October 27, 1994
Subject: Funding for University of Kentucky Library Construction
Written by: Ross T. Carter
Syllabus: The Capital Construction Financing Act does not apply to the financing of a building's construction by a private corporation such as the University of Kentucky Alumni Association
OAGs cited: 81-341 (followed)
Statutes construed: KRS 45.750-.800
Opinion of the Attorney General
The following question has been presented:
Is the University of Kentucky library project a capital project that is subject to the provisions of KRS 45.750-.800?
It is the opinion of the Attorney General that the University of Kentucky library project is not subject to KRS 45.750-.800.
The facts, as we understand them, are these. The University of Kentucky has been receiving about $3 million per year in various forms from the University of Kentucky Athletic Association. The University intends to use that money to fund construction of a new library. For reasons that we need not consider here, the money will not be expended directly by UK, but rather will be transferred from the Athletic Association to the University of Kentucky Alumni Association, Inc., which will use the money to pay the debt service on $41 million in bonds issued by the Lexington Fayette Urban County Government. When the bonds are retired, the Alumni Association will transfer ownership of the library to UK.
The financing situation at issue here is quite similar to one we examined in OAG 81-341. That opinion dealt with the renovation of Fairgrounds Stadium by a private corporation, Louisville Baseball Committee, Inc., which planned to use private money to fund the renovation and then to transfer the renovated stadium to the State Fair Board. We were asked the precise question presented here, and our answer was:
Since the contemplated construction is to be accomplished by a private corporation with private capital, the provisions of KRS 45.750-.800 do not apply. The Capital Construction and Equipment Financing Act regulates the expenditure of certain funds appropriated by the General Assembly. Under the Financial Management Act, KRS 164A.550 to 164A.630, UK is authorized to operate affiliated corporations to assist it in performing university functions. The Financial Management Act provides a useful means of determining whether an organization operates independently or as a mere alter ego of the university itself. An affiliated corporation is defined as a corporate entity which is not a public agency and which is organized pursuant to the provisions of KRS Chapter 273 over which an institution exercises effective control, by means of appointments to its board of directors, and which could not exist or effectively operate in the absence of substantial assistance from an institution of higher education. KRS 164A.550(3).
From the materials presented to us, we learn that the Alumni Association is not a public agency; it is a private corporation organized under KRS chapter 273; UK does not exercise effective control over it; and it could exist and operate without substantial assistance from the university. Because the third and fourth criteria are not met, the Alumni Association is not an affiliated corporation.
The Athletic Association is not a public agency; it is organized under KRS chapter 273; and it is effectively controlled by UK through appointments to its board of directors. It therefore meets three of the four criteria of an affiliated corporation. We have no information regarding the fourth criterion, namely, whether the organization could exist or effectively operate in the absence of substantial assistance from the university. We will assume the criterion to be met and consider the Athletic Association to be an affiliated corporation, although further evidence may lead to a different conclusion.
Even if the Athletic Association is deemed an affiliated corporation, we do not find that the library project constitutes a capital project subject to KRS 45.750-.800. Our focus in OAG 81-341 was whether "the contemplated construction is to be accomplished by a private corporation with private capital." The contemplated construction of the UK library is to be accomplished by the Alumni Association, not the Athletic Association. It is the Alumni Association, not the Athletic Association, that obtains the bond revenue, constructs the building, and transfers the building to the university. The Alumni Association is a private corporation using private capital. Therefore we see no meaningful legal distinction between the Louisville Baseball Committee, Inc., which we examined in OAG 81-341, and the University of Kentucky Alumni Association, Inc. Both are private corporations. Neither expends appropriated public funds. Because both the funds and the corporation that expends them are essentially private, the University of Kentucky library project is not a capital project that is subject to the provisions of KRS 45.750-.800.
Chris Gorman Attorney General
Ross T. Carter
Assistant Attorney General