Hayes v. State Property & Buildings Commission

HAYES, Larry Budget Director, State R. Plain, Special Curiae,

Scott Amicus Jerry

Charles Hoffmaster and Ham

mond, Appellants,

The STATE PROPERTY AND

BUILDINGS COMMISSION Kentucky, Appellee.

Supreme Court Kentucky.

June

sembly, Prop- Commerce Cabinet and State erty Buildings Acting and Commission. through legislative the executive and government, Kentucky branches of has agreed Toyota convey with to 1600-acre project County site in Scott which the Com- acquire develop monwealth will and for $35 Kentucky million. was involved in a fierce competition many with states regarding of this nation the location of a major manufacturing plant by automotive Toyota in the United States. The part package site is of a total of induce- capable a plant ments to build 200,000 producing up annually cars and 3,000 employing up people. The agreement promises package a total of in- ducements which could a direct cost the state estimated between $125 million presented and million $268 evidence to circuit court. Other incen- financing comprehen- tives include state training highway programs, sive worker improvements, Toyota in assistance to se- Scent, P.S.C., Scent, E. and William Scent status, curing foreign trade zone assistance Paducah, Larry Hayes. rezoning related matters. and other Hubbard, Nold, Nold, Kyle J. T. William These estimates do not consider the indi- Miller, Townes, Mosley, Clare, & Hubbard rect The sum needed to cost to State. Louisville, for Charles Hoffmaster and Jer- develop gener- acquire and the site will be ry Hammond. bond issue from the ated a revenue Plain, Wilson, Plain, R. Scott Wilson & Buildings Property and Commission. State Owensboro, special amicus curiae. The funds needed to debt service bonds, interest, principal on the Jr., Spencer Harper, E. W. William appropriations the Gener- provided by Davis, Davis, Harper, Ferguson Louis- & a bien- al Funds of the Commonwealth on ville, Wickliffe, Counsel, Fi- Charles Gen. expense nial as an item of the Com- basis Cabinet, Administration nance & Patrick merce Cabinet. Abell, Counsel, Gen. Commerce Cabinet Gen., Armstrong, Atty. L. Kentucky, David declaratory judgment action asked The Frankfort, appellee. 361, if SB the circuit court decide con- project and the thereof were WINTERSHEIMER, Justice. 59, 60, 50, 51, sistent with Sections Kentucky Constitution. and 177 judgment appeal is from provisions relate to These constitutional adopted by Bill 361 determined that Senate authority state action Assembly General The particular. the General Property and actions taken the State constitutionality of approved trial court Buildings pursuant Commission thereto financing arrangements appeal they related were constitutional insofar followed. granted to the certain incentives Corporation. Motor parties of record are the State Bud- citizens who get private and two upon to the consti- Director We are called review permitted intervene order arrangements were tutionality of the financial legis- Governor, challenge constitutionality of the As- undertaken General lation, special appointed amicus curiae circuit court did not commit reversi- represent public pursuant determining rules ble error SB of this Court in such cases and the State not violate 177 of Section Property Buildings Commission and Constitution. other constitutional and cabinet officers. specific language of Section in- sense, In practical parties who have a volved is that the credit of the Common- people real interest are the of this Com- given, pledged wealth shall not be or right monwealth who have to a determi- company corpo- loaned to or individual nation of whether the executive and the ration, nor shall the Commonwealth make a

legislature have acted within the limita- any company corporation. donation to or power, tions of their constitutional the ex- provides legislative govern- specifically by ecutive and branches of The act its terms sponsored ment who legis- development and enacted the that projects may industrial lation, Toyota, industry and the induced to conveyed be to industrial entities at the come to this Commonwealth. time of the issuance of revenue bonds financing the Commission for the of such As a principle jurisprudence, it projects if only in addition to the fulfill- is duly adopted legis- well established that ment of precedent, other conditions the lation presumption is entitled to a of validi- commission has made a written determina- ty. All liberally statutes shall be construed diligent investigation tion based on that the promote with a objects view to their and incremental taxes to derived as a result carry legislature. out of the intent development of the reasonably expect- are KRS 446.080. Our constitution is a limita- ed to equal principal tion on be at least to the power the broad exercise rather grant power proposed bonds, than a amount of the specific legis- revenue and lature. Assembly may entity The General enact industrial to which the expressly laws which are not impliedly conveyed agrees undertakes and that in the prohibited by the Kentucky Constitution of conveyance event of prior the collection and the Constitution United States. of the incremental an amount instance, In this legislature working in equal bond, principal of the in- conjunction executive, with the determined entity dustrial proper attempt it was to alleviate the difference between the taxes collected unemployment develop economic principal to date and the amount of the strength in through the state conveyance publicly bonds. No financed of an development project pursu- industrial property receipt without the of fair market ant to the act which constitutes the effectu- compensation value will occur connection ation proper public purpose. of a Toyota project. with the The Commission necessary findings required has made the

Initially, we must that the observe law is well the statute. It be economic settled that would mad- legislative the wisdom of up ness for may expend not mil- executive action $800 reviewed plant the courts. lion for any project Whether and then fail to use it. idle, based on sound standing economic theories is Even development not would scope judicial within the generate Such property review. additional taxes. legislative considerations are matters of Section 177 of the Constitution wise judgment executive and do not neces- ly prohibits giving the credit of the

sarily constitutionality affect of the making Commonwealth or the of a dona Property See Dalton State conduct. corporation Com., Ky. any private tion to Buildings individu 304 S.W.2d 342 (1957). However, expenditure al. long super Our role is not that of a legislature. public money purpose, has as its the effec- Our function is in the interpretation public purpose, tuation of a valid Section of the acts of the other government light branches of in the 177 is not offended even in situations Constitution, existing legal precedents where conveyance occurs without con Development See Industrial itself. sideration.

800 though expended Authority Regional Planning may v. Eastern credit even (1960); Com., Ky. 332 S.W.2d Ken funds or incurred an its tucky Hag Livestock Breeders’ Assn. v. Merely another. benefits because the state (1905). ger, S.W. 738 its incurs an indebtedness for benefit and may incidentally profit others The evidence in the record indicates that bring the action within letter or in order to incremental taxes be collected spirit prohibition lending of state sufficient constitute consideration Development credit. Industrial conveyance Authori- estimated Regional ty v. Eastern Plan- per year. million $13 Commission, Ky. ning Incremental taxes are those taxes which (1960) clearly provides that it established would existed but the in- never have unemploy- that the relief of facility to locate in ducement of the Ken- public purpose justify ment is a that would tucky. Maloney, Ky. Grimm v. See outlay public the of funds. (1962) Fugazzi, S.W.2d 496 and v. Watkins (1965). 594 The in- 394 S.W.2d successful year It should be noted that the two produc- of location of a revenue ducement agreement financing provided in otherwise ing important facility is an element which totally is Section of this Constitution provides of a new source tax revenue subject legislatures to the actions of future previously did not The exist. over- appropriating in funds for the of renewal riding of and lesson both Grimm Watkins agreement. requirement complies This the facility of the that the inducement new previous case every respect in with the provides which would not new revenues rulings by provi The credit this Court. have existed but for the location of the prevent attempt sions of Section 177 plant. might in result future transactions which expect- Ultimately the state income tax is against the tax revenues liabilities payroll ed a in to benefit in relation to the thereby this state and encroach on of wages excess of million in new result- $75 generations to of utilize freedom future ing 3,000 employment up new an they appropriate. deem those resources clearly in jobs. There is a difference the This is not the case. previously farm value of the rural taxable legislature It is the which now an industrial assurance land will become undoubtedly funding appro complex provide there are new for future and would most corporate priations taxes which will assessed. which has been offensive Hall, ripple in that addition there is a effect McGuffey Court. v. this See plants produce wages (1977); will also new Greer v. S.W.2d corporate taxes. and new Authority, Ky. 467 Health and Geriatrics The of the real estate fair market value (1971). development itself is also enhanced Toyota commit future funds to plant. produces All of this new significant to note that in It is project. the state. sources of revenue for Greer, of title to the supra, the transfer occurs the revenue bonds real estate when reasoning by the persuaded We are this discharged. In that case have been 782, 91 Day, set 197 Va. out Almond transaction was not found that such Court (1956), Virginia when the Su S.E.2d 660 credit lending giving of the preme interpreting the use cer Court private corporation Virginia Sys Retirement tain funds of the The meaning Section within the Virginia tem, 185 of the noted that Section transfer of title is that the difference here import in its very similar Constitution initially provisions must can occur but Kentucky Constitution. 177 of Section in the transaction be included Virginia The stated that when court by the of fair market value receipt assure underlying purpose of transaction pre property in the event incurred are for the State obligation the financial disposition by company. State, lending of mature benefit of there is arrangements provided by closely various vices and 171 is related Section to it 361 and agreement, Senate Bill the finance provides because taxes shall be col- require the Commerce Cabinet to include public purposes. lected levied for request appropriation for in its biennial complimentary These sections also are budget service. There bond Section 177. guarantee is no that the General expressly SB declares that the au- affirmatively request. on act such thority granted and the purposes to be clearly mercy Ken- pream- are served in nature and the tucky legislature legal in a technical and it is policy pur- ble indicates that In no lending sense. sense is this either a pose encourage, of the Commonwealth to or misrepresen- credit the state promote support develop- economic tation. The bondholders and execu- those prevent ment order to alleviate and un- ting agreements clearly employment goals and that these constitute apprised risks involved in trans- public purpose. an essential Under action. no circumstances is the must We first consider that Section 3 of credit of the state the immediate financial the Constitution refers to services foundation for the issue. speaks while Section 171 of taxes to be obligation public purposes only. collected for significantly future is more than precise meaning two different words taxpayer on the semi-ru- “public “public purpose” services” and question. ral in tract The are new taxes unduly troubling. should not be There is in incremental nature exist and would not an absence of exact definition or but for the establishment of the industrial definition the context of the Constitu- complex. In no sense of the is the word tion. Common sense dictates that conveyance of the project site a donation compatible. are totally words Court private corporation prohibited by Sec- recognized previously has that the sections tion 177. closely Henry, are related. 301 Nickols v. background contrast to the of the 434, (1946). Ky. 191 930 1890, Constitutional of Convention is there If the an purposes by served action attempt any to exempt corporation from public purposes which constitute for tax taxation but rather there is a commitment may expended revenues be levied and un required by law pay additional and new 171, der Section the manner of the use and to thereby enhance the revenues proper 3, expenditure is also under Section of the provide Commonwealth well as private and is not a use as distinct distinct people to the Com- benefits of the public Hager Kentucky use. See Chil specious monwealth. This is pretext not Society, dren’s Home 119 83 S.W. performing of public services, rather but (1904); Kentucky 605 Livestock Breeders intelligent, aggressive thoroughly supra. v. Haggar, Assn legal by action legislative executive and branches. unemployment public The relief is a purview purpose within the of the case law A careful examination the financial important point and the The constitution. arrangements leads us to conclude that the purpose public is is whether the not subject legislation keeping is indeed agency through it is whether which spirit both letter and the of constitu dispensed public. appropriation is is provisions any tional and no evasion of agency company made for not but fundamental law. Commonwealth v. Cf. public purpose object for which is to O’Harrah, Ky. (1953). 262 S.W.2d served. be holding The court was SB correct does not 171 of Under violate Sections 3 and no conditions is counting beneficiary Section double of fu Constitution. of. prohibits separate privi- Constitution here ture taxes. The taxes involved leges except in public consideration of ser- on same class uniform all There is is subject to taxation. no constitu- 171 without merit. The fact that the for infirmity providing Assembly may

tional the use of General authorize an incor- future incremental taxes buttress porated exempt city or town to manufac- issuance of revenue bonds. As has been turing municipal establishment from taxa- discussed, previously years applicable tion five to this adopted unemploy- in an effort to alleviate easily situation in manner. It could be prohibits pub- ment. exclusive or Section provision said assumes that the except lic emoluments consideration already possesses authority. State such public public provided service. service clearly exception This section is not an unemployment here is reduction of which the rule but the of a rule. establishment would not occur but for the inducement holding The court correct in that SB was locate here and a direct benefit 361 does 49 and 50 of not violate Sections people they this state should not Constitution. deprived by any hypertechnical inter- 49 and the Constitu Sections 50 of pretation of the letter of the Constitution. strictly power legisla tion limit protect people The Constitution is to financially obligate legisla future ture government deprive from their and not to permission people tures without the legitimate govern- them of the activities of means of These constitu a direct vote. provide public ment intended to benefit provisions part of tional were also the Con The definition of service. adopted stitution were purpose legislature made when heavily time when was the Commonwealth upheld long as it should the court as requirement of fiscal re in debt and the has some reasonable basis. fulfillment legislature on the considered straint undoubtedly the intent of the law Ex people. inbe the best interests of the profit private industry accord considerable indebtedness, it cept percentage its yet objective the ultimate act and say similar is difficult to that somewhat purpose declared is not to alleviate exist in 1985. The Fed conditions did not pros- unemployment but also to foster the no such debt eral Constitution contains perity people the State a whole. of of the as of painfully limitations are aware and we su- Development Authority, Industrial spending is one of our the fact that deficit pra. problems. largest national and international Injection of the Arkansas of decision issuing ei- Creviston, by City Springs Ark. can incur debt Hot v. 288 State of 286, (1986) general obligation revenue unpersuasive. is ther bonds 705 S.W.2d 415 obligation au- bonds are foreign provides case no credible bonds. General thority should over- credit of the upon by which this Court full faith and backed existing Kentucky precedent. rule We out of the payable and are authority of equally by unconvinced They are general of the state. revenues Co., City v. Louisville & N.R. Corbin people. bonds by on Revenue voted of (1930). 709, There Ky. 233 26 539 S.W.2d by the are secured are not backed state but privilege Toyota, here. special which is revenues of the by the right to have a taxpayers well as all other security for being Generally financed. expect governmental services certain payment of the bonds has taken of their taxes. The that utilization fact tolls building projects form of rentals generated industry can be by new taxes In order not highway projects. certain on of support made so as to the inducement afoul the debt limitations found to run ar- development such not render the Constitution, the 49 50 of the Sections rangement constitutionally infirm. used. have been so-called “serial” leases are is- plan, a bonds Under such revenue London, Ky. 288 Dyche City v. of a the construction sued finance (1956) in this appropriate S.W.2d 648 by leased improvement which then involved clearly because that situation case by lease are retired state and the bonds A com- general obligation a voted bond. Each lease by the state. payments made parison 170 and of constitutional Sections

803 period years runs two and the impose any lease this Court. Efforts to financial automatically renews for another two government on state units of years given. unless notice cancellation is beyond two-year the current period have two-year Generally these lease renewals invariably been held as unconstitutional. run until bonds are retired. Such a Weatherby, Ky. See Curlin v. 275 S.W.2d in Turnpike program Author- was allowed (1955). Wall, ity Ky. v. Ky. 336 testimony An examination of the offered by Blythe (1960) and later undisturbed v. by the executive director the office Transportation Cabinet, Ky. 660 S.W.2d management investment and debt (1983). Finance and Administration Cabinet indi- judge correct holding SB 361 very Property cates that few of the State does not violate Sections 49 and Buildings financing Commission’s Kentucky Constitution. As the judge trial plans provide for revenue bonds secured opinion, beginning observed in his security anything lien or interest on ex- Georgetown Waller v. case of Board of cept the revenues derived from the two- Education, Ky. 726, 273 S.W. 498 year regard, leases. In that (1925) Kentucky consistently courts have basically bonds have security same held financing projects that similar to the is, all other bond issues this State. That one here does not constitute debt within security there is no lien or interest aon meaning of Sections 49 and 50. The project, only financed it is secured reason that no debt has been created is financing agree- revenues from the biennial obligations because the financial subject ment and decision future particular Commonwealth are confined legislatures appropriate any debt ser- two-year period and the General vice. appropriates fund revenue for debt accruing during service two-year peri- development of the revenue bond only. Blythe, supra, upheld od a similar through can be traced series plan to issue revenue bonds toll significant starting with J.D. Van cases ,projects. road provides SB 361 University Hooser & Co. v. Kentucky, obligation of the Revenue to pay Cabinet (1936) 262 Ky. 90 S.W.2d 1029 debt on specifi- service bonds is authorized state educational institutions to cally incurred for bienni- current buildings through construct and finance um during agreement which the initial is in the issuance of revenue bonds. Preston effect and which funds appropri- have been Clements, 232 S.W.2d 85 ated for legislature. debt service (1950) expanded the revenue bond idea to No debt is consequently created and no financing Capitol the of the Annex office

vote of people required the is under Section building. development Additional was add- Curlin, Guthrie v. Ky. 263 S.W.2d 240 by Turnpike Authority v. Kentucky ed of (1953). Wall, Ky. (1960) 336 551 and S.W.2d later All financing such plans are within the Transportation v. in Blythe Cab- followed scope of Sections 49 and 50 insofar as inet, Ky. (1983) 660 ap- S.W.2d 668 they two-year period involve the fiscal of proved legislation providing for revenue by Con- created development bonds cover economic of stitution. To the extent that there is projects by road which would be secured duty special on debt service obli- leasing incomes derived from the of such gations agencies by issued various of the projects Department Transporta- to the State, duty particular that is to a confined imposed. tion no tolls to with two-year period legislature during and the expansion develops The industrial may such appropriation time make a valid highly into general sophisticated semi-rural land money fund debt service accruing manufacturing complex. during two-year automobile particular that period only. financing plans previously by Such have view of cases endorsed always Court, been by held be constitutional it is to say difficult 804

Toyota complex by invokes constitu- suddenly the bonds can be ful- considered as filling providing tional wrath. type function security for the issue. stability must law so that There rely upon it and can those who deal with it truly signifi We not there do believe not be changed that will confidence problems regard concept cant compelling previ- reasons. except for The incremental as defined the act. It literally this Court have ous decisions of necessary not into is or relevant to take provisions of interpreted the Sections 49 consideration the extent to which taxes Kentucky in the 50 Constitution may increase from normal economic which hold that incur- many decisions growth unrelated to or from infla an under a rence of lease The mere tion from other source. agreement financing only which extends concept fact that the of incremental taxes through single year depends and which is does not make it innovative constitution legislature of a solely on future is ally merely It infirm. an extension not in violation of Sections 49 and 50 of the from Fu the lessons learned Grimm and arguments presented Constitution. gazzi. provide compelling change reason to 361 not Section 51 SB does violate history of case law. The constitution- prohib Constitution which two-year supporting al renew- doctrine legislation involving than one sub its more financing al transaction method has a di- ject the title. Ken Commonwealth of relationship one-year rect renew- similar tucky, Armstrong, Attorney ex rel Gener financing plans able used cities and Collins, Governor, Ky. 709 al v. S.W.2d governed by annual counties which are (1986) states that the title of period. The than a fiscal rather biennial general need furnish notification legal types fi- theory supporting both subject in the act. act nancing supporting similar. very Cases at variance with Sec question here not may beginning such a be found judged by that standard. tion when Health, Hughes v. State Bd. of (1935) continuing not reversible error for It was including White Common Council to hold that SB trial court (1967). Middlesboro, Ky. 414 S.W.2d 569 59 of the Consti violate Section bond issues have avoid- Previous revenue legislation. prohibits special tution which problems appellees ed raised prevent purpose of this section is state-owned, financed because bonds special privileges, favoritism discrimi out state-operated projects that carried equality to ensure under nation order performed by con- functions the State and This statute authorizes the law. tax sequently appropriation biennial development projects by the of industrial oper- Treasury the State use of industrial entities state for the government, ating department of state public purposes provide for valid order to oper- qualify rent to cover current could unemployment. as the elimination such department. ating expenses of not directed to The law is type justifies the use of of rationale although availability of such project regard to the technique in revenue bond obviously ignited interest this project and highway Blythe toll issues raised However, financing. the lan method of Wall. very general and guage the law is any use in connection this for upheld by available bonds Earlier revenue development project now security for bond- valid industrial provide some Court of indus The classification depart- in the future. promise other than holder projects is reasonable development pay- trial seek ment of apply equally act provisions and appropriations of biennial in the form ment development industrial potential ex- continued fund. The general from the paid project. project which was public istence LEIBSON, Justice,

There is a reasonable justify dissenting. basis to classification legislature established Respectfully, I dissent. upheld. and it should be Ray, Meredith v. only hope One can that in the future this (1942). 166 S.W.2d 437 specific legal case will be viewed as a fact The law is available to any industrial aberration, precedent; and not a a decision entity agrees to which construct and install prepared that our Court was not to hold facility which satisfies pro- the standards Toyota project offended the Con- Buildings vided Commission and oth- stitution, nothing more. requirements erwise meets the of the act. If precedent this case becomes a fu- Consequently it would be every available to cases, ture opinion will be a watershed industrial concern even those operat- now law, constitutional confirmation that so ing within the Commonwealth of long as the Governor and General Assem- any expansion connection with of exist- need, bly perceive the there are no constitu- ing enterprises. public purpose on power tional restraints on the of state development legislation which all industrial government spend money to raise and has been founded has been the inducement private benefit business. Al- project of the location of a performs which though the activity generated by economic public purpose providing employ- will, hopefully, public confer a bene- ment to alleviating citizens and fit as an carrying private incident to out its unemployment. conditions of purpose, Toyota perform no function judge determining was correct in government. Its future contribution that the Commission complied had with the welfare, general any, if will be provisions regard of SB 361 in to the vari- indirect in the same sense that the ous standards. The unemploy- national benefits more or less from the economic ment rate at the time the resolution activity generated by every pri- successful adopted by Buildings Commission business, vate the by-products of percent was 6.8 unemployment while the taxes, employment general and a increase rate in the state percent was more than 10 in the activity. level of economic and was 11 percent during well above Janu- ary the month immediately following The General has enacted SB project. announcement of the enabling legislation part one behind decision of the judge deny circuit Toyota Project, agreement intervening defendant’s motion to amend 1,600 convey cost free a acre their answer in certain respects so as to project site in County, Kentucky. Scott raise additional questions constitutional did The acquire develop sum needed to not amount to reversible error. The trial generated by will be a bond issue court’s decision to compel produc- refuse to Buildings from the Property State product tion of the work of counsel for the Commission. The the debt commission was not reversible error. bonds, principal service on these and inter- est, provided by appropriations will be holding It is the of this Court that Senate from the funds of the Common- Bill 361 is constitutional. The decision of wealth, through taxation, raised and will the circuit court is affirmed. through Property

flow to the State Buildings expense Commission as an item STEPHENS, C.J., GANT, budget in the biennial of the Commerce WINTERSHEIMER, LAMBERT and designates Cabinet. SB 361 JJ., these bonds concur. designates appro- “revenue bonds” and LEIBSON, STEPHENSON and priations needed the Commerce Cabinet VANCE, JJ., dissent and each files a the debt service on these bonds as separate dissenting opinion. explanation, “rent.” There is no in- STEPHENSON, J., understand, joins way being also in the deed what VANCE, dissents of LEIBSON JJ. “rented.” The “rent” is deemed SB which, generated by though the “incremental tax” ben- lation not in tres- terms letter, passing yet efits to the are antic- on the in substance Commonwealth which ipated Toyota’s Kentucky. destroy grant from location in and effect or limita- legislation scripted jargon this tion.” pow- on the avoid constitutional limitations “may We stated that we not countenance er to contract of the General an evasion ... our fundamental law” no question Unfortunately, is not debt. popular how the decision be. matter would terminology applies whether the to con- Id. passed cepts which have constitutional powerful nonjudi- We have succumbed to cases, scrutiny previous but whether the leg- arguments uphold cial advanced to this terminology appropriate for this case. in the face of the constitutional islation Williams, Ky., In 655 S.W.2d Fannin v. challenge. proponents of SB 361 and (1988), recognize we that it is the sub- Agreement urge that we legislation stance of the that determines into the 1891 Con- “breathe life” Legisla- constitutionality, not the label. to our state to be stitution. benefits incantation, clever, in tive no matter how development economic derived from change itself cannot the result: job opportunities represented are to us as people cannot sell the “We great judi- must so that the constitution horse, if mule and call it a even we present cially amended to accommodate believe the needs a mule.” Id. financing arrangements. represented It is job at the site is that since construction fait already underway, is a Ky. 50 describe limita- Const. §§ consequences that will accompli, and the Assembly’s power tions on the General declaring this Act unconstitu- flow from present contract which foreclose the debts no choice grave, are so we have but tional scheme unless the along. judiciary on the go Pressure presented being classified as a can avoid way around the constitution find some contracted on of the Common- debt behalf expediency proved has political name of 171 foreclose wealth. Const. 3 and §§ overwhelming. to be public money to or for the payment of corpora- private individual or benefit Governor, Toyota and my But view public servic- except tion in consideration of presumed Assembly should be the General provide that taxes shall be es and also open eyes wide with their to have acted public pur- collected levied and constitutionality of their that the the fact gift, poses. Ky. 177 forbids Const. § subject judi- arrangements was financial of the Common- pledge or loan of the credit Indeed, clear from the it is cial review. individual, corpo- company or wealth to agree- their terminology in both utilized ration, Commonwealth and also forbids the legislation, terminology in the ment and private making a donation previous decisions carefully crafted from corporation. It is sub- individual or constitutionality deciding on the our Court fiscal of these various constitutional stance Governor, issues, past bond violated, and the la- restraints which Assembly under- Toyota, and the General change the results. should not bels agreement that their the outset stood from contingent upon legislation was and the O’Harrah, Ky., scrutiny. constitutional (1953), when faced terms of with a statute that violated is to language of the Constitution If the great although arguably of the constitution rewritten, done constitu- it should be benefit, we said: ,the amendment, people, by vote of tional expediency. judicial matter of to be and not as a provisions, ... are “Constitutional meaning con- and Where the words according to their letter enforced doubt, can reasonably in we any legis- stitution are spirit, and cannot be evaded think in contemporaneous terms of con- and Debates in the Convention Assem- struction. upon But when called ap- Frankfort, bled at Eighth On the Day of prove transparent September, 1890, plain Adopt, evasion of the Amend or meaning provisions, Change of the constitutional Constitution the State (hereinafter Kentucky, we should Volumes regard do so without referred to whether 1890). to as Constitutional Convention unpopular. decision will Fannin Williams, supra, v. we were faced with duty declaring onerous unconstitu- I. KENTUCKY CONSTITUTION tional a supplying statute text books in the 49 AND 50 §§ nonpublic state’s schools. We stated: provide Const. 49 and 50 limita- §§ people “The of Kentucky specified by power tions on the of the General Assem- language of the Constitution terms bly to provides $500,- contract debt. § that are clear and unmistakable that the 000 limitation on the amount of such debt. type expenditure authorized provides that no debt shall be incurred in question statute should be unconstitu- in excess of the provided limitations in 49§ tional. If people Kentucky wish enabling legislation unless provides change position matter, their in this paid debt through to be off a bond right is their to do so. issue that “shall have been submitted to ... Section 184 of the people general election, Consti- at a and shall provides tution majority received a can be of all the votes expended cast.” for education other than in common schools majority when a sections, Because of these two the Gen- legal approve voters expenditure by eral Assembly has been unable to enact provision referendum. not un- [A legislation financing public projects pay- like that for bond issues in If the § 50.] by general obligation able bonds without a legislature people thinks the people. vote To avoid these limita- change,

want this they place should tions the developed General has matter on the ballot.” 655 S.W.2d at a financing arrangement characterized as a bond, which, “revenue” type funding applicable, when does not add to the debts In this dissenting opinion I up will take of the Commonwealth. SB 361 enact- was those provisions, constitutional previously ed theoretically complying with the reve- cited, which are in direct conflict with the concept. nue bond Until now this revenue legislation financing arrangements. encompassed bond has the follow- Broadly grouped, (1) there are three: 49§ ing features: 50; (2) 177; (3) 3 and 171. §§ §§ 1) legislation public agency creates a provisions These overlapping and inter- Turnpike such as the Authority, desig- locking in proponents character. The one, existing nates an such as the State Toyota Agreement and SB 361 have Property Buildings Commission, to be urged accept language us to isolated from entrusted with title to the project and the past opinions to legislation allow the new pay for it. Thus the Common- escape one or the other of the various wealth constitutionally is removed from a provisions issue, constitutional dis- position borrowing money untenable regarding the arguments fact that used to pay project. avoid one or the other of these constitution- provisions al trigger serve another. 2) then authorizes this There is no doubt but that this done public agency to issue “revenue bonds” to Constitutional of 1890 Convention project. the cost of the The “revenue” design to frustrate such evasion. See generated by that will be the use of the McGuffey Hall, Ky., 411 project completion after will be used to (1977); Report Official Proceedings off the bonds.

808

3) department of the Id. 90 S.W.2d at The executive state Commonwealth.” project the then government utilizes which public agency to the has

pays “rent” which Clements, Ky. 313 232 In Preston v. ostensibly and which issued the bonds (1950), concept 85 the revenue bond S.W.2d project. to the holds title expanded to cover construction 4) government financing Capitol of Annex office build- department state the money pay ing. supposedly generated “rent” provided the the The revenue treating expense, “rent” as a current from “rent- pay off the bonds was derived doing in operation building.” cost of business covered the bien- Presum- als or along appropriation department to the ably occupying nial the build- state offices ongoing, expenses nec- routine ing paying have to rent some- would be department. Techni- essary operate where, agreed so our Court to view of the General As- cally, operat- future sessions arrangement payment current legally obligated appro- sembly are not ing expense. pay off the debt service on priate expanded in concept was further issue.

the bond Wall, Ky., Ky. v. Turnpike Authority of Through this the debt service device (1960), permitted S.W.2d being accounted for project avoids concept of reve- issue on the bond based outstanding obligation payment of an operation of state nues derived from the public treasury. Otherwise against the motor fuel taxes roads and additional toll 49 and violate scheme would §§ toll generated by the new which would be qualify as a debt that 50 because it would segregated and The funds were roads. raising money. The requires additional tax rent to off payment pledged con- Toyota legislation proponents of bonds, practical matter although as a issue argument oral that this bond ceded at probably would be anticipated funds criteria of the revenue did not meet the the total cost. insufficient to cover that these concept, arguing instead bond bond expansion of the revenue The latest of the constitution were fiscal restrictions Transportation concept Blythe v. came expanded by judi- and should be outdated (1983). In Cabinet, Ky., 660 S.W.2d 668 acknowledge Although do not fiat. we cial providing approved we Blythe it, demand. acceded to that we have economic devel- to cover for revenue bonds concept of reve- development of the “se- opment projects road which would 49 and as a device to avoid nue bonds §§ de- and revenue solely by income cured” signifi- through a series of can traced project leasing such rived from starting Hooser cases with J.D. Van cant Transportation, with Department of Kentucky., 262 University v. & Co. However, Blythe imposed. no tolls to be culminating (1936) 90 S.W.2d Authority, Turnpike as Wall Transportation Cabinet Blythe bonds, possession issuing had agency (1983). Com., Ky., 660 something to lease the roads and thus expected. In “rent” can be for which Co., the General Hooser & J.D. Van preex- by reference incorporated Blythe we in- state educational Assembly authorized into the Turnpike Authority statutes isting neces- and finance stitutions to construct Project Act. Road Development Economic of rev- buildings through the issuance sary because the decision important This was proposed held that enue bonds. We Department preexisting statutes in the not violate the Constitution issue did bond agree was authorized Transportation act by the authorized because the “bonds to amortize provide rental income and reve- only from the income payable Authority Turnpike coming under the bond operation of from the nues to be derived fuel taxes. through pledged motor statutes buildings, and no route, gave we Thus, circuitous by a rather is assumed or the interest thereon bonds bonds status of revenue bonds possession agency issuing present avoided the situation where there the bonds until the paid, bonds are is no concept identifiable source for the never before has the concept revenue bond except general “rentals” tax revenues. applied been where the pro- did not ongoing vide an service of usually the kind The Blythe case stretches provided by an agency government. supported by “revenue” bonds payment Making motor vehicles does qualify. not so of “rent” to the maximum. The further expansion in this case creates an unac- requirement generat- for “revenue” ceptable judicial credibility gap and a loss ed to cover the cost of project is ad- integrity. in through dressed SB 361 desig- a device nated “incremental taxes.” Under SB In Dalton v. Property State and Build- concept of “incremental taxes” means Commission, ings Ky., 304 the additional state tax revenue which the (1957), we defined revenue bonds as anticipates state will flow from the location follows: profit of this making new enterprise within “The term descrip- ‘revenue bonds’ is a the Commonwealth. These “incremental qualification tive indicating in- that the taxes” are deemed sufficient satisfy to payable solely struments are from a rev- requirement “rent,” but the Commerce producing public enue project.” making Cabinet which is payments the rent The bond issue must fit this definition to provide to for the debt service has no fur- avoid conflict with the constitution. SB ther connection with project once it has any 361 exceeds application reasonable approved been providing other than this definition. It authorizes the Com- money pay off the debt. merce Cabinet initiate develop- industrial concept of incremental taxes as set projects ment and to finance those up in taking SB 361 means taxes that are “projects” through “revenue bonds” issued being paid today specified within certain Property Buildings Commission. categories, comparing then this with taxes But the Project “public Site not a in years, collected future classifying project.” permits, Id. SB 361 and the any future increase that occurs in tax col- Toyota Agreement provides for, the imme- lections as “incremental taxes” to be attrib- conveyance diate project site to the uted to the Toyota Kentucky location of in Entity” “Industrial which is to own and by legislative mandate. To the extent that occupy project. The Industrial Entity paid includes by Toyo- (Toyota) that is to occupy project pays total, Toyota given ta in this a double no future, “revenue” now or in the payments: satisfying credit for its tax first tangible renumeration to cover the cost of obligations current tax applying and next the project site conveyed which is to it. required the same taxes towards the “rent” Instead, the Commerce pay Cabinet will for the issuance of revenue bonds. This “rent” to off project, but it will prohibi- violates the constitutional occupy neither nor project any utilize the in against grant “exclusive, sepa- tion meaningful directly sense connected privileges” rate emoluments or carrying on the depart- activities of the Ky. Const., found paid ment. for reasons The “rent” the Commerce present that we will later Cabinet will come from discuss. For ap- future biennial propriations purposes enough say it is provides which SB 361 that it fails to for au- general obligation tomatically; the General make would bond into a reve- legislate have to nue payment terminate bond.

this debt service. legislation gives To the extent that the

Never before has the revenue bond con- credit to increase the tax cept upon been called a project cover revenues received from which cannot taxpayers, be described as owned engaged recognizing we are security is a for the bonds. But here as fact the fiction Toyota, facility carrying Project conveyed on the con- business and the guar- We should' not Cabinet. make tinued existence of the is not Commerce logic. Toyota private So, leap in is a busi- anteed. if we are assume that the making enterprise. engaged profit ness current does no than bond issue more operation promise not conduct its in order to It does the bondholders that the Com- carry on the functions Commerce appropria- Cabinet future merce will seek in a remote Department except sense that oper- debt tions service as a current privately all conducted commer- applies to ating expense, security there is no activity. cial kind for the bonds. is no There credible in this explanation our Court can offer Past state bond issues which we have away the explain constitutional limi- case offending Ky. approved Const. §§ prohibiting 49 and 50 tations §§ owned, bonds state and were arrangements. present financial operated projects, projects carry that state state, performed by the out functions significant problems There are appropriation of tax thus the mon- biennial concept regard to the of “incremental with treasury operating to an ey from the state 361(7). name as defined in SB To taxes” government qualified department of state in SB 361 fails some of them: definition operating “rent” to current ex- as cover which to account the extent to take into penses department. We cannot may growth from economic increase public benefits from stretch the incidental gen- Toyota; the taxes are not unrelated to making fit enterprise to this Toyota’s profit by operated facility, as publicly a erated doing violence to “rent” scenario without roads, by privately operated a toll but qual- the Constitution. These bonds cannot closed; Toyota has no facility which can be proponents Their ify as “revenue” bonds. long any portion obligation so retains argument, ar- as much at oral admitted premises, small. One must however concept guing that we should redefine the of “incremental conclude that any project stretching it cover that to for case is a “first” taxes” as used public purpose. a serves quite probably for state. our state and provides that the limita- Ky. Const. 50§ present I Reluctantly, conclude that to ability acquire on new tion the state’s arrangements 49 and violate financial §§ exceeded without a vote of debt cannot be Kentucky Constitution. 50 of the is decision people. The effect our to bonds, are not hold that these bonds II. KENTUCKY CONSTITUTION § pay being that is used to off money speci- language pertinent money tax new bonds not but these of the Commonwealth that the “credit fies budgetary ap- money, that the annual or loaned given, pledged not be shall being off bonds is propriation pay these individual, corporation or associa- company, operating expenses of pay current used Commonwealth ... shall the tion ... nor Department. the Commerce to, any company, association make donation opinion implies majority Although the corporation....” upheld otherwise, previous issues all bond Toyota financing the proposal for security for provide some by our Court con- development project and for industrial promise than the bare bondholders other either Project Site is veyance of the payment to seek bud- the Commonwealth credit lending the Commonwealth’s a general from the getary appropriations If corporation. we private else, donation exist- the continued nothing fund. If transfer of the premise that the accept the paid public project ence Toyota plant is 1,600 for the acre site issue can be viewed for the bond then private corporation, ato type “donation” fulfilling providing the function

8H impaled upon we are at once the constitu- identified source of pay revenue to off the prohibition against “lending” bonds, tional though even appropriations from private the Commonwealth’s credit to a cor- treasury provide the state the debt service. poration, and Here, vice versa. provides the Act source reve-

nue for the that will be used to repay the bonded indebtedness. For debt Lending AA. of Credit purposes service it is irrelevant whether present legislation offers as the rea- incremental taxes are ever collected. The son this transfer is not a donation that it obligation the bonds has no connec- paid will be incremental taxes. But tion to the incremental taxes which the proposition if accept we hopes generate by state going through fu- Project. The incremental taxes are not taxes, the surely ture state has lent the against even credited the “rent.” The money in the meantime. Commonwealth’s credit is all that stands lending because, It is a of credit as stat- behind the bonds. previous section, ed in technically there escape There is no from the fact that SB supposed to be no other security for the Agreement 361 and the Finance between except bondholders promise the state’s Prop- Commerce Cabinet and the State provide payment of debt service in bien- erty Buildings represent Commission appropriations nial from the fund. buying public the the state has two-year For period, each as well as future arranged pay the on the debt service periods, it is the credit of the Common- bonds from the repre- fund. This wealth, else, nothing to which the lending sentation is either a of the state’s bondholder payment. must look for misrepresentation, credit or a and we will issuer, bond Property Buildings State designate not it the latter. Commission, has proprietary neither nor possessory project interest the or the Hall, In McGuffey Ky., 557 S.W.2d Thus, project previous site. unlike bond (1977), we declared unconstitutional an issues, issuing agency, Prop- the State arrangement whereby the state established erty Buildings Commission, is a mere Compensation a Claimant’s Fund to conduit, but not a stakeholder. negligence against private medical claims providers. Although payment health care

Toyota Corporation is the stakeholder of claims entirely by would be funded as- obligation it has generate but no funds fund, against sessments members of the service; for obligation bond not even an enabling legislation provided because the generate “incremental taxes.” If it fails to money temporarily that state could generate taxes, ad- incremental Toyota has no vanced, necessary, if if shortage a should unless and until it elects to con- vey project the entire occur in the fund to site to some third available claims, party. time, time, At that we held this first it was an unconstitu- required up will be pledge make tional calculable of the state’s credit. We held difference, any, if between the prohibition against total of that the pledge incremental tax accruing revenues since aspect “credit” 177 does Constitution § conveyed Toy- the time the hinge legislation not on whether agreed $35,000,000 ota and the value of the “public purpose” achieves a when property. hypothetical contingent lia- pledge private benefits individuals. bility supplies security no for the bonds. legislation was written to achieve avail- expectation reasonable that the Com- care, ability of public purpose medical a monwealth payment will see to the comparable promoting employment only security, bonds is the or there is no purpose which is the In avowed of SB 361. security. Hall, McGuffey v. we said: past been, ‘clincher,’ cases there has “It making theoretical- is a certain [§ 177] ly, a state project generating perchance might owned if some court hold contingent secondary liability thing every same is true with new 50, under every ‘debt’ it would expansion Const. business and of an § exist ing

nevertheless fall the interdict of under business within this state. The differ 177.” Toyota’s Const. Id. at 411. ence between business and any § quantitative qualitative, other is and not present In the situation where entire quantitative and a difference does not suf by private corpora- will be owned satisfy requirement payment fice to tion, prohibition against the constitutional state for the transfer of state prop pledging the state’s credit for benefit erty. published If we examine the debates private corporation of a is not avoided 1890, the Constitutional Convention budget appropriation device, because only can primary we conclude that a moti security payments on the vating force behind the Constitu biennium, bonds for the current as well as prevent just legis tion of 1891 was to such futuro, is the state’s credit. As we held as that with lation which we are confront although McGuffey, pro- does not Wallace, Ky., ed. In Tabler v. 704 S.W.2d using hibit the state’s credit to back the (1985), quoted sampling 183-4 we integrity agen- financial of one of its own from these debates. See Constitutional cies, prohibits to do so for Convention 4 Volumes. private person, temporarily, even and even “Delegate Young: though public purpose. it serves a special provisions for anybody, ‘[N]o already why I have the future discussed exemptions, but all same incremental tax 361 does not SB protection and all live under same satisfy any payment obligation Toyota’s on law, special any- and no benefits to part. adopt opposite prem- But if we body....’ 3, p. Vol. 3996-97. ise, conveyance then the fact that occurs at Delegate Knott: triggers inception prohibition against lending temporary ponderous volumes ‘[L]ook private corporation Legislature private passed credit to a or acts our with- individual years, declared in enumerate McGuffey as unconstitutional in the last few Hall, supra. Any way corporations to view one chooses horde of railroad and other matter, concept exempted tax been from taxa- incremental which have tion, variety spe- does not suffice to 177. of other circumvent and allowed a § battening like privileges,

cial while vam- people; of the pires upon the substance B. A Donation specious perform- of upon pretext all ” prospect tax- Because the of incremental 1, p. ing public services.’ Vol. 466. payment in any es is not direct sense public a legislative declaration word, conveyance Project Site enough purpose standing is not to alone pro- private corporation a “donation” to against prohibition avoid our constitutional obligation by 177. Toyota’s hibited § person corpo- or public grants private to a in the no more than the future is ration, powerful argu- no matter how every pay- And the taxpayer. from public ments that the benefit other than by persons ment of future taxes by private enter- business conducted qualify on be- Toyota payment cannot as prise. Toyota. half of Likewise, Toyota’s promise build III. KENTUCKY CONSTITUTION in Ken- manufacturing assembly plant 3 171 AND §§ not sufficient tucky qualify as constitutional is- considering adds avoid 177. While this new business When § development SB 361 and the financial Kentucky’s economic sues raised residents, case, in 3 and 171 are provides jobs arrangements this additional to our §§

813 effect, complementary interacting in as in Kentucky perform- business it is unless interacting 177, supra. well as ing with directly government. a service § Toyota economic activities of the Cor- provides grant exclusive, that “no § poration performed are not as services to separate public emoluments or privileges government, but are conducted for a men, shall be made to man or set private purpose. Toyota They benefit Cor- except public in consideration of services.” poration and not of Kentucky the State provides that shall be lev- § “[t]axes in except ap- the same sense that public ied and for purposes only collected plies productive activity as well to the of all upon and shall property be uniform all of private corporations individuals and within subject (Em- the same class to taxation.” by-product this The fact state. added.) phasis private activity economic is an inciden- discussed, citizens, As earlier prospect even if the tal through provid- benefit to other Toyota otherwise, future “incremental taxes” ing employment from does not proviso would to escape be sufficient change Toyota’s the character of economic against private to a corporation private public. donation in activity Convey- then SB 361 is Project conflict with 171 ance to cost free of the § Site § because would prohibition benefit the dou- cannot avoid the in our constitu- exclusive, counting against “grant ble of future tion separate taxes. This means public except upon taxes then are not emoluments “uniform all ... considera- public simply Toy- tion of subject the same class services” because taxa- tion,” operation bigger may provide ota’s required 171. If the “incre- § jobs more and more tax mental future revenue taxes” were restricted Functioning than other businesses. prospect persons of collections from private corporation, Toyota is not other entitled Toyota, than then Toyota pays noth- right possessed by private ing for Project Site and it is a donation persons corporations. in violation of Going step fur- one § ther, giving either way credit point City The closest case Cor future incremental taxes violates the con- Co., bin v. Louisville & N.R. proviso stitutional prohibiting “ex- (1930). In that case the clusive, separate ... ex- emoluments governmental City Corbin, entity, cept in consideration of service.” agreed to a contract railroad for reimbursement a tax assessment ex Taxes not been collect- “levied and permission change portion utilize a public ed for purposes” required by as property constructing of the railroad’s in a paid unless those taxes § have been portion system. holding of a sewer In expended out or to a “in recipient lawful 3, ordinance contract violated § public consideration of services” 3. under § Court stated: The Constitutional Convention act- of 1890 ed legislature to forbid “grant from railroad secured the ordinance “[T]he exclusive, public separate right privilege emoluments ... and contract a or ... de- except property consideration owners similarly services.” nied to quote Delegate Knott, See supra. from situated.... The ordinance was for the taxpayer.” of one Id. at benefit concept payment constitutional treasury gets from the state “public Toyota special privilege. for servic- a Here It permit receiving taxes, es” in not payment does from is double for future credit § for Commonwealth those to credit from other benefits and also for taxes busi- general incidentally supposedly generated by Toyota’s which welfare flow nesses profit making private taxpayers from the activity presence. Toyota of a and all corporation. right equal expect cannot to certain and receive pay private corporation conducting governmental for its services for their taxes. But arrange- opinion SB 361 majority

under financial are different their facts. Watkins, in this case approved ments these same taxes are Grimm and we anticipated a second increase in re- “pay utilized time to for” ceipts occupational from license fees would Project Site. projects. cover the cost of renewal urban Agreement, 9, Toyota illuminates the § projects But urban would be renewal illusory nature of incremental taxes as con- and, government operated, owned un- for conveying Project sideration Site to case, portion no property like our of the Toyota. Toyota has no to conveyed corporation to private would be anything for Project even if the Site payment of without fair market value.1 accounting incremental tax method fails to directly Taxpayers’ donated was not produce equal project’s an amount private corporation inducement to a as an cost, unless at some future time to locate. dispose proper- should elect to of the entire proponents constitutionality ar- ty. permits arrangement. SB this gued public purpose that “the of alleviation Toyota Agreement can make However unemployment actually ... articulated payment arrangement fictional even Constitution, 170 of the Kentucky § meaningless sell more because can permits Assembly General dispose portions given manufacturing exempt authorize cities ‘to state, small, portions great to it municipal from establishments taxation accounting for it unless and until period exceeding years, not as an five disposes prop- sells or the entire ” inducement to location.’ their, erty. However, juxtaposed with when § The trial court concluded that the reduc- power limitations on to tax the state’s unemployment objec- tion of was the sole section, 171, pro- delineated next tive of SB 361 and that reduction of unem- compelling argument against vides ployment public purpose is a valid within constitutionality present legislation, legislative the reasonable exercise of dis- serving If the support rather than it. may unemployment cretion. Reduction of Assembly authori- already General has the satisfy the 171 that requirement well § municipalities ty pass authorizing laws must be collected for levied and “exempt manufacturing establishments purposes,” “public public purpose but municipal taxation, period not from for a requires that the method utilized § exceeding years, an inducement five unemployment through public attack location,” taxing general under the their means, private supplement A not means. authority in is no need then there § private selected businesses create an 170. There is no need to § qualify. This is so under 3 the because § rule, is a exception to a unless first there only persons emoluments entitled rule, 171 is the rule. § performing those services for the Com- exemptions to that rule. states the persons need Although such monwealth. the General leads to the conclusion that must public employees, the services not be exempt man- authority has no on directly performed that are be those municipal ufacturing establishments government, not those servic- behalf an to their location taxation as inducement indirectly, remotely incidentally or es Likewise, this except provided 170. § Robertson, public. benefit the Reid v. the “double leads to conclusion that 509, (1947). 200 S.W.2d 900 inherent in counting” for taxes mechanism Malone, Ky., v. 358 S.W.2d the uniform present Grimm violates proviso in (1962) Ky., 394 and Fugazzi, and assessment collection Watkins v. tax (1965), authority 171. S.W.2d 594 cited as § grant make of three- primary purposes plan to "in- ministrator to a federal

1. The cost. Housing Ad- fourths of the duce” the U.S. and Home Finance proponents The constitutionality disclaiming bonds while any responsibili- that, admitted analysis, in the final it is the ty part on the of its creator.” Id. at 417. Toyota Corporation “inducement” present legislation ar- major manufacturing locate a and assem- rangements 50, violate 49 and §§ plant bly state, in this with the incidental Constitution, 3 and 171 of our §§ follow, economic benefits that should state, we putting should so every aside alone, that must suffice to meet the result-oriented, nonjudicial, nonlegal argu- various challenges constitutional raised ment to the contrary. expenditure $35,000,000 from the public treasury to cover the cost of the STEPHENSON, J., joins in this Project conveyed Site which then dissent. cost free Toyota Corporation. It does not suffice. STEPHENSON, Justice, dissenting. thirty It has been years over since our The dissenting opinion by Justice Leibson Court forthrightly has major declared a analysis an excellent of the constitutional bond issue unconstitutional. Curlin v. majority infirmities of the opinion, and I Weatherby, Ky., (1955). 275 S.W.2d 934 concur in that dissent. For outset, reasons stated at the this is an I only emphasize write what I consider exceedingly step difficult for our Court to principal majority errors in the opinion. take. It is apply time that we to bond issues controlling principles of constitu- In discussing Section 177 of the Constitu- tional construction stated in Common- tion of Kentucky, the majority opinion O’Harrah, supra, wealth v. and Fannin v. astonishing makes this statement: “How- Williams, supra: ever, long expenditure as the has, money through purpose, must look as its the form of the the effectuation

“[W]e statute to of a purpose, the substance valid of what it does. Section 177 is not may courts offended even in countenance situations where the con- an eva- sion veyance or even an occurs unintentional without consideration.” avoidance of our in support prop- fundamental law.” 655 two cases cited of this S.W.2d at point. osition are not in Both Industrial Development and Kentucky Livestock We have reached point reached Breeders involved challenge pertaining City Supreme Arkansas Court in Section 171 of the Constitution and not Springs Creviston, Hot 288 Ark. appropriating Section 177. Both involved 415, (1986). Court, Like our “public purpose.” tax for a Section the Arkansas Court steadily had been erod- provides that: ing constitutional limitations on state bond The credit of the Commonwealth shall financing. Finally, faced an industrial given, pledged not be or loaned to revenue bond issue problems in some individual, company, corporation or asso- respects own, similar to our the Arkansas ciation, municipality, political or subdivi- Court stated: State; sion of the nor shall the Common- “We believe that proper or wealth become owner stockholder permanent simply give course is for us in, to, nor make donation any company, plain effect to language of the Con- corporation; association .... stitution. It states no city county not, interest-bearing anywhere, shall ever issue Section mention evi- effect, “public purpose.” dences of majority indebtedness without the con- sent of the opinion by adding electors. That has amended Section 177 mandate is binding. includes, course, It transpar- “except public purpose.” for a valid To- ent evasions gether leaving which a token commis- with the determination of body sion or other sign public purpose legislature, is created to the major- the 816 repealed benefit,

ity opinion in effect is no lending has Section there of its cred- having 177. I feel more comfortable the it....”

people on amendments the vote Constitu- is specif- The statement too broad. As repeal tion or of entire sections. pointed Hager (119 ically Ky. 235, out in 607), p. at 83 S.W. Const. 177 does not § that the In its rush to assert statute does given permit the state’s credit to be or 177, majority not offend has Section purpose, for any public lent or otherwise. holding in McGuffey overlooked our v. Hall, (1977), Ky., 557 S.W.2d 401 where we ready to majority I wonder if the is over- said: McGuffey judicial rule with a amendment 177, respect to Const. With § 177. Section prohibits lending the credit of the Com- my opinion, Toyo- .transaction monwealth, Hager v. Chil- gift. purchase ta is a state will Soc., 235, Ky. dren’s Home S.W. deliver deed to with no lien or 605, 607, (1904), that 67 LRA 815 held majority approves other reservation. The $15,000 appropriation of annual funny theory consideration the incre- corporation charitable devoted to the paid by mental These are the taxes taxes. not care destitute children did involve any other for the business benefits lending giving opin- or credit. government, including, unfortunately, pay- say that ion then went on because the principal ment of and interest on revenue not purpose the act did offend It previously bonds issued. is a charade to 171, Const. and there has been some § say that incremental are a considera- tendency language to misconstrue conveyance. accepting tion for the Even referring appli- Hager Const. 171 § theory, Toyota paying that this leaves Clearly, 177 as well. cable Const. § If easy-payment plan. on this land however, objects of an ex- whether the loaning giving, pledging, is or not cred- penditure “public” or is are otherwise Commonwealth, nothing then it is. irrelevant Const. 177: up, it is either a To sum transaction give “The now loan or its state cannot giving pledging or of credit. donation any person corporation credit way, Section Either the transaction violates purpose public or otherwise.” —

Hager v. Children’s Home 235, Soc., Ky. supra, majori- at 83 S.W. 607. on the I have one other comment ty 49 and 50. opinion as treats Sections holding is direct conflict with majority opinion. opinion majority states that develop acquire needed to sums Further, opinion majority relies on generated by a site for will be reve- reasoning Day. v. It is Almond the funds needed nue bond issue majority indeed curious that now the princi- on the the debt service bonds' persuaded Day when by Almond v. provided by appro- pal interest will rejected the same McGuffey emphatically priations Funds from the General reasoning. on basis as an a biennial holding a loan of After Cabinet. expense item of Commerce public credit, involve situation; truly portrays This statement opinion Develop. Auth. in Industrial revenue, there is no and the bonds Com’n, supra, Reg. Eastern Pl. obligations of the really considered as Com- 274, following ex cites monwealth. Day, cerpt from Almond v. 197 Va. (1956): S.E.2d that is retired A revenue bond one being project which revenue from the activating underlying “When noteworthy majori- that the It is and the finan- financed. purpose the transaction adop- ty opinion recites the reason incurred are for the state’s cial

§17 50; is, tion of Toyota gift Sections 49 Commonwealth to is not a or heavily in Commonwealth was debt corporation donation to a because the Com- fiscal restraint considered to be in the monwealth will fair receive market value people. best interests of the This is the property conveyed. so, for the This is today situation with more and more of the reasons, majority because construction going pay principal General Fund operation Toyota manufacturing and interest of so-called revenue It bonds. plant generate will tax new revenues which engaged this unfortunate that court ever the state except would not receive for the bonds, in the fiction that these revenue plant location of Toyota Kentucky. revenue, produce which do not are not obli- (or incremental) These new taxes are con- know, gations of the Commonwealth. We by sidered majority pay- to constitute legislative and the executive and branches $35,000,000 building ment for the site. know, legislature appropriate that each will price Taxes taxpayer pays are the that a princi- funds from pay the General Fund to government. for the from benefits received pal and interest on these bonds and that It is true that once has erected an they dare not decline to do so in order to $800,000,000manufacturing plant upon the maintain the credit of the Commonwealth. project site, generate property will now, least, up At in engaging in this more generated state tax than it revenue fiction property to be financed was before plant. the construction of the by owned the Commonwealth. This made taxes, however, increase in will do no more palatable fiction more to the court. than rata Toyota’s pro share of the Here, the Commonwealth is to deed the police protection benefits of property private corporation to a and retain government that it will receive from the property. interest at all in the It was Kentucky. Commonwealth of Our consti- argument conceded at oral that this con- tution, 171, requires that taxes be uni- cept step is a further than of the cases upon property subject form each class of by decided this court. upon Toyota’s taxation. If the rate tax Adopting concept by this the majority property is to uniform with that of other be gives legislature a free hand to in- taxpayers, the of taxes collection assessed crease debt for the Commonwealth without against only uniformly property its will any hindrance from this court. This debas- pro its of the cost of rata share state es Sections 49 meaning and 50 to no at all. follows, therefore, government. It that if Accordingly, I dissent. the taxes collected from are to be as its of the cost of the viewed fair share VANCE, Justice, dissenting. provided by benefits the Commonwealth to receipts tax Toyota, then those same can- year, 1987, while we are celebrat- not also be considered constitute the ing anniversary the 200th of the United purchase price Toyota building site. for the Constitution, has, States this court I be- lieve, token, paid by Toyota By the same if taxes eviscerated the Constitu- 3, 49, tion. payment sections for the disemboweled are to be considered as 59, 171, Commonwealth, lie scattered about us. conveyed land to it fact, then, be excused will Section 177 of the Constitution paying anything fair share of the as its clearly provides credit of the Com- to it provided cost of benefits state given, pledged, monwealth shall not government. individual, company loaned to or corpo- ration and that the Commonwealth shall paid by Toyota say To that the taxes any company, make a donation to asso- payment counted once as its its share ciation, corporation. government and of the cost of be counted pur- payment second time as its majority concludes that the convey- Toyota building conveyed ance of the to it price site chase Commonwealth, gives Toyota portion government to er’s fair of the cost of the but instead should be pur- from its taxes that is not ac- credited as the dual benefit price property conveyed of Toyota chase to taxpayer. I cannot any corded to other by the Commonwealth. place majority opinion in the any find which impropriety up faces and unconstitu- however, If, purposes for the of discus- tionality of this double benefit from taxes. only, it be that sion conceded the tax reve- simply begs ques- majority opinion the generated by Toyota to nues be manu- it tion when states: facturing plant can be considered to be Toyota no conditions is Toyo- “Under bene- cash payment of the fair value of site, ficiary counting building of double of future ta it must noted be place over of payment The taxes involved are uniform will take a number taxes. years. is property subject of The thesis the Common- on all the same class $35,000,000immediately will wealth borrow to taxation.” and issue bonds therefor. The Common- uniform, Of course the tax rate bewill wealth will then retire these bonds over up that does not or even to but answer face period years by appropriations from the question Toyota’s why to taxes can Meanwhile, the new taxes to fund. prop- payment be considered as both a for are generated by Toyota be to be erty payment and as the of its fair share of property will payment considered as for government. cost be collected over the life of the bond issue. Likewise, engages majority I believe the essence, will have pure sophistry when states: pay for borrowed the Toyota thereby loaned its for and will have attempt exempt any there is no Toyota. credit to corporation from taxation but rather law required by there is a commitment course, generated by after the taxes Of pay additional and new taxes....” project Toyota equaled the cost of the years) Toyota (presumably within site nothing explain why the use a uniform pay will continue to taxes at Toyota’s purchase price for taxes as a then, Then, only Toyota will rate. in an ex- property does not in fact result begin to fair share of the cost assume its emption sharing in Toyota the cost provided by the Common- the benefits course, government. Toyota pay Of will wealth. site, taxes on the but that additional solely is because will construct an financing agreement de- I believe $800,000,000 proper- improvement upon the Toyota project a donation vised protection ty government receive and will simple, Toyota, pure land $800,000,000 on that investment. Consti- violation of § interpreta- I that the tution. also believe operation It true that the majority in such tion § gener- manufacturing plant will doubtless Toyota agree- approve manner as taxes, such as income tax to ate other ment, null and reality, renders paid paid by employees. Taxes be significant degree. void to a paid by by Toyota like all employees, Constitution Section paid taxpayers, other to sustain provides: government reasonably cannot cost land to be owned

be diverted to Assembly may contract “The General thing private corporation. It is one or failures deficits debts to meet casual debts, Toyota plant generate or revenue; admit that the direct in the but such aggregate, would contingent, singly tax revenue that the Commonwealth quite hundred It is five not otherwise have received. time exceed shall not arising dollars, moneys thing say new tax reve- another that the thousand creating shall taxes, such debts not, from loans taxpay- nue is like all applied purpose purposes provisions in its concerning have, debt and obtained, they repay far, for which were or to evading so succeeded the constitu- Provided, such debts: requirement submitting General As- tional debt is- sembly may repel contract debts to people inva- sues to a vote of the and the re- sion, insurrection, suppress or, quirement if hostili- that an annual tax levied to threatened, provide ties are discharge interest and to the debt. defense.” accomplished by has been means of bond,” 50 of Section the Constitution the “revenue whereby fiction mon- provides: ey borrowed does not constitute a debt. bonds, Revenue in language the of the Assembly act of the “No General shall authorizing statute them and as stated to authorize debt be contracted on upon face, their do not constitute an obli- except of behalf the Commonwealth for gation of the They Commonwealth. are to purposes the mentioned section solely be retired from income realized from provision levy unless to be made therein project they the which were fi- issued to and collect annual tax sufficient to completed nance. Most often the

pay stipulated, the interest to and dis- two-year leased periods, to the state and charge thirty the years; debt within nor the bonds are retired from pay- the lease shall such act take effect until it shall ments made the state. people have been submitted to the aat general election, and shall have received case, however, In this the property will majority all the votes cast and be agency owned a state but bewill Provided, against it: The General Assem- by Toyota. owned The state will not lease may bly by borrowing contract debts Toyota, simply but will money pay any part to of the debt general treasury advance out State, without people, submission to the each biennium to retire the bonds. making provision and without in the act Turnpike Authority Kentucky v. authorizing the same for a tax to dis- Wall, Ky., (1960), 336 S.W.2d 551 this court charge contracted, the debt so or the upheld did revenue bonds interest thereon.” state, obligation not constitute an of the These sections of Constitu- consequently they could issued clearly designed tion were to restrict approval by people without a vote of power of Assembly the General obligate levy and without the anof annual tax to the revenue of the beyond accepted, retire the bonds. face Wall value, the biennium of Assembly. The del- the contention that a future General egates Assembly, biennium, constitutional convention in each would consid- sitting legislature, power knew that a er the continuing merits of lease the to incur obligating bonds, indebtedness projects revenue in financed with revenue years, pile could, future up desired, could such a if freely cata- it so refuse to con- strophic seriously as to impede debt tinue lease. operation government.

future practical matter, however, As a a future delegates Those took two Assembly nearly measures to General find itself potential powerless interdict such a They disaster. appropriate refuse to funds required first that indebtedness ex- for the retirement of the revenue $500,000 issue, approved by cess of just present a vote of bond past second, people, that the act autho- General Assemblies been have unable rizing provide levy the debt disavow the appropriate funds collection an annual tax sufficient to past retirement of “revenue bond” discharge interest and the debt. issues. Subsequent upon General Assemblies have To default the “revenue bonds” instantly considered our constitution too destroy restrictive would credit majority Commonwealth and would be calamitous. Blythe Transporta cites legislator No consider reasonable would tion Cabinet the Commonwealth al., such a course. Kentucky, Ky., et 660 S.W.2d 668 (1983)as a continuation of the line of cases Millions of dollars current tax revenue approved revenue bonds. On been subject which should have to such use contrary, Blythe held, simply as did as the current General would Wall, supra, that the statute on its face is obligated has been inter- make not unconstitutional. It did not address the upon principal est and “revenue bond” is- question appli of whether statute its by past legislative sues created enactment. cation is unconstitutional. Neither did it simply millions are not available for Those approve question, the bond but issue left current use. litigation, subsequent determination option disavow an issue of “reve- validity at issue. the bonds To scarcely nue a free choice. To bonds” my knowledge no such there has been sub bond, debt, some extent a revenue if not a sequent litigation validity to determine the obligation is at least an which future ad- bonds, my judgment those in of find ministrations will difficult to disavow. in peril paying state treasurer acts at his extent, To that the clear intent of Constitu- or any principal particular interest of that power tion 49 and 50 Sections to limit revenue bond issue. of Assembly obligate the General future joined beyond a Three members of this court in a revenue of Commonwealth two-year period dissent, in Blythe, supra. will have been circumvent- dissent That ed. together with the that the court fact re- therein, approve issue fused bond appears upon An act which constitutional flag warning have raised should of that may its face nevertheless be unconstitu- in the future some consideration would be application. tional in its I do not believe practical obligation imposed given to the Wall, Turnpike supra, Authority that v. upon by an issue of Commonwealth constitutionality addresses of these might determine revenue bonds application. acts their an indebtedness such bonds constitute O’Harrah, Ky., In Commonwealth v. meaning 49 and 50 of the within of § § (1953) held: we Constitution, despite statutory lan- provisions, op- whether “‘Constitutional they guage that should not be considered limitation, erating by way grant indebtedness the Commonwealth. according to be enforced to their letter bonds are not revenue bonds spirit, by any cannot be evaded solely sense. retired They in a true will be which, in terms though not appropriations treasury. from the state by letter, trespassing yet on the in sub- agency of the No Commonwealth own destroy grant effect stance and land, and so the fiction that the even limitation.’ for the use of state will rent appraising validity “In of the statute indulged. project cannot through look the form of the

we must it does. statute to the substance of what say it is a that the I believe fiction may not an eva- The courts countenance obligation will have no or even an avoidance sion unintentional in an retire the revenue bonds or- of our fundamental law.” simply no derly manner. There is other purchasers method for the of the bonds to impugn This dissent is meant to their from source ex- recover validity of issued and vali- bonds heretofore treasury. In other “revenue cept the state principles dated under the announced there some Wall, issues has been asset I bond” Turnpike Authority supra. capable producing revenue which would conclusive simply believe that Wall is not security case presented by give this case. some to bondholders all the issues That default. is not true here. The bond purchase a “revenue issue” to belong Toyota, asset will and it has gener- for it and to use the taxes by payment To bondholders. hold that ated for the property. only Commonwealth can issue bonds and criteria established in repay then eligibility projects refuse to them the act for may when there is no security source of financed “revenue bonds” bondholder request Department, Commerce approve the commission fraud and: the Commonwealth. “1. subject industrial entity agrees writing prior to the issuance of The purpose of 49 and 50 of the § revenue bonds construct and ac- Constitution of prevent is to quire in connection with the industrial current General obligating development project manufacturing, pro- years. tax In my judg- revenues future cessing assembling facilities satisfac- ment, the complete result this case is a commission; tory to the evasion spirit of the letter and the of those “2. The finding commission makes a Sections. that, writing, upon based diligent in- No proponents doubt the vestigation, aggregate incremental agreement believe, been led to based be received the Common- upon past court, decisions of this that we wealth as result such industrial de- will wink at apparent evasions the Con- velopment project expect- are reasonably they stitution when are considered to be ed, over the life the revenue bond imperative progress for the of the state issue, equal to principal be least fact, and the In public. benefit amount of revenue bonds issued to benefits, long run, never in the development finance such industrial any evasion of the Constitution. Evasion project; simply erodes the fabric of constitutional development “3. The industrial government. project separately approved writing Finally, I believe special that SB 361 is by governor; legislation in violation of development “4. The industrial Constitution, 59. It creates a class of project separately approved and autho- revenue Toyo- bonds which are available to by general assembly; rized and and perhaps entities, ta to other business Any proceedings “5. revenue bond certainly but to all. So far Ias can of an industrial devel- determine, there are no standards to mea- opment provide project the event eligibility sure as to beneficiaries of this any disposition by entity an industrial class of “revenue bonds.” development such industrial purpose pro- stated of the act is to project previously conveyed to such in- gainful mote employment, economic devel- entity prior dustrial the collection opment opportunities and welfare the Commonwealth incremental taxes authority creation of an to enable the specified subparagraph the amount acquire develop Commonwealth to in- paragraph, subject of this industri- use, lease, dustrial occupancy, sites for entity al shall the Commonwealth conveyance corporations to industrial equal amount the difference be- other entities. aggregate tween the incremental taxes collected the Commonwealth to such Every development project industrial can disposition principal date of and the expected produce be new taxes. amount of such revenue bonds.” many cases, the new taxes would be suffi- equal cient to project the cost of the site in opened door is thus wide for the years. follow, however, It Governor, does not Department, Commerce every eligible such become would General bestow at will the type arrange-

benefits of financial upon deny friends

ment its it to substantial,

others. These benefits are muster, pass eligibility Constitutional upon

should determined the basis of

established standards or classifications so may

that all meet the who standards act, and all who benefit fail

meet the denied the bene- standards Eligibility

fits. should not be allowed

depend upon nonobjective such factors as

approval Cabinet, of the Commerce

Governor, Assembly. and the General

STEPHENSON, J., in this joins

dissent. MORRISON, Appellant,

James David

v.

KENTUCKY CENTRAL CO., Appellee.

INSURANCE INSURANCE

KENTUCKY CENTRAL

CO., Appellant, AMERICAN INSURANCE

GREAT

CO., Appellee. Kentucky. Appeals

Court of

April

Case Details

Case Name: Hayes v. State Property & Buildings Commission

Court Name: Kentucky Supreme Court

Date Published: Jun 11, 1987

Citation: 731 S.W.2d 797

Court Abbreviation: Ky.