Code does not apply to those portions of the agreement pertaining to the lease of city property.
Next, the requesting Council members ask whether the 99 year lease violates Section 164 of the Kentucky Constitution. They provide no support for the proposition that there is constitutional violation in this instance. Section 164 provides:
No county, city, town, taxing district or other municipality shall be authorized or permitted to grant any franchise or privilege, or make any contract in reference thereto, for a term exceeding twenty years. Before granting such franchise or privilege for a term of years, such municipality shall first, after due advertisement, receive bids therefor publicly, and award the same to the highest and best bidder; but it shall have the right to reject any or all bids. This section shall not apply to a trunk railway.
The Mayor contends that Section 164 does not apply to the Center City Agreement because, in entering into the agreement the city is exercising a proprietary function as opposed to a governmental function. He cites Board of Councilmen of City of Frankfort v. Pattie, 12 S.W.2d 1108 (Ky. App. 1928) in support of his position. We agree. The granting of a lease is not equivalent to granting a franchise. Capital Amusement Co. v. Board of Councilmen, 210 Ky. 622, 276 S.W. 528 (Ky. 1925) (holding the city of Frankfort was exercising private proprietary power, or municipal function, as opposed to a purely governmental function when it leased an opera house for public entertainment. ) Section 164 of the Kentucky Constitution does not prohibit the Mayor from entering into a lease with Cordish for a term of 99 years. Pattie is particularly instructive. In evaluating whether the City of Frankfort could lease a municipally owned Opera House, the Kentucky Court of Appeals stated:
The city has the same rights in and control over the Opera House owned by it that any individual would have in and over any property owned by him. It may sell or lease property owned by it in its private proprietary capacity, so long as no fraud attaches to its contracts. If it can sell its property, it necessarily follows that it can lease such property, and, since section 164 of the Constitution has no application, there is no limitation upon the term for which the lease may be made.
Pattie, 12 S.W.2d at 1109.
We find no reason to disagree with the Court's reasoning. The situation here is sufficiently similar (in fact, virtually identical) to the situation in Pattie, and accordingly, the lease does not violate any Kentucky Constitutional provision.
The Council members then ask whether legislative approval is required for these provisions of the Center City Agreement under KRS 91A.180 which provides:
The legislative body of any city of the first or second class or urban-county government may sell or lease property, including any interest in real property, of the city of the first or second class or urban-county government which is not needed or has become unsuitable for public use by the city of the first or second class or urban-county government, or which property would be more suitably consistent with the public interest for some other use of a public nature.
KRS 91A.180(1).
The Mayor contends that KRS 91A.180 does not apply claiming that it is a permissive statute and that it does not preclude other methods for the disposition of property. We agree that KRS 91A.180 does not restrict the Mayor's authority to enter into leases on behalf of the city under his executive powers set forth in KRS 67C.105.
KRS 91A.180 grants the Metro Council the authority to sell or lease property that is no longer needed or is now unsuitable for public use. The plain language of the statute conveys powers rather than restricting them. Therefore, if the Mayor has the authority to enter into these lease agreements under any other statutes, KRS 91A.180 would not restrict that power.
Our analysis begins with whether by entering into a lease for property owned by Metro Louisville the Mayor is exercising an executive function or legislative function. Since a lease is merely a contract which transfers an interest in property for a period of time, we believe it is necessarily an executive function expressly reserved to the Mayor under KRS 67C.105. As we have established, the Mayor generally has the exclusive authority to enter into contracts on behalf of Metro Louisville unless any portion of the contract requires the expenditure of funds which have not yet been appropriated. Therefore, to the extent the leases presented herein do not require an expenditure of funds on the part of Metro Louisville, and do not otherwise infringe upon powers which are expressly reserved to the legislative branch, executing those leases is within the authority of the Mayor.
Rather than restricting the executive authority of the Mayor, KRS 91A.180 merely grants the legislative body additional authority that it would not have had previously. Local government legislative bodies are prohibited from exercising executive functions. KRS 67C.105(1), provides that the executive and administrative power of Metro government " shall be vested in the office of the mayor," thus it excludes the Council from exercising any executive function. [Emphasis added.] However, legislative bodies are permitted to exercise functions typically reserved to the executive when expressly authorized by statute. See KRS 67.080(3)(which prohibits fiscal courts from exercising executive functions unless otherwise granted by statute). By enacting KRS 91A.180 the General Assembly has merely given the Metro Council the ability to sell or lease property when that function would have traditionally been wholly reserved to the Mayor. Again, while the Metro Council is authorized to enter into these leases under KRS 91A.180, the Metro Mayor continues to be authorized to do this under his traditional executive powers.
This same analysis holds true for Founders Square. The Center City Agreement permits the lease of "Founders Square" to Cordish for a maximum of eight (8) years. The requesting Council members first ask whether Founders Square is indeed a park and, if so, whether the lease of said property violates a rule that precludes the use of city parks for commercial use without Metro Council approval.
It does not appear that Founder's Square, at least in the eyes of the Metro government, is a park. The requesting members of the Council are correct that the park is listed on the Louisville Downtown Management District's website as a park. ( See http://www.ldmd.org/living-downtown/parks.aspx) However, LDMD is not a governmental agency, but rather a non-profit corporation seeking to advocate opportunities in the downtown area. Louisville Metro Parks, however, is a governmental entity, and does not classify Founder's Square as a park. ( See http://www.louisvilleky.gov/MetroParks/parks/#list).
The requesting Council members cite Bedford-Nugent Co. v. Argue, 137 S.W.2d 392 (Ky. 1939), as a potential impediment to the actions of the Mayor. However, this case involved an area which the "City Council of Henderson, by ordinance, dedicated and established a tract of land belonging to it as a park." Id. The Metro Council has not acted in a similar fashion, and by the Metro Government's own website, it does not consider Founder's Square to be a public park. In Massey v. City of Bowling Green, 268 S.W.2d 348, 350 (Ky. 1925), the Court considered the question of whether "a dedication or an irrevocable establishment of a park [should] be implied by reason of its use in the manner set out during the time mentioned?" The Court, in that situation, concluded "[w]e do not think such a presumption can be maintained." Id.
Further, it is unclear how the Government came to obtain Founder's Square. Absent the land having been donated for the purposes of creating a park, the Mayor may be less constrained by the area's designation (or here, non-designation) as a park. "The uses to which park property may be devoted depend to some extent on the manner of its acquisition; that is, whether it was granted and dedicated by individuals for the purpose or purchased in fee by the municipality. In the latter case the use is regarded as less definitely defined and a more liberal construction as to the consistency of the use for various purposes is adopted." Board of Park Com'rs of Ashland v. Shanklin, 199 S.W.2d 721, 722-23 (Ky. 1947).
In sum, it does not appear that Founder's Square is a park. The Metro Government's own website does not list it as such. Judicial precedent implies that even if an area is used as a park, absent a dedication for that purpose, it may not be implied that it is a park. And, the Mayor might be afforded much greater latitude depending on how the Metro Government came to obtain the land. Accordingly, Founder's Square has not been dedicated nor established as a park, and accordingly, the second part of the Council member's question need not be considered here.
Next we turn to the question as it relates to the sale of the Galleria parking garage which is owned by the Parking Authority of the River City ("PARC"). The requesting Council members claim that the garage is city owned property and that PARC is indistinguishable from the City of Louisville. As such, they argue any sale of city property, including the garage, requires council approval. They also posit that the Mayor has violated his own Executive Order No. 5, Series 2003, Section 1, which states, "Before the sale or transfer of a fee interest in any real property, it shall be declared surplus by resolution of the Metro Council." We disagree.
According to the Mayor, PARC is a separate legal entity from Metro Government. "PARC was created as a non-stock, non-profit corporation under KRS Chapter 58 and KRS 273.161 through 273.387 to perform a non-governmental, proprietary function."
The Mayor's assertion is correct. While there is no doubt that the Parking Authority of the River City, Inc. ("PARC") is intertwined with the Metro government, they are not one in the same. PARC is indeed a non-stock, non-profit corporation. This fact is confirmed by reviewing PARC's filings with the Kentucky Secretary of State's office.
Further, the decision to create PARC in this manner extends well beyond the present mayoral administration in Louisville. PARC was created in 1966, and has functioned as an independent corporation (albeit one with a close relationship to the Metro government) since that time. PARC has a board of directors that is independent of both the Mayor's office and the Council, consisting of a President, Secretary, Treasurer, and three Directors (according to the Kentucky Secretary of State's website, accessible at http://apps.sos.ky.gov). Simply because overlap exists between the two entities, and the Mayor is permitted to appoint the directors he so chooses, this does not mean Louisville Metro and PARC are one in the same. An analogous case isLouisville Water Co. v. Wells, 664 S.W.2d 525 (Ky. App. 1984), which, while dealing with a separate issue, contains the appropriate analysis for this issue. PARC and Louisville Water Co. are very similar entities. In describing Louisville Water Co., the Court stated that the company was:
. . . wholly owned by the City of Louisville. Its managing board is appointed by the mayor and elected officials of the City of Louisville. Its management is in the Board of Waterworks, and it is a corporate entity with the power to make contracts and to sue and be sued. The water company pays no income taxes or property taxes and it furnishes water to the City of Louisville free of charge. Its operations are guided primarily by KRS Chapter 96.
Id. at 526. This is very similar to the Council's description of PARC. However, the Court ultimately concluded, that while Louisville Water Co. was an agency of the city:
[T]he Louisville Water Company now is and has been since its incorporation pursuant to the Act of March 6, 1954, a distinct corporate entity separate and apart from the City of Louisville.
Id., citing Dolan v. Louisville Water Co., 174 S.W.2d 525 (Ky. 1943).
As PARC is independent of the Metro Government, it would be up to PARC, and its governing body, to determine whether or not to enter an agreement. We suspect this is why C. Bruce Traughber signed the agreement with Cordish in his official capacity as chairman of PARC. Though it is undeniable that PARC is closely intertwined with the Metro Government, it is undeniably in the eyes of the law a distinct legal entity. Accordingly, it was C. Bruce Traughber who bound PARC to the sale when he signed the agreement as opposed to the Mayor. While the Council may disagree with Mr. Traughber's decision, as a separate corporation, Mr. Traughber may enter whatever agreements that he, and the other Directors of PARC, think would most benefit the corporation. We have found nothing to suggest that the Council maintains any ability to review or override that decision.
The Council also asks whether the Mayor violated the Model Procurement Code when PARC sold the parking garage for an amount the requesting Council members claim is below its market value. The contention that the garage was sold below market value is difficult to maintain. With his April 2 correspondence, the Mayor included a valuation of the Galleria parking garage, conducted by an independent agency which appraised the structure for approximately $ 3.2 million. The agreement calls for the garage to be sold for $ 2.7 million, but with the additional consideration that Cordish make $ 500,000 in improvements to the structure. Thus, based upon the information submitted by the Mayor it appears clear the transfer is at market value. The requesting Council members submitted no evidence to the contrary.
The Requirement of Bids on Development Contracts
The requesting Council members ask whether the Mayor has the unilateral authority to enter into a contract of this type without considering competitive bids from other developers. The issue must be separated into two questions. First, whether the Center City Agreement fell under the requirements of the Model Procurement Code and, second, whether the Mayor had the unilateral authority to enter into the contract.
Louisville-Metro Government has adopted the Local Model Procurement Code, KRS 45A.343-45A.460. When a local government adopts the Code, they are exempted from KRS 424.260, the General Bidding Requirement, and instead must comply with KRS 45A.343, et seq. In relevant part, the Code provides:
All contracts or purchases shall be awarded by competitive sealed bidding, except as otherwise provided by KRS 45A.370 to 45A.385 and for the purchase of wholesale electric power by municipal utilities as provided in KRS 96.901(1).
KRS 45A.365.
The Mayor argues that the Code does not apply because Louisville-Metro Government is not really "obtaining" anything, as required by the statute, and that the contract does not obligate Louisville-Metro to any final action. We cannot agree with this assessment. Louisville-Metro Government is obtaining a service, the planning and construction of a development, within the meaning of the statute. Accordingly, absent proof that one of the statutory exclusions applies, the Local Model Procurement Code would normally apply to development agreements such as this one. However, we find the Code does not apply to the Center City Development Agreement because of other legislative action taken by the Metro Council which approved the Center City Development as a "Signature Project".
In the 2007 legislative session the Kentucky General Assembly enacted KRS 65.7041 to 65.7083 and established the Signature Project Program. 6 The purpose of this program was "to encourage private investment in the development of major projects that will have a significant impact on the Commonwealth of Kentucky and are judged to be of such a magnitude that the effect upon the location of such project warrants extraordinary public support." KRS 65.7075. Among other things, the statute required the legislative body of a local government to adopt an ordinance in accordance with KRS 65.7053(1) and to make an application for state participation pursuant to KRS 65.7071.
Prior to the Mayor entering into the development agreement with Cordish, the Metro Council enacted Ordinance 179 Series 2007, which became effective September 19, 2007. The Ordinance established a development area pursuant to KRS 65.7049 and declared that the Center City endeavor was a "Signature Project." In addition, the Ordinance was a legislative finding that the "Development Area," defined in the attachments as the area of the Center City project, was in need of public improvement. The Metro Council found that the project would cost in excess of $ 200 million and contain a development consisting of "retail, restaurants, clubs, hotel, office, housing, common areas, restored Louisville Gardens, parking garage, public plaza and other public infrastructure." The council also specifically identified the Cordish Company as the developer of the project.
To accomplish the goals set forth in the Ordinance the Louisville Metro Council gave the Mayor the authority to "negotiate and enter into a "Local Participation Agreement" and declared that the Mayor and "other appropriate Louisville Metro officials" were:
authorized, empowered, and directed for and on behalf of Louisville Metro to execute all papers, letter (sic), documents, undertakings, certificates, assignments, forms, instruments and closing papers that may be required for carrying out and effectuation of the authority conferred by and for the purposes of that Ordinance and the Local Participation Agreement.
The Louisville Metro Government then followed all of the steps necessary to establish Center City as a "Signature Project" under KRS 65.7075. After being authorized by the Metro Council through the enactment of the Ordinance, the Mayor entered into a Local Participation Agreement with the Metro Development Agency, Inc. (MDA). This agreement was executed by the parties on December 6, 2007, and was followed by the approval of the Kentucky Economic Development Finance Authority on December 7, 2007. Finally, a Project Grant Agreement between the Commonwealth of Kentucky and the MDA was executed on December 27, 2007.
Because the Metro Council is empowered by statute to adopt the Local Model Procurement Code, it also maintains the power to limit the Code's application, either by revoking it in its entirety or by simply limiting its application to certain contracts. By naming the Center City Development as a "Signature Project" and by identifying Cordish as the developer of that project, the Metro Council effectively placed the Center City Development Agreement outside the scope of the Model Procurement Code. It would have been illogical for the General Assembly to enact KRS 65.7075, which allowed the legislative body to identify a single developer for the purpose of making a significant financial investment in the Commonwealth, only to then turn around and require the local government to competitively bid the subsequent agreements when the Metro Council has already approved of the project developer by ordinance. It is far more consistent with the intent of KRS 65.7075 to assume the legislative actions required under that statute were sufficient to except the subsequent development agreement from the requirements under KRS 45A.380(2).
Accordingly, we find that while the Local Model Procurement Code would apply to most development contracts, the act of naming the Center City Development a "Signature Project" under KRS 65.7075 effectively excepted this agreement from the bidding requirements of the Model Procurement Code.
The requesting Council Members' have also asked whether the Mayor has the "unilateral" authority to enter into this contract without opening it up to the bidding process. However, we need not address this issue as it is clear the Mayor did not act unilaterally with respect to the Center City agreement. The Mayor's authority to proceed with this "Signature Project" was expressly granted to him by the Metro Council in Ordinance 179 Series 2007. It is by this authority that the contract was entered into.
Guarantee by the Mayor to use his "best efforts".
Next, the requesting Council members ask whether the Mayor can pledge in a contract to use his "best efforts" to cause the legislative branch to take a particular action and, if so, what efforts are required and by whom.
"Best efforts" is a term of art in the legal field. According to Black's Law Dictionary, an individual's "best effort" is defined as a "diligent attempt[] to carry out an obligation." It further states "[a]s a standard, a best-efforts obligation is stronger than a good faith obligation. Best efforts are measured by the measures that a reasonable person in the same circumstances and of the same nature as the acting party would take." Black's Law Dictionary, Eighth Edition. A "best efforts contract" requires a party to the contract to use "best efforts to fulfill the promises made rather than to achieve a specific result." "Although the obligor must use best efforts, the risk of failure lies with the obligee." Id.
Based on this terminology, the Mayor was entirely appropriate in pledging "best efforts" rather than some other variety of performance. As discussed above, the Metro Mayor maintains the powers and duties of the mayor of the former City of Louisville and those of the Jefferson County Judge Executive. The Metro Council maintains the ability to make budgetary decisions. Thus, the Mayor, as the only individual with the ability to enter into contracts on behalf of the city, appropriately pledged his "best efforts" to see that the contract's goals came to fruition. "Pursuant to KRS 83A.130(8), a contract can only 'be made' and must be executed by the mayor." City of Greenup v. Public Utilities Comm'n, 182 S.W.3d 535 (Ky. App. 2005).
By pledging "best efforts," the Mayor has obligated himself to attempt to achieve the goals set forth in the contract. While one may speculate as to what these best efforts would entail, they would likely include presenting the plan to the Council and, perhaps, lobbying for its passage. However, he has not bound the Council or any other municipal entity to any particular action by doing so. He has simply promised to take measures that "a reasonable person in the same circumstances and of the same nature as the acting party would take." Given the fact that the Mayor was unable to bind the Metro government for spending which had not yet been appropriated by the Council, he was actually quite prudent in making such an obligation as it is truly the only variety of obligation he could make in regards to the spending provisions of the contract without further action by the Council.
Accordingly, it is appropriate for the Mayor to pledge his "best efforts," and this obligation extends only to him. The efforts to achieve the goals of the contract must, according to contract law be the same as a "reasonable person in the same situation."
Louisville Slugger Field
Next, the requesting Council members' ask whether the Mayor has the authority to unilaterally divert or assign revenues payable to Metro Government without an appropriation or approval from the Metro Council. The question posed by the requesting Council members asks whether the Mayor's actions exceeded the scope of his executive powers. However, this issue does not merit a discussion of the separation of powers because the Mayor's actions were approved by the Board of Aldermen of the former City of Louisville.
The facts presented are largely undisputed. In 1998, the City of Louisville entered into an agreement (the "Stadium Lease" ) with the Louisville Baseball Club (a/k/a/ the "Louisville Bats") to lease the stadium known as Louisville Slugger Field. The Stadium Lease and its subsequent modification were approved by the City of Louisville in 2001. From the Stadium Lease's inception until May 30, 2003, the Louisville Bats paid over $ 700,000 in rent and other miscellaneous revenue streams to the City of Louisville and Metro Government. On May 30, 2003, the Mayor unilaterally directed the revenues paid in accordance with the Stadium Lease be paid directly to the Downtown Development Corporation ("DDC").
The question of whether the Mayor has the authority to unilaterally re-direct revenue streams from the Stadium Lease is irrelevant because, in this particular situation, the Stadium Lease grants the Mayor the power to assign or sublease Metro Government's interest in the lease. There are two leases with the City of Louisville (now Louisville Metro Government): the first lease vests the title for the Stadium with the City of Louisville Public Properties Corporation ("PPC"); and the second lease identifies the City of Louisville as the lessee. Both leases were approved by the Louisville Board of Aldermen.
In its response letter dated March 6, 2009, the requesting Council members admit "there are two leases concerning Slugger Field" and "Article 8 of the [Stadium] Lease states that "[The Lessee] may assign its interest in this Lease or sublet the Leased Premises or portions thereof without the consent of the Lessor or the Trustee." The Stadium Lease and modifications approved by the Louisville Board of Aldermen grant the Mayor the power to assign or sublease any portions of the rents without prior approval from the Board of Aldermen (which was replaced by the Metro Council after merger) . Therefore, the Metro Council's questions of whether the Mayor has the power to unilaterally divert revenue or assign future Stadium Lease revenues are moot. The right of the Mayor to make an assignment was duly authorized by the Lease between the PPC and the City of Louisville in 1998 in Ordinance No. 19, Series 1998. Further, the Mayor has the authority to direct the rents paid under the Lease. Article I's definition of "City Representative" provides:
City Representative" shall mean an employee of the City designated by the Mayor of the City of Louisville to be the Team's contact within the city for the purpose of facilitating the City's review and oversight of the Facility and Team operations of the Facility. The City Representative shall have the authorization to act on behalf of the City [emphases added].
The Board of Aldermen approved the Stadium Lease agreements and the Mayor's assignment of the rent from the Stadium Lease constituted a valid use of the assignment power granted by the terms of the Lease.
Although not presented as a question in its original request for an Attorney General's Opinion, the requesting Council members argue in their response that the Mayor's actions constitute an invalid assignment under Kentucky law. The Metro Council cites Entroth Shoe Co. v. Johnson, 85 S.W.2d 686, 687 (1935), as its only authority supporting this position. The Entroth decision describes the differences between assignments and subleases and determines whether there was privity of estate after the reassignment of a lease. Entroth, 85 S.W.2d at 687. This situation is easily distinguished from Entroth because the Metro Council admits even if this is not assignment, it is a sublease. Not only does the Stadium lease allow the lessee to both assign or sublet its interest, but the Entroth decision does not propose to invalidate an agreement for engaging in conduct that does not constitute an assignment. It simply stands for the proposition that an action which is not an assignment is a sublease.
An assignee in whole or in part under a lease is liable to the landlord for the payment of rent, while a sub-lessee is liable only to the lessee. Cities Service Oil Co. v. Taylor, 242 Ky. 157, 45 S.W.2d 1039, 1040, 79 A.L.R. 1374. Further, the particular words employed in an instrument are not necessarily determinative of the nature of that instrument. Venters v. Reynolds, 354 S.W.2d 521, 523 Ky.,1962 citing Consolidated Coach Corporation v. Consolidated Realty Co., 251 Ky. 614, 65 S.W.2d 724.
In this case, the Mayor, as the authorized representative of the Metro Louisville, was given express authority to assign or sublease any portion of the leased property. Whether the mayor's actions created an assignment or sublease, the authority to create either was properly exercised.
Footnotes
Footnotes
1 Multiple exchanges of correspondence with supporting documentation have occurred prior to the rendering of this opinion. It is also custom and practice of this office, when presented with a submission from local government, to inquire whether any opinions were issued by the relevant city or county attorney. The requesting Council Members here responded to that inquiry by stating they did not seek an opinion of the Jefferson County Attorney because he may be placed in the "awkward" position of having to advise both the Mayor and Metro Council. However, advising both the Mayor and the Council is the statutory duty of the county attorney. KRS 69.210(3) provides, "The county attorney shall give legal advice to the fiscal court or consolidated local government and the several county or consolidated local government officers in all matters concerning any county or consolidated local government business within their jurisdiction." We will also note, that the Jefferson County Attorney's office has been consulted on other issues, related to those presented here, by the very requesting Council members claiming a potential conflict. We have seen no unwillingness on the part of the Jefferson County Attorney to opine on issues when requested by members of the Metro Council and we see no conflict in the County Attorney performing his statutory duties requiring him to advise both the Mayor and Metro Council. See also OAG 78-407.
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2 The Mayor submits that the $ 2,500,000 for "soft costs" and $ 1,800,000 forgivable loan have already been appropriated by Metro Council. The requesting Council members disagree. Because we have not been asked whether those funds have indeed been appropriated by Metro Council we will not address that specific issue. However, for the purposes of this opinion we will assume they have not and will address the general question of when and whether the Mayor can contract for the expenditure of Metro funds.
3 These funds were the subject of a March 19, 2009, opinion of the Jefferson County Attorney's office which held that the Mayor possessed the authority to transfer a portion of these funds from one project at Fourth Street Live to another. Specifically, the legal issue presented was whether the Mayor could redirect funds from a bond issue which were no longer needed for the bond's original purpose. We point this opinion out for two reasons. First, we have not been asked to opine on the propriety of Mayor's actions with regard to the specific issue addressed by the Jefferson County Attorney's opinion and, therefore, have not expressed an opinion thereon. Second, despite the fact that the requesting Council members here felt that there was a conflict of interest that prevented the Jefferson County Attorney from opining on the issues presented to this office, at least one of them, Councilman Heiner, sought an opinion from the County Attorney on substantially related issues.
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4 Again, we do not address any question of whether these funds have or have not been previously appropriated by the Metro Council.
5 In an amendment to the Center City Agreement the Mayor included language that payment of $ 2,000,000 set forth in the original agreement is contingent upon approval by the Metro Council. We believe this additional language, while helpful, was not necessary given our analysis herein.
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6 These statutes have since been superseded and amended by the General Assembly in 2008 and are now set forth in KRS 154.03-050.
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