This is an official copy of the following document.
July 6, 1993
Hon. Richard Roeding
State Senator, 24th District
2227 Grace Avenue
Fort Mitchell, Kentucky 41017
Re: Request for Opinion Concerning Kentucky Association of Counties "All Lines Fund."
Dear Senator Roeding:
By letter of May 7, 1993, you indicate that a constituent has asked for answers to several questions concerning the self-insurance group known as the "Kentucky Association of Counties All Lines Fund" (hereinafter ALF). ALF is administered by the Kentucky Association of Counties (KACo) as a mechanism for providing liability insurance to participating counties.
You ask that this office offer an opinion regarding the following questions posed by your constituent:
A. Do sections 157, 158, 162, 179 and 26 of the Kentucky Constitution permit a County (or any other political entity) to financially obligate itself to become jointly and severally liable with other counties or other political entities?
B. Do sections 157, 158, 162, 179 and 26 of the Kentucky Constitution permit a County (or any other political entity) to pay financial obligations from current funds to pay liabilities incurred in prior years?
Answer in Brief
For the reasons discussed below, we believe that sections 157, 158, 162, 179 and 26 of the Constitution of Kentucky do not impose a general ban upon a county agreeing to joint and several liability with other counties or political entities. Further, we believe these constitutional sections do not prohibit payment of obligations incurred in a prior year, from monies of a subsequent year.
I. Joint and Several Liability
Your question regarding "joint and several liability" under the ALF program appears to arise from Article VI, section 6.08, of what is termed the "Self-Insurance Program Agreement." Counties, as we understand it, must agree to be bound by that Agreement in order to participate in the ALF program. Section 6.08, as it appears in what is presumably an accurate and current copy of such an agreement, provides:
Section 6.08. Joint and Several Obligation. The obligation of each Participant in the Program to Pay Risk Adjustment Premiums is a joint and several obligation payable from the Participant's general fund and any earnings and income received by the Participant from whatever source derived to the extent the general fund and such earnings and income are determined by the Participant to be available for such purpose and are not pledged for the payment of any other obligation of the Participant. New Participants to the Program will become jointly and severally liable for the obligation of each Participant in the Program to pay Risk Adjustment Premiums to the extent described in this Section commencing on the date of execution of an Agreement by said new Participant.
Sections 157 and 158
Section 157 of the Constitution of Kentucky provides in part:
No county, city town, taxing district, or other municipality shall be authorized or permitted to become indebted, in any manner or for any purpose, to an amount exceeding, in any year, the income and revenue provided for such year, without the assent of two-thirds of the voters thereof, voting at an election to be held for that purpose; and any indebtedness contracted in violation of this section shall be void. Nor shall such contract be enforceable by the person with whom made; nor shall such municipality ever be authorized to assume the same.
Section 158 of the Constitution of Kentucky provides in part that:
The respective cities, towns, counties, taxing districts, and municipalities shall not be authorized or permitted to incur indebtedness to an amount, including existing indebtedness, in the aggregate exceeding the following named maximum percentages on the value of the taxable property therein, to be estimated by the assessment next before the last assessment previous to incurring the indebtedness, viz.: Cities of the first and second classes, and of the third class having a population exceeding fifteen thousand, ten per centum; cities of the third class having a population of less than fifteen thousand; and cities and towns of the fourth class, five per centum; cities and towns of the fifth and sixth classes, three per centum; and counties, taxing districts and other municipalities, two per centum . . . .
As can be seen from a plain reading of sections 157 and 158, "joint and several liability" of a county with another county or political entity is not expressly mentioned in those sections.
Section 157 provides (in part pertinent here) that a county may not incur in any year, unless authorized by the voters at an election called for such purpose, indebtedness exceeding the income and revenue for such year. Section 158 imposes a maximum on indebtedness that may be incurred in any event.
The only constitutional problem regarding "joint and several liability," from the perspective of these sections, would be if such liability would impose upon a county a debt of a magnitude in contravention of such sections.
This office has previously addressed the propriety of the joint and several liability requirement in relation to the ALF program. In a January 18, 1989, letter (not an official opinion), to Stephen B. Cox, assistant general counsel of the Kentucky Department of Insurance, this office addressed the question posed by Mr. Cox:
[A]re there statutory or constitutional provisions which would prohibit ALF, as a liability self-insurance group composed of governmental entities, from requiring members to assume joint and several liability for debts of the group as a whole?
Our letter indicated that KRS 65.150 permits a county to purchase liability insurance, and permits governmental entities, such as counties, to associate for the purpose of insuring themselves. The letter also observed:
The only constitutional provision that may bear on this is Section 157. That section prohibits a county from expending more income than it receives each year. The premium that a county is responsible for each year may be indefinite depending on losses incurred. However, in Dalzell v. Bourbon County Board of Education, 193 Ky. 171, 235 S.W. 360 (1921) the Court held that such a situation is not unconstitutional under �157.
In Dalzell, supra, the Court observed, in connection with a potential liability of a governmental entity as an insured in a cooperative or assessment insurance company, that:
The liability of the members of the insurance company, while it cannot be fixed with exact definiteness, is not unlimited, and under the statutes it is capable of practical ascertainment. The regular assessments made are ascertainable from the statute . . . .
Id., at 363.
In our view the reasoning of the Court in Dalzell indicates that if a potential indebtedness of a county could not be reasonably ascertained (as within constitutional requirements), or is unlimited, it would be viewed as in contravention of sections 157 and 158.
In the instant case, the extent of the liability of a county, under the "Joint and Several Obligation" provision of the Self-Insurance Program Agreement (� 6.08), appears to be expressly limited to an amount that would be within the constitutional limits of sections 157 and 158 of Kentucky's Constitution.
Section 6.08 of the Agreement expressly provides, in part, that the joint and several obligation of a participant to pay what are termed "Risk Adjustment Premiums" from its general fund, and any earnings and income derived, shall be:
to the extent the general fund and such earnings and income are determined by the Participant to be available for such purpose and are not pledged for the payment of any other obligation of the Participant.
It thus appears that, in relation to the "joint and several liability" provision of the ALF Self-Insurance Program Agreement (� 6.08), the "joint and several" liability of a county with other participants is limited to "funds available." Obviously this could only mean funds constitutionally available. A county would have no legal authority to approve or agree to make payments in excess of constitutional limitations.
Accordingly, in our view, the joint and several liability of a county pursuant to section 6.08 of the ALF Self-Insurance Program Agreement, being limited as it apparently is, would not infringe sections 157 and 158 of Kentucky's Constitution.
Section 162 of the Constitution of Kentucky
Pursuant to section 162 of the Constitution, counties are not permitted to pay claims under any agreement or contract made without express authority of law.
KRS 65.150 (1) permits a county to expend funds
. . . necessary to insure any of its employees, officials and property against any liability or property damage arising out of an act or omission committed in the scope and course of performing legal duties.
KRS 65.150(3) provides that any parties eligible to expend funds for insurance pursuant to KRS 65.150 (which we believe clearly would include counties):
. . . may associate, pursuant to KRS 65.210 to 65.300, for the purpose of insuring themselves against any liability or property damage.
These provisions of the statutes, in our view, constitute "express authority of law" within the meaning of that phrase as used in section 162 of Kentucky's Constitution, for a county's entry into a self-insurance agreement or contract. And see, OAG 87-20. Such an agreement or contract might properly include a "joint and several liability" feature. We note also that it is our understanding that the ALF is established pursuant to KRS 65.210 to 65.300, under an Interlocal Cooperation Agreement approved in August of 1987.
Accordingly, we believe section 162 of Kentucky's Constitution, under the facts involved here, does not ban, as a contract made without express authority of law, a county's obligating itself to be jointly and severally financially liable with other counties or political entities.
Section 179 of the Constitution of Kentucky
Section 179 of the Constitution of Kentucky provides that:
The General Assembly shall not authorize any county or subdivision thereof, city, town or incorporated district, to become a stockholder in any company, association or corporation, or to obtain or appropriate money for, or to loan its credit to, any corporation, association or individual, except for the purpose of constructing or maintaining bridges, turnpike roads, or gravel roads: Provided, If any municipal corporation shall offer to the Commonwealth any property or money for locating or building a Capitol, and the Commonwealth accepts such offer, the corporation may comply with the offer.
The only substance of section 179 of Kentucky's Constitution that might even remotely be in the realm of having some bearing on whether or not a county may financially obligate itself to become jointly and severally liable with other counties or political entities, provides that the General Assembly shall not authorize any county to become a stockholder in any company, association, or corporation, or to obtain or appropriate money for, or to loan its credit to any corporation, association or individual.
We are not aware of "an authorization of the General Assembly for a county to become a stockholder in an association" being involved in the questions you have presented. Certainly none is mentioned in your letter.
In our view, section 179 of the Constitution of Kentucky is extraneous, under the facts involved here, to the question of whether or not a county may financially obligate itself to become jointly and severally liable with other counties or political entities.
Section 26 of the Constitution of Kentucky
Section 26 of the Constitution of Kentucky provides that:
To guard against transgression of the high powers which we have delegated, We Declare that everything in this Bill of Rights is excepted out of the general powers of government, and shall forever remain inviolate; and all laws contrary thereto, or contrary to this Constitution, shall be void.
As pertinent here, Section 26 of the Constitution of Kentucky, provides, in substance, merely that all laws contrary to the Constitution of Kentucky are void.
Section 26 would have a bearing upon the "joint and several liability" you have asked about only if such liability is violative of some other provision of Kentucky's Constitution. This view is consistent with the observation of the Court in Nichols v. Henry, 301 Ky. 434, 191 S.W.2d 930, 932 (1946), in relation to section 26, that: "[I]f a legislative enactment does not violate some other section, it is not unconstitutional by reason of anything in this section."
Section 26, in our view, has no bearing on determining whether or not a county may financially obligate itself to become jointly and severally liable with other counties or political entities pursuant to section 6.08 of the KACo All Lines Fund Self-Insurance Program Agreement.
II. Paying Prior Year Obligations with Current Year Funds
Concerning whether or not sections 157, 158, 162, 179 and 26 of Kentucky's Constitution "permit" a county to pay for obligations incurred in prior years from current year funds, we believe these provisions do not provide a basis for providing a reliable general answer to such question. Certainly it can be seen from a reading of the constitutional sections in question (above), that they do not expressly or specifically address payment of prior year obligations from current year funds.
Similar to the evaluation of sections 157 and 158 in relation to joint and several liability (above), sections 157 and 158 could operate to ban payment of prior year obligations with current year funds. This would be true if the debt incurred in prior years was not incurred in keeping with the terms of those sections. However, sections 157 and 158 do not impose a general ban on payment by a county, or other political entity, of prior year obligations from current year funds. Those sections (157 and 158) do not serve as a basis for answering, in the manner of a rule, the question of whether or not obligations incurred in a prior year may be paid from current year funds.
Perhaps the most we can say on this question, as related to sections 157 and 158 of Kentucky's Constitution, is that, if an obligation incurred in one year was lawful at the time it was incurred, it may be properly paid from a subsequent year's funds. This assumes, of course, that there is, in the subsequent year, a proper budget allocation for payment of the prior year obligation, and of course, that such payment is properly approved. See OAG 64-599, and see, Lawrence County v. Lawrence County Fiscal Court, 130 Ky. 587, 113 S.W. 824, 825, (1908), wherein the court noted:
If the liabilities incurred, say in 1903, did not exceed the income and revenues provided by law - that is, the maximum which under the law the county was authorized to levy in taxes - plus any available funds it had on hands, then nothing subsequently occurring could render the liability void as being in contravention of section 157 . . . .
Regarding whether sections 162, 179 and 26 "permit" a county or other political entity to pay prior year obligations from current year funds, we believe the substance of these sections (see above in relation to joint and several liability) is unrelated to a general answer to such question.
Gerard R. Gerhard
Assistant Attorney General