TO BE PUBLISHED
July 20, 1993
IN RE: Thomas A. Hoy/Kentucky Industrial Revitalization
OPEN RECORDS DECISION
This matter comes to the Attorney General on appeal from the actions of the Kentucky Industrial Revitalization Authority (KIRA) relative to Mr. Thomas A. Hoy's May 18, 1993, request for copies of certain records in KIRA's custody. Those records are identified as:
(a) the full report prepared by Coopers & Lybrand concerning the eligibility of General Electric Co. for $19 million in tax incentives from the Commonwealth of Kentucky pursuant to KRS 154.26-010, et seq., and
(b) the complete application submitted by General Electric Co. for such tax incentives including all exhibits and supporting documentation and data submitted with or in connection with the application.
Mr. Hoy is an attorney representing an undisclosed client, and his request was made under the Kentucky Open Records Law.
On behalf of the Cabinet for Economic Development, Kentucky Industrial Revitalization Authority, Mr. Patrick Mulloy responded to Mr. Hoy's request in a letter dated May 21, 1993. Relying on KRS 61.878(1)(a), (c), (h), and (i), Mr. Mulloy denied the request. He maintained that both the report and application contain information which implicates privacy
concerns "including, but not limited to confidential and proprietary corporate financial information that reveals General Electric's business affairs such as profits, taxes, deductions, and salaries." Thus, he relies on KRS 61.878(1)(a), and OAG 85-119, OAG 88-1, and OAG 91-105.
In support of his position that KRS 61.878(1)(h) and (i), the preliminary documents exceptions, authorize nondisclosure of the report and application, Mr. Mulloy observed:
The report contains Coopers & Lybrand's assessment and analysis, including opinions and recommendations, of whether General Electric will close its facility absent the Authority's intervention. Both the Report and the Application are preliminary records vis a vis the Authority in that they are precursory to the Authority's determination whether to enter into an agreement with General Electric. Neither record constitutes the Authority's final action regarding General Electric.
Citing 92-ORD-1024, he argued that the documents fall within the parameters of these exceptions.
Mr. Mulloy also asserted that the records are exempt from public inspection, absent a court order, because they were "confidentially disclosed to an agency, [are] generally recognized as confidential or proprietary, . . . [and] if openly disclosed would permit an unfair commercial advantage to competitors of the entity that disclosed the records . . . ." KRS 61.878(1)(c). The application and report contain "detailed and specific information regarding the current and future business operations of General Electric at Appliance Park," which Mr. Mulloy maintained is generally recognized as confidential and proprietary and if released would give GE's competitors an unfair commercial advantage. In support of this position he cited OAG 88-1.
In a followup letter dated June 3, 1993, Mr. Earl F. Jones, Jr., Senior Counsel for General Electric, elaborated on the arguments advanced by Mr. Mulloy. He explained:
The domestic appliance industry is a highly concentrated one, with only five (5) full-line competitors. Since excess
manufacturing capacity has tended to depress opportunities for price increases, factory investment and productivity, product innovation, marketing and sales plans and distribution assets and strategies are key elements in successful business performance. The highly competitive nature of the industry has placed a premium on competitive intelligence and analysis.
Mr. Jones indicated that the application submitted by GE sought state support for its '90's Washer Program involving the redesign of its clothes washer and the retooling of AP1, the home laundry manufacturing plant, to produce the new appliance.
Elaborating on Mr. Mulloy's argument that KRS 61.878(1)(a) authorizes nondisclosure of the application and report, Mr. Jones stated:
The documents in question, the Application, the consultant's report and related materials, contain information about confidential business affairs of GE, including historical and projected profitability data by product line and production facility; tax liability, and product costs; product development plans, including assessments of technologies and product performance; and business development strategies, including evaluation of new market opportunities, private label customers and pricing plans.
In his view, "[i]t is difficult to imagine data which is more competitor sensitive than those [sic] described above."
With respect to Mr. Mulloy's assertion that the requested records are exempt from public inspection pursuant to KRS 61.878(1)(h) and (i), Mr. Jones observed:
Mr. Hoy . . . has acknowledged that the materials he seeks are preliminary when he states that the consultant's report is 'required by statute to be delivered to KIRA prior to a KIRA decision.' (emphasis added) Obviously, materials required for and submitted prior to a final decision must
be characterized as 'preliminary' to that decision, and thus exempt form disclosure under KRS 61.878(1)(h) and (i).
Mr. Jones maintained that these exceptions extend to an outside consultant's report such as the report prepared by Coopers and Lybrand. He urged the Attorney General to issue a decision consistent with these views.
In his letter of appeal to this Office, Mr. Hoy argues that KRS 61.878(1)(a) is inapplicable to the records withheld. Although he acknowledges that the Attorney General has recognized that corporations enjoy some privacy interests, "it is certainly not the type of privacy interest afforded an individual human being . . . [and] must be balanced against the public interest in obtaining public documents." Citing OAG 91-105, he asserts that because GE seeks public assistance, in the form of KIRA's tax credit incentive program, it "runs the risk of closer public scrutiny and should therefore have a reduced expectation of privacy." OAG 91-105, at p. 6.
Mr. Hoy rejects Mr. Mulloy's invocation of KRS 61.878(1)(c), noting that that exception is limited by its terms to records which are compiled and maintained (a) in conjunction with an application for a loan, (b) in conjunction with the regulation of a commercial enterprise, or (c) for the grant or review of a license to do business. Since GE's application for tax credits does not fall within one of these categories, KRS 61.878(1)(c) is also inapplicable.
Finally, he challenges Mr. Mulloy's reliance on KRS 61.878(1)(h) and (i), noting that neither GE's application nor Coopers & Lybrand's report constitute preliminary documents. In closing, Mr. Hoy observes:
GE has filed the Application in order to take advantage of a program pursuant to which it may be eligible for tax credits. This involves the expenditure of public money and the public has a right to examine the Application and the Report to determine whether the Application meets the statutory criteria.
He asks that this Office order the release of those documents to facilitate public access to the information necessary to evaluate whether GE qualifies for state assistance.
We are asked to determine if the Kentucky Industrial Revitalization Authority acted consistently with the Open Records Law in denying Mr. Hoy's request. For the reasons set forth below, we conclude that KIRA's denial was only partially consistent with the law. It is the opinion of this Office that KIRA must release those portions of the application and report which have a direct bearing on GE's eligibility for the Authority's tax incentive program, specifically, its need for the economic revitalization program, the projected amount and timing of capital investment of GE in the economic revitalization project, and the projected number of employees to be retained and to be hired in the future. KIRA may, however, withhold those portions of the application and report that contain information which reveals GE's private financial affairs.
Pursuant to KRS 154.26-030(1), the Kentucky Industrial Revitalization Authority is empowered to "[p]rovide for [economic revitalization] projects . . . and to cooperate with eligible companies in order to promote, foster, and support economic revitalization and development within the Commonwealth." To effectuate this purpose, KIRA is authorized to establish standards "for the determination and approval of eligible companies and their projects by the promulgation of administrative regulations . . ." with greatest weight being given to "the need for the project; the new capital investment in the project that will result in financial stability for the manufacturing facility; and the retention or expansion of the greatest number of employees at the manufacturing facility." KRS 154.26-030(1) and KRS 154.26-080(2).
In February, 1993, GE submitted its application to KIRA seeking state support for its '90's Washer Program. On May 18, 1993, Coopers & Lybrand, the consultants retained by KIRA to analyze its application, pursuant to KRS 154.26-080(5), submitted a report to the Authority in which it concluded that the company was eligible for the program. On the same date, KIRA held a public hearing in Frankfort to solicit comment on GE's eligibility, and on June 3, GE's application was approved.
We believe that the facts presented in this appeal are analogous to the facts presented in OAG 91-105. In that opinion, we were asked to determine if the Kentucky Enterprise
Zone Authority properly withheld records relating to various businesses which were located in the enterprise zone and thus qualified for certain tax advantages under KRS 154.45-001 et seq. Specifically, the requester sought access to capital investment and employment figures for qualified businesses, arguing that since these businesses sought substantial public benefit "based on the investment they claim to be making in the zone and the jobs they claim to be creating," OAG 91-105, at p. 3, the public was entitled to know whether the tax breaks were justified.
Relying on KRS 61.878(1)(a) and (b), now codified as KRS 61.878(1)(c), the Enterprise Zone Authority denied the request. The Authority took the position that the requested records contained "confidential, protected financial information the disclosure of which would constitute a clearly unwarranted invasion of personal privacy," and that they were "confidentially disclosed to a state agency in connection with an application for state assistance." OAG 91-105, at p. 2.
We rejected the Enterprise Zone Authority's invocation of KRS 61.878(1)(b), reasoning that the agency had failed to sustain its burden of proving that the records withheld fell within the parameters of that exception. Prior to its 1992 amendment, KRS 61.878(1)(b) authorized the nondisclosure of:
Records confidentially disclosed to an agency and compiled and maintained for scientific research, in conjunction with an application for a loan, the regulation of commercial enterprise, including mineral exploration records, unpatented, secret commercially valuable plans, appliances, formulae, or processes, which are used for the making, preparing, compounding, treating, or processing of articles or materials which are trade commodities obtained from a person and which are generally recognized as confidential, or for
the grant or review of a license to do business and if openly disclosed would permit an unfair advantage to competitors of the subject enterprise. This exemption shall not, however, apply to records the disclosure or publication of which is directed by another statute;
We held that in order to successfully raise the exception, the Authority must establish that the requested records: (1) were confidentially disclosed to it; (2) in conjunction with an application for a loan; and (3) that release of the records would permit an unfair advantage to competitors of the subject enterprise. Noting that similar information had previously been released, we concluded that records relating to
investment and employment figures had not been "confidentially disclosed."
The Attorney General also rejected the Enterprise Zone Authority's claim that the second part of the three part test, which requires that the records be submitted in conjunction with an application for a loan, was satisfied anytime a person or entity applies for state assistance. This Office opined that the Authority's invocation of KRS 61.878(1)(b) constituted a liberal construction of the exception which was not warranted by the express language of the statute and the policy which underlies it. In addition, we noted that the Authority had not established that businesses seeking certification would be placed at a competitive disadvantage by disclosure of the requested information, and thus failed to satisfy the third part of the three part test.
With respect to the Enterprise Zone Authority's reliance on KRS 61.878(1)(a), the privacy exception, we applied the balancing test established by the Kentucky Court of Appeals in Board of Education of Fayette County v. Lexington-Fayette Urban County Human Rights Comm., Ky.App., 625 S.W.2d 109 (1981), which pits the public's interest in being informed about the conduct and affairs of government against the individual's, here a business entity's, privacy interest. At page 5 of OAG 91-105, we concluded:
[T]he public's interest in monitoring the activities of the Enterprise Zone Authority to determine if the business certified for the zones qualify for the benefits received by virtue of their investments and the number of jobs they claim to create, outweighs those businesses' interest in maintaining the confidentiality of this information.
Because the subject businesses sought to avail themselves of a substantial public benefit, we reasoned that they ran the risk of closer public scrutiny, and that the requested information
was directly relevant to a determination of whether the businesses being certified were complying with the statute. We therefore ordered the disclosure of any and all records or portions of records containing information which demonstrated that they were complying with the requirements for certification.
Nevertheless, at page six of the opinion we admonished:
This opinion should not be interpreted as a mandate for the blanket release of all financial information of a private business. . . . [T]his Office has consistently held that information which reveals the affairs of the business, such as profits, taxes, deductions, and salaries, are exempt pursuant to KRS 61.878(1)(a). Only information pertaining to the capital investment and number of employees of the subject enterprises must be released.
We believe the reasoning of OAG 91-105, a copy of which is enclosed, can be extended to the present appeal.
We reject KIRA's invocation of KRS 61.878(1)(c) for the reasons expressed in OAG 91-105. Although Mr. Mulloy and Mr. Long successfully established that much of the information contained in GE's application and the Cooper & Lybrand's report is of a proprietary nature, and that its disclosure would permit an unfair commercial advantage to GE's competitors, we are bound by a rule of strict construction relative to the invocation of KRS 61.878(1)(c) 1.a. through c. GE's application for state assistance for its '90's Washer Program cannot be equated to: 1) an application for a loan; 2) the regulation of commercial enterprise; or 3) the grant or review of a license to do business. This Office has, on more than one occasion, rejected an agency's invocation of the cited exception when it failed to satisfy this three part test. OAG 91-105; 92-ORD-1020; 93-ORD-43. Because the requested documents do not fall within the parameters of KRS 61.878(1)(c)1.a., b., or c., we find that this exception is inapplicable.
We find that KIRA's invocation of KRS 61.878(1)(h) and (i) is similarly flawed. These provisions authorize the nondisclosure of:
(h) Preliminary drafts, notes, correspondence with private individuals, other than correspondence which is intended to give notice of final action of a public agency;
(i) Preliminary recommendations, and preliminary memoranda in which opinions are expressed or policies formulated or recommended[.]
This Office has recently engaged in a lengthy analysis of these provisions. In 93-ORD-26, we recognized that although KRS 61.878(1)(h) and (i) are intended to protect the integrity of an agency's internal decision making process by encouraging the free exchange of opinions and ideas, predecisional documents forfeit their preliminary characterization when they are adopted by the agency as part of its final action. We believe that that decision, a copy of which is attached, is dispositive of the issue of KIRA's reliance on KRS 61.878(1)(h) and (i).
On June 3, 1993, KIRA approved GE's application for the state's tax credit incentive program based on the information contained in that application, the favorable report submitted by Coopers and Lybrand, and comments solicited at the May 18 public hearing. Because KIRA has taken final action relative to GE's application, neither that application nor the Coopers & Lybrand report, which clearly formed the basis for its decision, can be characterized as preliminary. In our view, these exceptions are also inapplicable to the disputed records.
However, based on this Office's reasoning in OAG 91-105 we affirm KIRA's invocation of KRS 61.878(1)(a) as it relates to those portions of the requested records dealing with GE's private financial affairs. As we have noted, although a business seeking state assistance is required to make broad financial disclosure, and this information is necessarily factored into the consultant's analysis and may appear in its report, KIRA's decision to approve or not approve that business for its program is primarily based on the business's stated need for economic revitalization, the projected amount and timing of capital investment, and the projected number of employees to be retained and to be hired in the future. KRS 154.26-080(2); 307 KAR 3:010 Section 2(2)(a) and (b). It is this information which is relevant to a determination of whether GE is in fact eligible for the program and whether KIRA is properly discharging its statutory duty. Kentucky Board of
Examiners of Psychologists v. Courier-Journal and Louisville Times Company, Ky., 826 S.W.2d 324 (1992).
As the Kentucky Supreme Court observed in Board of Examiners, supra at p. 328, "The public's 'right to know' under the Open Records Act is premised upon the public's right to expect its agencies properly to execute their statutory functions." Continuing, the Court noted that "the policy of disclosure is purposed to subserve the public interest, not to satisfy the public's curiosity . . . ." Id. It is the opinion of this Office that disclosure of these narrow categories of information will promote the public interest in monitoring KIRA's activities while protecting the businesses' countervailing privacy interest in their financial records and other records of a commercially sensitive nature.
Accordingly, Mr. Mulloy should promptly make available to Mr. Hoy copies of those portions of the application and report relating to GE's stated need for economic revitalization, the projected amount and timing of capital investment, and the projected number of employees to be retained or hired in the future. KIRA may continue to withhold the remaining portions of the application and report under KRS 61.878(1)(a).
Mr. Hoy and the Kentucky Industrial Revitalization Authority may challenge this decision by initiating action in the appropriate circuit court pursuant to KRS 61.880(5) and KRS 61.882.
AMYE B. MAJORS
ASSISTANT ATTORNEY GENERAL
Hon. Thomas A. Hoy
Woodward, Hobson & Fulton
2500 First National Tower
Louisville, KY 40202-3175
Hon. W. Patrick Mulloy, II, Chairman
Kentucky Industrial Revitalization Authority
Cabinet for Economic Development
500 Mero Street
Capital Plaza Tower
Frankfort, KY 40601-1975
Hon. Earl F. Jones, Jr.
General Electric Co.
Louisville, KY 40225