STEVE BESHEAR (IN HIS OFFICIAL CAPACITY AS THE GOVERNOR OF THE COMMONWEALTH OF JUSTICE SCOTT -
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670uprrmt Courf of ~Rtufurh
2007-SC-000058-TG
STEVE BESHEAR (IN HIS OFFICIAL CAPACITY
AS THE GOVERNOR. OF THE
COMMONWEALTH OF KENTUCKY), ET AL
V.
DAT
aud/o &UQ&4tbe4AC-
APPELLANTS
ON APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE WILLIAM L. GRAHAM, JUDGE
NO . 03-CI-01547
HAYDON BRIDGE COMPANY, INC ., ET AL
APPELLEES
OPINION OF THE COURT BY JUSTICE SCOTT
AFFIRMING IN PART AND REVERSING IN PART
We granted transfer of this appeal and cross-appeal from the Court of
Appeals, CR 74.02, to again address, as we did in part in Commonwealth ex
rel . Armstrong v. Collins, 709 S .W.2d 437 (Ky. 1986), the extent to which, in
times of rising budget deficits, the Kentucky General Assembly may adopt a
budget bill reducing, eliminating and/or transferring certain appropriated
funds - effectively suspending, or temporarily modifying the effects of certain
statutes or statutory schemes in view of the mandates and restriction of
Sections 15 and 51 of the Kentucky Constitution . We also address whether, by
such actions, the General Assembly may retroactively ratify prior invalid
budgetary acts of a Governor . Other ancillary issues implicit in these
questions will also be addressed.
The trial court upheld the questioned budgetary acts under Section 180
of the Kentucky Constitution but invalidated them under Section 51 .
Having considered the record, briefs and arguments, we affirm the trial
court's determination of the validity of the Legislative budget acts under
Section 180 of the Kentucky Constitution, as well as its decision supported by
Armstrong, 709 S .W.2d 437, that the transfer of funds actually held in agency
accounts in which public funds and private contributions are commingled and
cannot be differentiated, cannot be considered a valid suspension of the
operation of a statute under Sections 15 and 51 of the Kentucky Constitution .
However, we reverse the trial court's decision under Section 51 that the
legislature could not, properly (1) suspend the nineteen million dollar
($19,000,000) annual appropriation to the Kentucky Workers' Compensation
Funding Commission (KWCFC) and the Workers' Compensation Benefit
Reserve Fund (BRF) to the extent the funds had yet to be transferred to them
thus, there public funds were not commingled, or (2) mandate the continuance
of the KWCFC employers' assessment rate of 11 .5%.
I. Legislative Background.
In the analysis of the budgetary acts at issue, it is helpful to understand
the "Special Fund" legislative scheme that was affected. Originally known as
the "Subsequent Injury Fund" when first created in 1946, the Fund's role was
to compensate covered employees for pre-existing partial disabilities when they
suffered subsequent work-related injuries. KRS 342 .120 and 342 .122 (1946) .
Its purpose was to encourage the employment of veterans with prior disabilities
and to enhance compensation from the combined effects of work-related
injuries and pre-existing conditions. "The enlarged or enhanced disability
caused by reason of the [pre-existing condition] is paid by the special fund,
with the cost distributed over Kentucky industry as a whole ." UK Office of
Continuing Legal Education, Workers' Compensation in Kentucky , §1 .41 (2d
ed . 1996) . The act imposed a tax on all insurance carriers insuring Kentucky
employers against liability for injury or death suffered by their employees
which was ultimately assessed against all insureds and self-insureds. KRS
342 .122(2) (1946) . As time passed, "the 1960 General Assembly added
provisions for additional assessments if the tax became insufficient . KRS
342 .122(5) (1960) ." Thompson v. Kentucky Reinsurance Assn, 710 S .W.2d
854, 856 (Ky. 1986) . The Fund's name was changed to the "Special Fund" in
1964. Thompson, 710 S.W.2d at 856.
In 1982, due to "reoccurring flaws" in funding, the system was again
changed. Id. At that time, the General Assembly established the Kentucky
Reinsurance Association (KRA) as a "non-profit, corporate entity to function as
a reinsurer of all Special Fund liabilities." Id. As a result, the KRA collected
"premiums from all subscribers -- in advance -- the amount of which [was]
based on actuarial studies ." Id .
The KRA was abolished in 1987 and replaced with the KWCFC, which
uses its revenues to fund the current year's liabilities and costs for the Special
Fund, with all funds "in excess of current liabilities of the Special Fund and
budgeted expenditures," to be deposited in the Benefit Reserve Fund (BRF)
"and invested in compliance with investment policies formulated by the funding
commission [KWCFC]." KRS 342.122(1) (a) and 342 .1229 . 1
During the early 1990s, the special fund's liabilities continued to grow,
again overwhelming the funding mechanism dependant upon employer
premiums . The General Assembly responded in December of 1996 when it
enacted changes closing the Special Fund to any new claims for injuries
suffered after December 12, 1996, KRS 342.120(2), and terminating all liability
as of December 31, 2018. KRS 342 In addition, it increased the
.
.122(1)(b)
funding component for the KWCFC by adding nineteen million dollars
($19,000,000) annually from the coal severance tax generated by coal
operations, KRS 143.020, payable in four equal quarterly installments of four
million, seven hundred fifty thousand dollars ($4,750,000) . KRS 342 .122(1)(c) .
The first payment began with the start of the 1998 fiscal year.
The General Assembly also established an annual assessment rate of 9%
upon the amount of Workers' Compensation premiums receivable for the 1997
1 The General Assembly also directed that the KWCFC shall "[h]old,
administer, invest, and reinvest the funds collected pursuant to KRS 342 .122
and its other funds separate and apart from all `state funds' or `public funds,'
as defined in KRS Chapter 446." KRS 342 .1223(2)(a) . In addition, except as
provided in KRS 342 .829, KRS 342.1227, provides that KWCFC funds shall not :
(1) Be loaned to the Commonwealth or any instrumentality or
agency thereof;
(2) Be subject to transfer to the Commonwealth or any
agency or instrumentality thereof, except for purposes
specifically authorized by this chapter;
(3) Be expended for any other purpose than one authorized
by this chapter.
Moreover, the KWCFC was designated as a fiduciary "in exercising its power over the
funds collected pursuant to KRS 342.122." KRS 342.1223(2)(b) .
calendar year. KRS 342 .122(1)(a) . Thus, the KWCFC was directed, beginning
in the 1998 calendar year and thereafter, to
establish for the Special Fund an assessment rate to be assessed
against all premium[s] received during that calendar year which,
when added to the coal severance tax appropriated to the Special
Fund in accordance with paragraph (c) of this section, shall
produce enough revenue to amortize on a level basis the unfunded
liability of the Special Fund as of September 1, preceding January
l, of each year, for the period remaining until December 31, 2018 .
KRS 342 .122(1)(b) . As of July 1, 1997, the KWCFC was funded from three (3)
sources: (1) assessments on premiums, (2) $4 .75 million per quarter from the
coal severance tax through the General Fund, and (3) income on investments
earned by the BRF. See KRS 342.122 .
II. The Budgetary Acts Complained Of.
A. The Annual $19,000,000 KWCFC and BRF Credits
In 1998 and 2000, then-Governor Paul Patton included the nineteen
million dollar ($19,000,000) annual credits to the KWCFC in his budget
recommendations for the 1998-2000 and the 2000-2002 biennial budgets . 2
The General Assembly accepted these recommendations and provided for the
nineteen million dollar ($19,000,000) credits in the Budget Bills for these twoyear budget cycles. Thus, quarterly payments in the amount of four million,
seven hundred fifty thousand dollars ($4,750,000) each in coal severance tax
revenues were credited to the BRF through the first quarter of the
Commonwealth's fiscal year which began July 1, 2001 .
The Governor is required to make this recommendation pursuant to KRS
48 .112(1)-(2).
2
On September 7, 2001, due to impending budget deficits, Governor
Patton signed a general fund budget reduction order (02-01), countermanding
the credits required by KRS 342.122(1)(c) . Governor Patton's budget reduction
order thus eliminated the mandatory credits after the first quarterly credit of
four million, seven hundred fifty thousand dollars ($4,750,000) was made for
the first quarter of the 2001-2002 fiscal year.3 Thus, the remaining three
forthcoming quarterly credits for fiscal year 2001-2002 (totaling $14,250,000)
were stricken from the budget under the Governor's plan. The authority to do
so was asserted under part VI of the biennial budget of 2000-2002 which called
for ratable reductions in government spending when budget cuts were
necessary.
During the next regular session of the General Assembly in 2002,
Governor Patton did not make a budget recommendation for the nineteen
million dollars ($19,000,000) in annual credits in the 2002-2004 biennial
budget. In turn, the General Assembly made history by failing to enact a
biennial budget for the Executive and Judicial branches during this regular
session. There being no Executive branch budget, the Governor elected to treat
his Executive branch budget recommendations as the de facto budget for fiscal
year 2002-2003, treating it as an "emergency spending plan."4
3 Governor Patton did not cancel the first quarter payment, thus, it is
assumed it had already been made as of his budget reduction order of
September 7, 2001 .
4 "On June 27, 2002, the Chief Justice promulgated an order implementing a
spending plan to cover the expenses of the judicial department from and after July 1,
2002." Fletcher v. Commonwealth, 163 S.W.3d 852, 857 n. 1 (Ky. 2005) .
B. The KWCFC Assessment Rate for Employer's Premiums.
KRS 342 .122(1)(b) (2002) provided that the KWCFC :
shall, for calendar year 1998 and thereafter, establish for the
special fund an assessment rate to be assessed against all
premiums received during that calendar year which, when added
to the coal severance tax appropriated to the special fund in
accordance with paragraph (c) of this section, shall produce
enough revenue to amortize on a level basis the unfunded liability
of the special fund as of September 1 preceding January 1 of each
year, for the period remaining until December 31, 2018. The
interest rate to be used in this calculation shall reflect the funding
commission's investment experience to date and the current
investment policies of the commission . This assessment shall be
imposed upon the amount of workers' compensation premiums
received by every insurance carrier writing workers' compensation
insurance in the Commonwealth, by every group of self-insurers
operating under the provisions of KRS 342 .350(4), and against the
premium, as defined in KRS 342 .0011, of every employer carrying
his own risk.
On October 16, 2001 - post 9 / 11 - the KWCFC Board met to decide the
assessment rate on premiums for 2002, which was 9% as originally established
by KRS 342 beginning January 1, 1997 . The Board increased the
.122(1)(a)
premium assessment rate from 9% to 11 .5% . The increase in the assessment
rate increased Kentucky employers' assessments in the approximate amount of
nineteen million, eight hundred thousand dollars ($19,800,000) for the 2003
fiscal year.
During the 2003 regular session of the General Assembly, the General
Assembly belatedly enacted a 2002-2004 biennial budget . This budget also
cancelled the appropriation of nineteen million dollars ($19,000,000) annually
to the KWCFC and BRF by language in the bill stating, "notwithstanding KRS
342.122(1)(c)," 5 and mandated the continuance of the employers' assessment
rate of 11 .5% -- the same as previously set by the KWCFC -- for the biennium,
stating, "notwithstanding KRS 342 2003 Ky. Acts ch. 156, § 337 .6
."
.122(1)(b)
In effect, the General Assembly adopted Governor Patton's emergency spending
plan .
C. The Other Transfers.
In this budget, the General Assembly also transferred from the BRF
funds one million, seven hundred thousand dollars ($1,700,000) to finance a
portion of the Mines and Minerals budget and an additional five million dollars
($5,000,000) back to the general fund. 2003 Ky. Acts, ch. 156, §§ 337, 394 . In
the previous 2000-2002 budget, it had also transferred one million, six
hundred forty-eight thousand, and five hundred dollars ($1,648,500) to finance
a portion of the Mines and Minerals budget. 2000 Ky. Acts ch. 549, § 1757 .
KRS 342 .122(1)(c) provides:
In addition to the assessment imposed in paragraph (a) or
(b) of this subsection, and notwithstanding and prior to the
transfer of funds to the Local Government Economic
Assistance Program under KRS 42.450 to 42.495, the
Kentucky Department of Revenue shall credit nineteen
million dollars ($19,000,000) in coal severance tax revenues
levied under KRS 143 .020 to the benefit reserve fund within
the Kentucky Workers' Compensation Funding Commission
each year beginning with fiscal year 1998 and all fiscal
years thereafter. The annual transfer of nineteen million
dollars ($19,000,000) shall occur in four (4) equal quarterly
payments. These transfers shall occur not later than the last
day ofeach quarter ofeach calendar year and shall consist
of four (4) equal payments of four million, seven hundred
fifty thousand dollars ($4,750,000).
(emphasis added) .
6 These two (2) legislative suspensions appear beside each other in the 2003
budget bill. 2003 Ky. Acts ch.156, § 337.
5
D. The 2004 Restoration.
During the 2004 regular session of the General Assembly, it again deadlocked and failed to pass an executive department budget bill for the 20042006 biennium . However, then-Governor Fletcher implemented a Public
Services Continuation Plan in lieu of an executive budget by virtue of executive
order 2004-650 . This plan reinstituted the four million, seven hundred fifty
thousand dollar ($4,750,000) quarterly credits from coal severance funds to the
BRF for the benefit of the Workers' Compensation Program. Then, on October
2, 2004, the KWCFC Board reduced the assessment rate back to 9% .
Predictably, on March 8, 2005, during the course of its thirty-day (30)
legislative session, the General Assembly again enacted a belated executive
branch budget for the 2004-2006 biennium and, as it had done in its 2003
session, "ratified all executive department actions taken pursuant to the Public
Services Continuation Plan, nunc pro tunc." Fletcher, 163 S .W.3d at 859 .
III. Sections 15 and 51 of the Kentucky Constitution .
Section 15 of the Kentucky Constitution provides that, "[n]o power
to suspend laws shall be exercised unless by the General Assembly or its
authority."
Section 51 of the Kentucky Constitution provides:
No law enacted by the General Assembly shall relate to more than
one subject, and that shall be expressed in the title, and no law
shall be revised, amended, or the provisions thereof extended or
conferred by reference to its title only, but so much thereof as is
revised, amended, extended or conferred, shall be reenacted and
published at length.
This Section prescribes three things : firstly, that any act of the
Legislative Branch shall relate to one subject (the one subject rule), which
shall, secondly, be expressed in the title of the Act (the title or notice
requirement), and thirdly, that no existing law shall be revised, amended or its
provisions conferred or extended by referring to its title only, but rather when
such action is intended, the act must be reenacted and published at length (the
publication requirement) .
IV. The Parties and the Action.
The Appellees/Cross-Appellants consist of various employers subject to
the Kentucky Workers' Compensation Act (namely : Haydon Bridge Company,
Inc . ; Greater Louisville Auto Dealers Association; Kentucky Automobile Dealer
Association ; M&M Cartage Co., Inc .; Springfield Laundry 8a Dry Cleaners, Inc. ;
and Usher Transport, Inc.) and are hereinafter referred to as Appellees.?
Appellants/ Cross-Appellees herein are Governor Steven L. Beshear and State
Budget Director Mary E. Lassiter, both in their official capacities on behalf of
the Commonwealth of Kentucky, and are hereinafter referred to as Appellants
or the Commonwealth .$
Appellees filed their Petition for Declaration of Rights and Injunctive
Relief against Appellants in the Franklin Circuit Court on December 4, 2003 .
Following completion of initial discovery, Appellees moved for partial summary
7 The KWCFC was originally an Appellant/ Cross-Appellee, but is now an
Appellee/ Cross-Appellant.
s Governor Beshear has been substituted for former Governor Paul Patton,
who was an original respondent in the original declaratory judgment action in
December 2003.
10
judgment, contending, as pertinent here, that the budgetary actions violated
Sections 15, 51 and 180 of the Kentucky Constitution. The Appellants filed
counter motions for summary judgment . 9
Thereafter, on June 30, 2006, the Franklin Circuit Court entered its
Opinion and Order denying Appellants' motion for summary judgment and
granting Appellees' motion for partial summary judgment . In so doing, it noted
the issues related to gubernatorial powers had already been addressed and
resolved in another case (referring to Fletcher, 163 S.W .3d 852) . On the other
pertinent issues, it upheld the budgetary actions as not in violation of Section
180 of the Kentucky Constitution, but found them violative of, and
unconstitutional under, Section 51's "publication" requirement . This appeal
followed.
V. Contentions of the parties.
Appellants urge us to reverse the trial court's ruling regarding the
"publication" requirement of Section 51 of the Kentucky Constitution for
reasons that the budgetary actions were suspensions for the two--year biennial
budget permissible under Sections 15 and 51 of the Kentucky Constitution and
on further grounds that the amounts transferred -- the nineteen million dollar
($19,000,000) annual credit, 10 the two separate amounts transferred to fund
portions of the Mines and Minerals budget in the 2000-2002 and 2002-2004
9 The KWCFC did not file a counter motion for summary judgment, but
rather responded that the Appellee's motion for partial summary judgment was
premature .
to Including the three (3) quarterly installments of, four million, seven
hundred and fifty thousand dollars ($4,750,000) each, diverted beginning
September 7, 2001 .
biennial budget, as well as the five million dollars ($5,000,000) transferred
back to the general fund in the 2002-2004 biennial budget - were taken, or
diverted, from "public" funds, rather than "private funds" or "trust" funds . The
Appellants further argue that the budgetary actions did not violate the "title"
(or notice) requirement of Section 51, but that the trial court was correct in its
determination that these actions did not violate Section 180 of the Kentucky
Constitution .
Appellees argue that the budgetary actions violated both the "title" and
"publication" requirements of Section 51 of the Kentucky Constitution and
that, as the funds held by the BRF are "private" -- not "public" - and are held
in "trust" for the beneficiaries of the Kentucky Workers' Compensation
program, the General Assembly had no authority to transfer these amounts to
the general fund or to the budget of Mines and Minerals or mandate the
continuance of the employers' assessment rate of 11 .5%. They further contend
that such transfers violate Section 180 of the Kentucky Constitution and are
implicitly prohibited by KRS 48 .316, a secondary argument to the suspension
and publication arguments under Section 51 . They also argue that the General
Assembly had no authority to retroactively ratify Governor Patton's emergency
spending orders suspending the nineteen million dollars ($19,000,000) in coal
severance funds due the KWCFC and BRF for reasons that said actions were
void ab initio under this Court's decision in Fletcher , 163 S .W.3d 852 .
VI. Analysis
A. Legislative Ratification of the Governor's Budgetary Actions.
Appellees contend that the General Assembly may not ratify budgetary
actions of the Governor which were void ab initio. We choose to address this
issue first because of its propensity to render the other issues moot. This issue
was not addressed by the trial court, which merely noted that "issues relating
to gubernatorial powers have been addressed and resolved in another case,"
referring of course to Fletcher.
As mentioned, in the fall of 2001, Governor Patton issued a budget
reduction plan inconsistent with the appropriations directed in KRS
342 .122(1)(c) ." This action occurred as a budget reduction measure in respect
to the 2000-2002 biennial budget. The parties disagree as to whether or not
this action of Governor Patton was in compliance with KRS 48.130(5) (2000) . 12
Subsequently, when Governor Patton presented his budget request to the
2002 General Assembly for the 2002-2004 biennial budget, Appellees assert he
violated KRS 48.112 by failing to make the required budget recommendation
As previously noted, KRS 342.122(1)(c) provides, in part, that:
[T)he Kentucky Department of Revenue shall credit
nineteen million dollars ($19,000,000) in coal severance tax
revenues levied under KRS 143 .020 to the benefit reserve
fund [BRF] within the Kentucky Workers' Compensation
Funding Commission [WCFC) each year beginning with
fiscal year 1998 and all fiscal years thereafter. The annual
transfer of nineteen million dollars ($19,000,000) shall
occur in four (4) equal quarterly payments. These transfers
shall occur not later than the last day of each quarter of
each calendar year and shall consist of four (4) equal
payments of four million, seven hundred fifty thousand
dollars ($4,750,000) .
12 KRS 48 .130(5) (2000) provided in part that, "[iln the event of an actual
or projected deficit in tax receipts of five percent (5°10) or less, the Governor, the Chief
Justice, and Legislative Research Commission . . . shall implement budget reductions
for their respective branches consistent with the provisions of the enacted branch
budget bills ."
11
13
for the nineteen million dollar ($19,000,000) credit to the BRF . 13 After the
General Assembly failed to enact an Executive branch budget, the Governor
converted his budget recommendation into an emergency spending plan, again
without including the nineteen million dollar ($19,000,000) credit to the BRF .
Ultimately, however, when the General Assembly finally passed its biennial
budget for 2002-2004 on March 5, 2003, it adopted the Governor's actions, to
wit:
Notwithstanding KRS 48.130 and 48 .600, the General Assembly
confirms, adopts, and enacts the revised General Fund
appropriations levels for the budget units of the Executive Branch
contained in General Fund Budget Reduction Order 02-01,
General Fund Budget Reduction Order 02-02, General Fund
Budget Reduction Order 02-03, General Fund Budget Reduction
Order 02-04, and confirms and enacts the advances, transfers,
and lapses to the General Fund of non-General Fund moneys
identified in General Fund Budget Reduction Order 02-01, General
Fund Budget Reduction Order 02-02, General Fund Budget
Reduction Order 02-03, and General Fund Budget Reduction
Order 02-04.
H.B. 269, 2003 Leg. Reg., Sess . (Ky. 2003) .
13
In summary, KRS 48 .112(1) provides,
[t]he provisions of any other law notwithstanding, the
Governor shall include in the budget recommendation for
the executive branch and in the draft branch budget bill for
the executive branch submitted to each even-numberedyear regular session of the General Assembly . . .
recommendations for appropriations as provided in KRS
342 .122(1)(c) [$19,000,000] to be made by the General
Assembly to the benefit reserve [BRF] fund within the
Kentucky Workers' Compensation Funding Commission
established by KRS Chapter 342.
As previously noted, the General Assembly also adopted other measures
to balance the budget. It reclaimed approximately five million dollars
($5,000,000) from the BRF for the General Fund and transferred one million,
seven hundred thousand dollars ($1,700,000) from the BRF to the Department
of Mines and Minerals and mandated the KWCFC continue the employers'
assessment rate of 11 .5%. In so doing, the General Assembly stated that it
was only reclaiming public money originally transferred from the General Fund
and leaving untouched private premium assessments: "Funds lapsed in Part V
include no employer benefit premiums or liability payments and are the
recapture of fiscal year 2001-2002 General fund transfers to the Benefit
Reserve Fund [BRF] ." Id. The question urged for our decision then, is whether
the General Assembly can ratify actions of the Governor, which he did not, and
could not legally perform.
We have previously held that a Governor does not have the authority
under the Constitution of Kentucky to suspend the operation of any statute
and that such actions are unconstitutional and invalid ab initio . Fletcher, 163
S .W .3d at 872 ("A fortiori, the suspension of any statutes by the Governor's
Public Services Continuation Plan was unconstitutional and invalid ab initio.")
(emphasis in original) . However, budget reductions - as opposed to total
suspensions - made by the respective branches of government consistent with
the provisions of the enacted branch budget bills passed by the General
Assembly would be presumably appropriate. See Legislative Research Com'n v.
Brown, 664 S .W.2d 907, 926 (Ky. 1984); see also Gering v. Brown , 396 S .W.2d
15
332 (Ky. 1965); Lovelace v. Commonwealth, 285 Ky. 326, 147 S .W.2d 1029
(1941) . 14 "[I]n the absence of
a proper delegation of authority by one
department to another, or. a specific exception articulated by the Constitution,
itself, Section 28 [of the Kentucky Constitution] has erected a `high wall,' which
precludes the exercise by one, department of a power vested solely in either of
the others ." Id. at 863 (internal citation omitted) .
Moreover, KRS 48 .130(5) (2000) was limited to budget shortfalls of "five
percent (5%) or less." As Appellees assert that Governor Patton's 2001
suspension occurred during a "severe budget shortfall" and we are not
otherwise advised of record of the exactness of this assertion, we will assume
for purposes of this analysis that the Governor's actions in 2001 were outside
the parameters of "the provisions of the enacted branch budget bills." KRS
48.130 (5) (2000) . The question presented then is the question noted -- but
left unanswered -- in Fletcher. Fletcher, 163 S .W.3d at 872 ("However, neither
the parties representing state employees nor the Board of Trustees of the
Kentucky Employees Retirement System presently seek remedial relief from the
suspensions [rather] admitting that those issues were resolved during the 2004
extraordinary session of the General Assembly .") (footnote omitted) .
We did, however, address this question in Baker v. Fletcher , 204 S.W.3d
589 (Ky. 2006) . Baker involved a question within the same tenor as to whether
the General Assembly could retroactively suspend a statute (previously
Appellees assert that part VI of the 2000-2002 biennial budget called for
radical reductions in government spending rather than a total suspension of
the nineteen million dollars ($19,000,000) to be paid to the BRF annually
pursuant to KRS 342
.
.122(1)(c)
14
16
suspended by Governor Patton as a part of his executive spending plan)
providing all employees of the Commonwealth with an annual incremental
increase in their salaries of not less than 5% . In Baker, both Governor Patton,
in his executive spending plan, and the legislature (retroactively), allocated an
annual salary increase of only 2 .7%, rather than the 5% statutorily mandated .
We held in Baker that:
The parties concede that the General Assembly has the authority
to adjust the salaries of its employees at any time . Included within
that authority is the power to adjust annual increments . Therefore,
even if the Appellants are correct that they had a right to the
statutory five percent increment, the General Assembly had
authority to adjust their pay to meet its fiscal objectives. The intent
of the General Assembly was to appropriate money to fund an
identical increment for all employees. To interpret the budget bill
otherwise would be to ignore the plain meaning of the budget bill,
the clear intent of the General Assembly, and our precedents .
Id . at 598. Plainly then, "the General Assembly may retroactively suspend
statutes . . . provided that the legislature clearly manifests its intent to do so ."
Id . at 592 (emphasis in original) .
As in Baker, there is no question but that the General Assembly intended
for its belated budget act to apply retroactively. Id . at 597 ("Thus, we conclude
that legislative intent was to suspend [the statute] and make it retroactive to
the beginning of the biennium .") . It said so by adopting the Governor's budget
orders . And in Baker, we found the General Assembly's retroactive action
valid. Id . at 598 . ("Therefore, even if the Appellants are correct that they had a
right to the statutory five percent increment, the General Assembly had
authority to adjust their pay to meet its fiscal objectives .") . Thus, under Baker,
we necessarily found the legislative action valid, even though retroactive .
17
Thus, to the extent the General Assembly's actions here are valid and
constitutional, they constitute a valid adoption and ratification of the prior
invalid acts of the Governor . Id .
B. Section 51 of the Kentucky Constitution.
1 . The Title or Notice Requirement.
The title or notice requirement of "Section 51 of the [Kentucky]
Constitution provides that no law enacted by the General Assembly shall relate
to more than one subject, and that subject shall be expressed in the title." 15
Bowman v. Hamlett, 159 Ky. 184, 166 S.W. 1008, 1009 (1914) (emphasis
added) . The "title or notice requirement," that the subject shall be expressed in
the title, is separate and apart from the "one subject" rule which precedes it.
Prior to Section 51's adoption, it was
competent for the Legislature to legislate upon a multiplicity of
unrelated subjects which were neither remotely germane to, or in
any wise connected with, the one or ones named in the title . . .
[and] [t]o circumvent such deceptive practices resulting in deceitful,
selfcsh, and other baleful consequences, the provision was inserted
in the Constitution.
Armstrong, 709 S .W .2d at 444 (emphasis in original) quoting Talbott v.
Laffoon, 257 Ky. 773, 79 S.W .2d 244 (1935)) . Its purpose then, was "[t]o
prevent surprise or fraud upon the Legislature by means of provisions in bills,
of which the titles gave no intimation, and which might, therefore, be
overlooked and carelessly or unintentionally adopted ." Bowman 166 S .W. at
1009 .
Is Section 51 first appeared in this abbreviated form as § 37 of Article II of
the '1850 Kentucky Constitution. It reached its full breadth (with the
"publication" language) in the 1891 Constitution .
18
Under the title, or notice section of Section 51, "[w]here the title
adequately expresses a general subject, any provision in the Act that is
germane to or reasonably embraced within that general subject must be
considered to be within the scope of the notice of subject given by the title .
Board of Trustees of Policemen's and Firemen's Retirement Fund of City of
Paducah v. City of Paducah, 333 S.W .2d 515, 520 (Ky. 1960) . Thus, "[t]he title
need only furnish general notification of the general subject in the act. If the
title furnishes a `clue' to the act's contents, it passes constitutional muster."
Armstrong, 709 S .W.2d at 443 (citing Laffoon, 79 S.W.2d at 244 (1935)) .
Thus,
having in mind the purpose of this provision and the evil against
which it is aimed, before any act of the General Assembly should
be nullified by this court, upon the ground that the subject of the
act is not expressed in the title by reason of a variance between the
title and the body of the act, it should be made to appear, and the
court should be satisfied, that the variance complained of is such
as to bring it within the range of the evils sought to be guarded
against . . . .
Bowman, 166 S .W . at 1009-10 .
a. The Precedents
In Armstrong, we weighed (1) a reduction in officers' salaries, (2) the
transfer of funds from various trust and agency accounts to the general fund of
the Commonwealth, (3) the opening of access to other accounts for use by the
Transportation Cabinet, (4) the renting -- as opposed to loaning - of school
text books to students, including an extension to six (6) years for the minimum
use, as well as, (5) new requirements for certification in order to receive funding
for jail medical service contracts -- against the "title" or "notice" requirement of
19
Section 51 . Interestingly, the Budget Bill which carried the enactments
weighed in Armstrong was titled "AN ACT relating to appropriations for the
operation, maintenance, support, and functioning of the government of the
Commonwealth of Kentucky and its various officers, cabinets, departments,
boards, commissions, institutions, subdivisions, agencies, and other state
supported activities ." Armstrong, 709 S .W.2d at 444.
In measuring the level of "notice" required, we noted "[c]ertainly, the title
does not tell the reader that--in the voluminous act--the General Assembly has
authorized the reduction of salary increases and the transfer of trust and
agency funds ." Id . Yet, we noted that, "under the case law cited . . . all that is
necessary is that the act give a `clue' as to its content and that the act be not
deceitful, selfish or result in `baleful' consequences ." Id . We also noted "[t]he
provisions thereof that suspend or modify the expenditure of monies . . . are
clearly appropriations, in the broad sense ." Id. And "[t]he fact that the title
tells the reader that the act is an appropriation for the funding of state
government clearly alerts one to the fact that the act deals with `appropriations'
including possible changes ." Id. Moreover, "[w]hether one agrees with this
infringement on the traditional use of `free' textbooks, one cannot challenge the
General Assembly's right to make such a policy decision. The same logic
applies to extending the use of books for a period of six years ." Id. a t 448 . "We
believe therefore that not only is the action of the General Assembly . . . valid
as a suspension or modification of existing statutes, we also believe that, there
is, in effect, no real conflict ." Id.
As to the new restrictions on acquiring certification for jail funding for
medical service contracts, we noted:
It is an, altogether too familiar litany that the premise of this
provision is to react to the financial crunch of the state and that
such directive is only temporary. It is also too familiar to say that
this attempt of the General Assembly to regulate even temporarily,
the procurement by medical services contracts-in an economical
manner-is clearly a subject of an appropriation .
Grayson County Bd. of Educ. v. Casey, 157 S .W.3d 201, 207-208 (Ky.
2005), on the other hand, is illustrative of legislative changes in a biennial
budget bill which did not meet the "title" or "notice" level required by Section
51 . In Casey, the appropriations title of the bill at issue was the same as that
considered in Armstrong. Casey at 208 . The budget bill also contained the
provision: "Notwithstanding any provision of the Kentucky Revised Statutes to
the contrary, to the extent that any governmental agency purchases motor
vehicle liability insurance, sovereign immunity shall be waived to the extent of
the insurance coverage." Id. at 207-08 (emphasis added) . In holding this
provision of the biennial budget bill unconstitutional under Section 51, we
noted that it was "not germane in any way to `appropriations providing
financing for the operations, maintenance, support, and functioning' of any
governmental agency. It did not authorize the purchase of automobile liability
insurance and did not require the Commonwealth to pay any judgment, much
less appropriate any state funds for either purpose." Id . at 109 .
b. The 2002-2004 Budget Act.
The title of the biennial budget bill under review herein for the 20022004 budget, reads : "AN ACT relating to appropriations and revenue measures
providing financing for the operations, maintenance, support and functioning
of the government of the Commonwealth of Kentucky and its various officers,
cabinets, departments, boards, commissions, institutions, subdivisions,
agencies and other state-supported activities." H .B . 269, 2003 Leg., Reg. Sess .
(Ky. 2003) . The only difference between this title and the titles considered in
Armstrong and Casev is the additional wording of "revenue measures ." In this
instance, the budgetary acts complained of transferred amounts between the
BRF funds and the, general fund and the budget of the department of Mines
and Minerals as aforementioned. In addition, the General Assembly diverted to
the general fund the nineteen million dollar ($19,000,000) annual
appropriation to the KWCFC and BRF and mandated the continuation of the
employers' assessment rate as previously established by the KWCFC at 11 .5%
for the budgetary period .
Clearly, the budgetary acts of suspending, transferring and allocating
funds to and between the various departments of government are acts of
appropriation of which due notice was given by the budgetary title .
c. Effect on Collateral Statutory Schemes.
The Appellees argue, however, that the budgetary title must give notice of
all the resulting or collateral effects of the budgetary changes, arguing that
each annual denial of funding increases the liability of Kentucky employers
that pay the "special fund" debt, amends KRS 342.122(1)(b), setting the special
fund assessment rate, overrides the legislative finding of KRS 342 .1241(1) that
black lung costs have placed a substantial burden on all employers of the
Commonwealth through the "special fund" assessment previously imposed on
all employers, redirects the allocation of coal severance tax revenues under
KRS 42 .4582 and KRS 42 .4585 (which requires the credits to the BRF to be
made "off the top") and skirts budgetary definitions in KRS 42.409(5) and KRS
42.409(12)(a) . However, we have previously stated:
Section 51 of the Constitution requires that the title shall
express the subject legislated upon ; but there is no
requirement that the title of an act shall also undertake to
state what former acts are thereby repealed. Such a
requirement would not only be unreasonable; it would be
impracticable ; and it would lay upon the Legislature the duty
of weighing the legal effect of prior legislation and
determining just what legislation is repealed by the act
proposed .
Bowman , 166 S.W. at 1010; City of Paducah, 333 S.W .2d at 521 ("Section 51 of
the Constitution does not require that statutes which are amended or repealed
merely by implication, or by the superseding effect of the later enactment, be
republished and set forth at length .") . As previously noted, "[t]he title need
only furnish general notification of the general subject in the act." Armstrong,
709 S.W.2d at 443 . Clearly, in this instance it does.
d. The Mandated Continuance of the KWCFC
Employers' Assessment Rate .
Appellees also assert that the General Assembly's mandated continuance
of the KWCFC's assessment rate of 11 .5% for the biennium was in reality, a
surreptitious tax increase and thus, a fraud on Kentucky employers in
violation of the notice requirement of Section 51 .16, 1 7 To support its argument
that the mandated continuance of the assessment of 11 .5% was a "tax"
increase, it points out that the increase of the assessment from 9% to 11 .5% by
the KWCFC on October 16, 2001, following Governor Patton's suspension of
the nineteen million dollar ($19,000,000) severance tax credit to the BRF Fund
on September 7, 2001, resulted in an increase of nineteen million, eight
hundred thousand dollars ($19,800,000) in additional Kentucky employers'
assessments in the 2003 fiscal year,
18
and following Governor Fletcher's
Appellants object to consideration of any issue asserting violation of Section 51's
"one subject" rule on the grounds that Appellees conceded via their reply brief in the
trial court that, i.e., "Section 51 has two distinct parts: (1) single subject title rule, and
(2) enactment and publication at length . Petitioners [Appellees] do not contend that
either the 2000-2002 or the 2002-2004 biennial budget violated the single subject title
rule." Appellants thus assert that such consideration - assuming the issue is now
raised by Appellees -- violates the doctrine of Fischer v. Fischer, 197 S .W.3d 98, 102
(Ky. 2006) ("[A] question not raised or adjudicated in the court below cannot be
considered when raised for the first time in this court .") . However, Fischer also noted
that "[i]f the summary judgment is sustainable on any basis, it must be affirmed ." Id.
at 103. Yet, appellate courts have been adept at applying the old maxim to the effect
that "appellants [cross-appellants here] will not be permitted to feed one can of worms
to the trial judge and another to the appellate court." Kennedy v. Commonwealth , 544
S.W.2d 219, 222 (Ky. 1976) . Be that as it may, Appellees do not argue a violation of
the "one subject" rule, they specifically argue "lack of germaneness" to the title, or
notice requirement and violation of Section 51's "publication" requirement.
17 Appellees also assert in a one sentence statement, without argument or
explanation, that such conduct violates "due process" and Section 242 of the
Kentucky Constitution . However, we are not inclined to review such arguments
without citation to authority or explanation . CR 76.12(4) (c)(v) . That being said,
we recently addressed "retroactivity" and "due process" in Miller v. Johnson
Controls, Inc. , 296 S.W.3d 392 (Ky. 2009) .
18 Appellants, on the other hand, argue the increase in ,the rate by the
KWCFC was compelled by the market collapse post 9 / 11 .
16
24
reinstitution of the nineteen million dollar ($19,000,000) coal severance tax
credit to the BRF, the KWCFC, on October 22, 2004, reduced the assessment
rate back to 9%.
The parties' arguments aside, there is a difference between taxes and
assessments .
In a broad sense, taxes undoubtedly include assessments,
and the right to impose assessments has its foundation in
the taxing power of the government; and yet, in practice and
as generally understood, there is a broad distinction between
the two terms. Taxes,' as the term is generally used, are
public burdens imposed generally upon the inhabitants of
the whole state, or upon some civil division thereof, for
governmental purposes, without reference to peculiar
benefits to particular individuals or property. `Assessments,'
have reference to impositions for improvements and which
are specially beneficial to particular individuals or property,
and which are imposed in proportion to the particular
benefits supposed to be conferred. They are justified only
because the improvements conferred special benefits and are
just only when they are divided and proportioned to such
benefits .
Black's Law Dictionary 1629 (rev'd 4th ed . 1968) . We recognized this
distinction in Thompson , 710 S .W.2d at 857-858, wherein we acknowledged :
For years prior to 1982, the Special Fund (and its predecessor)
were funded by taxes and assessments. As we stated, this
procedure was flawed and the funding was continually inadequate
and untimely . Clearly, a bold, new approach was needed. The KRA
resulted . Its sole corporate purpose is to fund all claims and
liabilities of the Special Fund. Its sole income is from premiums
charged its subscribers-insurance carriers, self-insurance groups,
and self-insured employees. The amount of the premiums is to be
determined-actuarially-to be that amount of dollars necessary to
fund the Special Fund- whatever the amount. If the premiums and
premium increases are insufficient to meet those needs, the
amount of premiums is pro forma increased .
. . . [The KRA] was created for one purpose and its funding is
achieved without tax dollars, without public money . The method of
operation is to collect premiums-in advance of liabilities-to invest
these funds, so that much of the liability can be met by investment
income.
(emphasis in original) . This distinction notwithstanding, both taxes and
assessments are appropriately referred to as revenue measures and the title of
the budgetary act complained of clearly gives notice that they relate "to
appropriations and revenue measures providing financing for the operations,
maintenance, support and functioning of the government of the
Commonwealth of Kentucky" and its various entities . H.B. 269, 2003 Leg. Reg.
Sess. (Ky. 2003) .
That being said, we do not overlook the "appropriations" scheme within
which these budgetary actions occurred. The budget referenced that
"[n]otwithstanding KRS 342 .122(1)(c), no General Fund Appropriation is
provided to the [KWCFC] in fiscal year 2002-2003 and fiscal year 2003-2004 ."
H.B. 269, 2003 Leg. Reg. Sess. (Ky. 2003) . Moreover, the increase in the
employers' assessment rate to 11 .5% --- was made by the KWCFC more than a
year before the General Assembly mandated its continuance . And as per the
Workers' Compensation statutory scheme, KRS 342 required the
.122(1)(b)
KWCFC keep an assessment rate which maintained parity with the
amortization level commanded therein. Given that the statutory assessment
rate selected by the KWCFC met the statutory demands of KRS 342 .122(1)(b),
one cannot say that the General Assembly enacted a surreptitious tax.
To the contrary, the statutory scheme worked as it should have given the
emergency withdrawal of the nineteen million dollars ($19,000,000) in credits
contemplated by KRS 342 Thus, the mandated continuance of the
.
.122(1)(c)
assessment rate merely insured its continuance by the KWCFC and as
demanded by KRS 342 - for the period of time necessary to protect
.122(1)(b)
the appropriations scheme contained in the budget bill. Moreover, in
Armstrong, we upheld an analogous revenue measure allowing schools to rent
-- rather than loan --- textbooks to students as germane to "appropriations for
the operation, maintenance, support, and functioning of the government of the
Commonwealth of Kentucky." Armstrong, 709 S.W.2d at444 . Thus, it was also
plainly germane to "appropriations ."
Appellees' reliance on McGuffey v. Hall, 557 S.W.2d 401, 406-07 (Ky.
1977), is misplaced. McGuffey held only that significant permanent
amendments to the "physicians, osteopaths and podiatrists" statutes in a
stand-alone bill were "not sufficiently related to malpractice claims or
insurance [as disclosed in the title so as] to satisfy Const. § 51 ." Id. at 407 .
In this instance, the act's title referenced "appropriations and revenue
measures" and under either, it clearly avoided the evil against which the title
section of Section 51 is directed . Cf. , Armstrong, 709 S.W.2d at 444 ("No
person could claim to have been mislead by the title . . . . ") . Thus, we find that
the budgetary acts complained of complied with the title or notice section of
Section 51 of the Kentucky Constitution as they were germane to the title.
2. The Reenactment or Publication Requirement.
27
Appellees contend that the trial court was correct in finding that the
biennial budget acts at issue violated the "publication" requirement of Section
51 --- i.e., that all the statutes affected, directly or collaterally, were not
republished in the budget act with their actual or implied changes textually set
out. The trial court held, given the effect of the budget acts on the expansive
statutory scheme of the Kentucky Workers' Compensation Act, that
"[flew,
if any, members of the General Assembly could have a full notion and
understanding of the implications and ramifications in removing nineteen
million dollars ($19,000,000) in coal severance funds from the BRF with the
simple phrase `notwithstanding KRS 342 .122 ."' Upon such a belief, the
Franklin Circuit Court held that "the funds transfer challenged herein in the
2000-2002 and 2002-2004 Budget Bills violate[d] Section 51 of the Kentucky
Constitution." (Slip Opinion at 11) .
a. The Difference Between the Publication
Section and the Title Section.
In this regard, the publication requirement of Section 51 of the Kentucky
Constitution provides, in relevant part: "no law shall be revised, amended, or
the provisions thereof extended or conferred by reference to its title only, but so
much thereof as is revised, amended, extended or conferred shall be reenacted
and published at length ."
The difference between the "title" (or notice) requirement of Section 51
and the "publication" section is that the "title" section applies to all legislative
acts of the legislature, including "suspensions," where the "reenactment or
publication" requirement applies only to legislation that revises, amends,
28
extends or confers. See Armstrong, 709 S.W.2d at 445 . ("As stated, its
application is limited by its own wording to amendment, revision, extension or
conferring of existing statutes.") .
While some may contest the notion that the members of the General
Assembly would be unaware that removing nineteen million dollars
($19,000,000) per year from the Kentucky Workers' Compensation Fund would
affect the statutory funding scheme in addition to KRS 342 - which
.122(1)(c)
in fact, requires the funding - the point of the "publication" requirement of
Section 51 is that "no law shall be revised, amended, or the provision thereof
extended or conferred by reference to its title only." (emphasis added). If it is a
revision, amendment, extension or conferrance, it must be published . The
question then becomes whether the budget acts complained of constitute
revisions or amendments . 19
In Armstrong, we noted the General Assembly had "not repealed or
amended the . . . statutes, it [had] simply temporarily suspended them, as it
clearly [had] the power to do ." Id. at 445-46. Thus, publication was not
required. Moreover, we found it "beyond cavil that the General Assembly can
suspend the operation of statutes" pursuant to Section 15 of the Constitution
of Kentucky . Id. at 442 . "No matter how one slices it, the General Assembly is
permitted through the reduction or elimination of an appropriation, . to
effectively eliminate the efficacy of existing statutes, subject only to the finding
19
No party argues they constitute an extension or conferrance.
29
of a financial emergency and further subject to the time limitation of the
budgetary period ." 20 Id. at 441 .
"If a challenged statutory enactment falls within the proscribed activities,
as opposed to merely being suspensory in nature, it is violative of [the
"publication" section] of Section 51 . If it is, however, merely a suspension or
modification, it is not violative thereof." Armstrong, 709 S.W.2d at 445 . "Such
a requirement [otherwise] would not only be unreasonable; it would be
impracticable; and it would lay upon the Legislature the duty of weighing the
legal effect of prior legislation and determining just what legislation is repealed
by the act proposed ." Bowman, 166 S.W. at 1010 .
A suspension must, by its nature, be a temporary measure and in
Armstrong, we found that a budgetary reduction in the biennial budget, which
expired at the end of the biennium, was a temporary measure. Armstrong, 709
S.W.2d at 445 . There, we recognized that the General Assembly had "not
repealed or amended the existing . . . statutes, [but had] simply temporarily
suspended them." Id. at 445-46 . Here, like Armstrong, the acts of taking, or
shifting budgetary funds expired -- in three (3) instances with the particular
transfers - and as to the transfer of the severance tax funds and the
20 The court's reference in Armstrong to "financial emergency" reflected its
awareness, at the time, of KRS 446.085 (SB 294), which required a "financial
emergency" before the General. Assembly could suspend an appropriation
statute in a budget bill. However, the General Assembly repealed KRS 446.085
in 1994. No one disputes that the acts at issue herein were undertaken
pursuant to a perceived financial emergency .
30
mandated continuance of the assessment rate, at the end of the 2002-2004
biennial budget .21 Thus, they were temporary.
Furthermore,
[t]he General Assembly is mandated to operate the financial offices
of the Commonwealth under a balanced budget. If the revenues
become inadequate, the General Assembly must be empowered to
use adequate devices to balance the budget. Provisions in the
budget document which effectively suspend and modify existing
statutes which carry financial implication certainly are consistent
with those duties and responsibilities .
Armstrong , 709 S.W.2d at 443 . And "[w}e have emphasized the obvious, viz,
that the General Assembly may . . . suspend or modify existing statutes in a
budget bill." Id. (emphasis in original) .
b . To Be Valid, a Suspension Must Be Within the Authority of the
General Assembly.
In Armstrong, we analyzed the authority for the several acts of
suspension considered in order to complete the determination as to whether a
budgetary action was properly a suspension. Armstrong, 709 S.W.2d at 446
("Not only does the budget document provide for the transfers, but they are
authorized by statutes.") . We then held:
[t]he transfers of funds which relate to appropriations of private
contributions cannot be termed suspensions or modifications of the
operation of the statutes. Because the General Assembly has no
authority to transfer private funds to the general fund, the transfer
of money from agencies in which public funds and private
employee contributions are commingled, and cannot be
differentiated, is unconstitutional.
As previously noted, the nineteen million dollar ($19,000,000) funding for the
Workers' Compensation scheme was restored by Governor Fletcher following the
expiration of the 2002-2004 biennial budget .
Z1 .
Armstrong, 709 S .W.2d at 446-47 (emphasis added) ; see also Thompson, 710
S.W.2d at 857 ("[T]he funds premiums assessed by the [KWCFC] are clearly
private funds as opposed to public and are therefore not subject to control by
the General Assembly .") (emphasis added) . Thus, to be a valid "suspension,"
the act must not only be temporary, it must also be within the authority of the
General Assembly to do .
Having determined that the General Assembly has the authority to
temporarily suspend or modify the operation of existing statutes in its budget
bills, Armstrong sets forth the sequence of our considerations . Armstrong, 709
S.W.2d at 440 . First, we must determine that the General Assembly has acted
within its statutory powers . Id. ("The General Assembly, has by this statute,
drawn a line between its power in the budget bill to suspend or modify existing
statutes, as opposed to repealing or amending existing statutes.") . Secondly, if
it is acting within its constitutional and statutory authority, it must be
determined whether its budgetary actions comply with the "title" (notice)
section of Section 51 of the Kentucky Constitution . Id .22 Thirdly,
[i]f the answer to the second inquiry is in the affirmative we must,
finally, examine each contested `modification or suspension'
contained in the budget bill to determine if such actually
constitutes a repeal or amendment, or if each is truly a
modification or suspension within the purview of [any applicable
statutory restrictions on its powers] and of the re-enactment and
publication section of Kentucky Constitution Section 51 .
Armstrong did not note the "one subject" restriction of Section 51 as a
requirement separate from the "title or notice" section. However, they are
separate requirements . The "one subject rule" limits the subject matter, while
the "title" section deals with notice and germaneness.
22
32
Id. a t 440-41 . Thus, Armstrong recognizes that the General Assembly may
limit or deprive itself of its constitutional powers under Section 51 .
Moreover, the court noted in Armstrong, that:
It is clear from the plain language of the statute [S.B . 294 / KRS
446.085]that in Section (1) the General Assembly deprives itself of
the legal authority to repeal or amend, through the device of a
budget bill, any other existing law appearing in the Kentucky
Revised Statutes. However, in Section (2), the General Assembly
gives itself the power to suspend or modify the operation of any
statute, but only ifthefinancial condition of state government so
requires. The duration of such suspension is limited to the
duration of the budget.
The General Assembly has, by this statute, drawn a line between
its power in the budget bill to suspend or modify existing statutes,
as opposed to repealing or amending existing statutes . It cannot
repeal or amend, but it can suspend or modify existing statutes
through the provisions of a budget bill.
709 S.W.2d at 440 .23 (emphasis added) .
as The statutory authority considered by the court in Armstrong and S.B. 294 (KRS
446 .085), was later repealed as previously noted in footnote 18. It provided as follows :
(1) Nothing in a budget bill adopted by the General
Assembly shall be construed to affect a repeal or
amend in the Kentucky Revised Statutes, and if any
repeal or amendment appears to be effective in any of
the Kentucky's Revised Statutes, it shall be
disregarded, shall be null and void, and the law as it
existed prior to the effected date of the budget bill
shall be given full force and effect .
(2) Notwithstanding the provisions of § (1) of this
section, the General Assembly may provide in the
budget bill for the suspension or modification of the
operation of a statute if the General Assembly finds
that the financial condition of state government
requires such suspension or modification . Such
suspension or modification shall not extend beyond
the duration of the budget bill.
33
Thus, we must also address Appellees' argument that the General
Assembly lacked the authority to suspend funds for KRS Chapter 342 by virtue
of KRS 48.316 . 24 KRS 48.316 provides:
To the extent that the provisions of a budget bill are in conflict with
any provisions of KRS Chapters 12, 42, 56, 152, 177, or 341, the
provisions of those chapters are hereby suspended or modified.
Such suspension or modification shall not extend beyond the
duration of the budget bill.
This statute obviously does not reference KRS Chapter 342, suggesting the
General Assembly may have intended to restrict its authority to suspend
statutes in KRS Chapter 342 . However, KRS 48 .316 was enacted in 1984
along with KRS 48 .315. KRS 48.315 provides :
(1) The General Assembly may provide in a budget bill for the
transfer to the general fund for the purpose of the general fund all
or part of the agency funds, special funds, or other funds
established under the provisions of KRS . . . 342 .122; 342 .480, etc.
(2) The transfer of moneys from the agency funds, special funds, or
other funds to the general fund provided for in subsection (1) of
this section shall be for the period of time specified in the budget
bill.
(3) Any provisions of any statute in conflict with the provisions of
subsections (1) and (2) of this section are hereby suspended or
modified . Any suspension or modification shall not extend beyond
the duration of the budget bill.
(emphasis added) . Through KRS 48 .315, the General Assembly clearly
intended to provide for the modification or suspension during the budgetary
period of the funds enumerated in KRS 342 .122 as was done here .
KRS 48.316 was enacted at the same time as SB 294 (KRS 446 .085), previously
discussed . KRS 48.316 has not been repealed.
24
Yet, Armstron- held KRS 48.315 unconstitutional, in part, noting that,
"[b]ecause the General Assembly has no authority to transfer private funds to
the general fund, the transfer of money from agencies in which public funds
and private employee contributions are commingled, and cannot be
differentiated, is unconstitutional." Armstrong, 709 S .W.2d at 446 (emphasis
added) . However, if public funds are not commingled, or can be differentiated
from private funds, Armstrong is not applicable . We thus recognize KRS
48.315 cannot apply to private funds, or public funds which are commingled
and incapable of differentiating. Id. But, we must also recognize that to the
extent it affects only public funds which are not commingled, or if so, are
capable of differentiation, it is valid legislation.
Moreover, in 1990, the General Assembly enacted KRS 48 .310(2), which
provides, "[a] budget bill may contain language which exempts the budget bill
or any appropriation or the use thereof from the operation of a statute for the
effective period of the budget bill." Again, however, there is nothing in the
language of KRS 48 .310(2) which overrides the restriction in Armstrong against
the invasion of private agency funds or public funds commingled with private
funds and incapable of differentiation . Thus, KRS 48 .310(2) is also restricted
by Armstron . Id. at 446. In noting that, "[Appellees] argue persuasively that
under KRS 48 .316, no authority exists to amend or modify Chapter 342 in the
Budget Bill," the trial court apparently disregarded the limited validity of KRS
48.315, as well as KRS 48.310(2) .
Appellees, however, now assert that KRS 48 .310(2) should be
disregarded because KRS 48 .316 is the more "specific" (citin City of Bowling
Green v. Board of Ed. of Bowling Green, 443 S .W.2d 243, 247 (Ky. 1969)) (for
the proposition that specific legislation prevails over general legislation) .
However, it is also, "an elementary rule of statutory interpretation that
whenever in the statutes on any particular subject there are apparent conflicts
which cannot be reconciled, the later statute controls." Butcher v. Adams, 310
Ky. 205, 220 S.W .2d 398, 400 (1949) (emphasis added) . This rule is based
upon the theory of an implicit repeal of any conflict in the earlier statute. Id.
Yet, "[t)he cardinal rule of statutory construction is to ascertain and give
effect to the intent of the legislature." Travelers Indem. Co. v. Reker, 100
S.W.3d 756, 763 (Ky. 2003). And "[in] the face of statutory silence with respect
to legislative intent, `we .look for guidance to outside sources, such as legislative
history."' Id. at 764 (citin White v. Check Holders, Inc ., 996 S .W .2d 496,497
(Ky. 1999)) . Moreover, "[i]n construing a statute . . . a court may look to a prior
act from which it was taken, or one of which it is a revision, or one relating to
the same subject matter, in order to arrive at the intent and purpose of the
Legislature." City of Owensboro v. Noffsing_er, 280 S.W.2d 517, 519 (Ky. 1955).
Looking at the contrasting statutes and considering that KRS 48.315 and
48.316 were enacted together in 1984, and that KRS 48 .310(2) was added in
1990, it seems clear that the Legislature intended to retain the statutory
authority "to suspend" provisions of KRS 342 .122 . 25 KRS 48.315 appears to
2s
KRS 48 .315, however, limits itself to transfers "to the general fund ." KRS
36
have been set out separately from KRS 48.316 in recognition that the funds
affected were "agency funds, special funds, or other funds established under
the [noted] provisions ." Cf. , KRS 48 .315(1) . Thus, although KRS 48 .310(2) and
48 .315 are both confined by Armstrong, they do overcome any perceived
limitation of KRS 48 .316 when dealing with "public" funds, even if commingled
-- but only so long as such "public" funds can be differentiated from any
"private" funds.
Having reviewed the pertinent legislative framework, we are convinced
the General Assembly intended to reserve to itself, via KRS 48.310(2) and KRS
48.315, the legislative right to suspend the applications of KRS Chapter 342 to
public funds - at least to the extent said funds were not commingled with
private agency funds, or if so, to the extent they could be differentiated
therefrom.
C. Agency and Trust funds.
Appellees also assert that the KWCFC and BRF funds are held in trust,
separate and apart from public funds, and therefore may not be transferred to
the General Fund based on this Court's holding in Armstrong . See Armstrong,
709 S .W.2d at 447 . As previously said, however, Armstrong only prohibits the
invasion of private agency funds, or public funds commingled with private
funds and incapable of differentiation .
They also assert that transfer of these funds is prohibited by KRS
342 .1227, which prohibits the funds from being transferred "to the
48.315(2) .
37
Commonwealth, or any agency or instrumentality thereof," or expended, "for
any other purpose than one authorized by [KRS Chapter 342] ." KRS
342 .1227(2),(3) . Having determined that the General Assembly may, in the
instance mentioned, divert "public funds" to other uses pursuant to its
"suspension" power, we consider again whether, under the circumstances
peculiar to this case, it may take back what it has already given by invading
agency funds.
The funds to which KRS 342.1227 applies, are those "under the
jurisdiction of the [KWCFC] ." KRS 342.1227. Noting that the KWCFC is to
"[hlold, administer, invest, and reinvest the funds collected pursuant to KRS
342.122" and its other funds[,] separate and apart from all `state funds' or
`public funds,' KRS 342 .1223(2)(a), and that it acts, "as a fiduciary . . . in
exercising its power over the funds collected pursuant to KRS 342 .122," KRS
342 .1223(2)(b), and that, "[a]11 funds in excess of current liabilities of the
special fund and budgeted expenditures shall be deposited in the [BRF] and
invested in compliance with the investment policies formulated by the
[KWCFC]," KRS 342.1229, we are convinced that the term "jurisdiction," as
used by the legislature in KRS 342 .1227, means "in the possession of."
(emphasis added) . We also note the amounts to be credited to the KWCFC and
BRF from the severance tax revenues are to be transferred quarterly. KRS
.
.122(1)(c)
342 Thus, KRS 342 .1227 prohibits funds in "in the possession of"
the KWCFC (or the BRF) from being transferred or loaned to the
Commonwealth, or expended for other purposes . It does not prohibit the
diversion of such funds prior to their receipt by the KWCFC or BRF.
Thus, the amounts taken
from the possession of
the KWCFC or BRF and
transferred to the general fund and Mines and Minerals appear to be in
violation of KRS 342 .1227(2), unless otherwise authorized by KRS 48.310(2) or
KRS 48.315 . That, in turn, depends on how KRS 48.310(2) and KRS 48 .315
are limited under these facts by Armstrong. Budgetary actions cannot be
termed proper "suspensions" per Section 15 of the Kentucky Constitution,
unless authorized by other budgetary authority.
Armstrong addressed several conflicts between then-existing statutes
and the budgetary acts of the General Assembly . Armstrong, 709 S.W.2d 445448 . In each instance, except for the transfer dealing with agency funds "in
which public funds and private employee contributions [were] commingled, and
[could not] be differentiated," we
upheld
the budgetary acts under the
recognition that then KRS 446.085 (SB 294) authorized the suspension or
modification and overrode the conflicting statute. Armstrong, 709 S.W .2d at
448 . ("As we have said, previously, the `conflict' is authorized by S .B . 294 .") .
Moreover, in Armstrong, we grappled with the problem of differentiation.
Id. at 446 . However, we offered no standard by which to accomplish this task.
We did attempt, however, to identify the funds within which the problem would
be' expected. 2 6
Diversions from the Kentucky Employees Retirement System, County Employees
Retirement System, State Police Retirement System, and Teachers' Retirement System
26
39
Here, Appellants assert they can mathematically trace the public funds
contributed to the KWCFC and BRF, as well as, the monies expended
therefrom. They assert the difference identifies - or differentiates -- the
remaining public funds, which they assert are well in excess of the amounts
transferred. Mathematical calculations, however, cannot identify the actual
source of every dollar that would be transferred, as there were no directories in
the budgets which funded the KWCFC and BRF disclosing whether the
nineteen million dollars ($19,000,000) in public contributions would be spent
currently for authorized programs during the biennium or would be invested to
pay future liabilities, or apportioned between current and future needs, or in
any other way differentiated from the employers' assessments and investment
income .
In short, year-end balances cannot be separated into categories called
"public money" and "private agency funds." Moreover, Armstrong dictates that
"the General Assembly has no authority to transfer private funds to the general
fund." Id. at 446 (emphasis added). Thus, it would not tolerate any transfer
that would or might include private agency funds . There is simply no authority
to transfer private agency funds such as these, to other funds in our budget.
Armstrong may set a high standard, but it is one that can be met - but not by
mathematical projections under these circumstances.
fall within this category, as do Workers' Compensation and Workers' Claims Special
Fund. Armstrong , 709 S.W.2d at 446-47.
40
Thus, in this instance, we are compelled to conclude the funds in
question - those actually taken from the hands of the KWCFC and BRF -have not been sufficiently differentiated and the transfers therefore are
improper . Consequently, KRS 48.310(2) and KRS 48 .315 cannot apply to
authorize the transfers of funds actually held by KWCFC and BRF and said
transfers violate KRS 342.1227 .
We thus hold that the General Assembly, in its budgetary actions for the
2000-2002 and 2002-2004 biennial budgets, had the authority under KRS
48.310(2) and KRS 48.315 and Sections 15 and 51 of the Kentucky
Constitution to "suspend" appropriations of the nineteen million dollar
($19,000,000) annual funding of the KWWFC and BRF, including the three
quarterly payments diverted following the first quarter of the 2001 fiscal year.
The amounts, however, taken directly from the funds and transferred to Mines
and Minerals on two occasions, as well as the five million dollars ($5,000,000)
transferred back to the General Fund from the KWCFC and BRF funds in the
2002-2004 biennial budget were not authorized by KRS 48.310(2) or KRS
48 .315, and were in violation of KRS 342 .1227(2)-(3) and as such, were
improper suspensions under Section 15, and as "amendments," rather than
"suspensions," were subject to the "publication" requirement of Section 51 of
the Kentucky Constitution . There having been no publication, the transfers
were, and are, invalid.
D. Section 180 of the Kentucky Constitution
Appellees also assert that the diversion -of the nineteen million dollars
($19,000,000) annually in coal severance tax receipts from the BRF back to the
General Fund violates Section 180 of the Kentucky Constitution . Section 180
provides, in part: "Every act enacted by the General Assembly . . . levying a
tax, shall specify distinctly the purpose for which said tax is levied, and no tax
levied and collected for one purpose shall ever be devoted to another purpose ."
Ky. Const. § 180.
Appellees, therefore assert, pursuant to KRS 342.122(1)(c), that the
nineteen million dollars ($19,000,000) annually is "dedicated" to funding the
BRF. 27 This argument, however, ignores the central premise of Section 180,
which, again, states "[e]very act enacted by the General Assembly . . . shall
specify distinctly the purpose for which said tax is levied, and no tax levied and
collected for one purpose shall ever be devoted to another purpose ."
To determine the purpose for which the tax was levied, we must look to
the act levying the tax -- not to the one receiving its benefit . In this case, KRS
143.090(4) provides that, "[a]11 [coal severance] tax levied by KRS 143.020
collected in excess of the amount required to be deposited to the transportation
fund (road fund) or transferred to the Office of Energy Policy shall be deposited
by the Department of Revenue to the credit of the general fund." Thus, KRS
143.090(4) does not, itself, dedicate coal severance tax revenue to the KWCFC
or BRF.
KRS 342.122(1)(c), as we know it today, took effect twenty-six years (26)
after the coal severance tax was implemented. See KRS 143.020 (1972) ; KRS
342.122(1)(C) ("[b]e ginning with fiscal year 1998 . . . .") .
27
42
Therefore, the transfer of the nineteen million dollars ($19,000,000) in
annual credits 28 diverted from the KWCFC and the BRF to the General Fund
was not in violation of Section 180 of the Kentucky Constitution .
VII. Conclusion
Based upon the foregoing, we affirm the Franklin Circuit Court to the
extent it held that the annual transfer of the nineteen million dollars
($19,000,000) from the KWCFC and the BRF to the general fund does not
violate Section 180 of the Kentucky Constitution and that the five million
dollars ($5,000,000) transferred to the General Fund in the 2002-2004 biennial
budget, as well as the two separate amounts transferred from the KWCFC and
BRF to fund a portion of the Mines and Minerals budget in the 2000-2002 and
2002-2004 biennial budgets, are invalid transfers, for reasons the funds were
commingled, and cannot be differentiated . Armstrong, 709 S.W.2d at 446.
Moreover, these commingled funds were in the actual possession of the
KWCFC and BRF and thus, such transfers violate KRS 342 .1227(2)-(3) . Being
commingled funds incapable of differentiation, KRS 48.310(2)-(3) and 48.315
cannot apply to override KRS 342 .1227(2) . Thus, the statutory transfers could
not be proper "suspensions" under Section 15 of the Kentucky Constitution,
and thus, they constituted amendments required to be republished under
Section 51 of the Kentucky Constitution. They were not republished, and are
therefore invalid.
28
This also includes the three quarterly amounts taken in fiscal year 2002.
43
The transfer, or diversion of funds which had not yet been received by
the KWCFC and BRF, were not commingled agency funds and thus, under the
"jurisdiction" of the KWCFC or BRF per KRS 342 .1227(2), and thus were
authorized by KRS 48 .310(2) and KRS 48.315 and were proper "suspensions"
under Sections 15 and 51 of the Kentucky Constitution. In this regard, we
reverse the opinion of the Franklin Circuit Court.
Moreover, we do not find that the General Assembly's mandate that the
employers' assessment rate of 11 .5% for the 2002-2004 biennium be continued
was the enactment of a tax. The employers' assessment rate of 11 .5%, having
been previously set by the KWCFC pursuant to KRS 342 .122(1) (b), the
mandate of continuation was not a tax, or in fact, an actual assessment.
Moreover, it was plainly germane to both the "appropriations" measures, as
well as, the "revenue" measures . Thus, to the extent that the Franklin Circuit
Court characterized this mandated rate freeze as a "tax by any other name,"
subject to the "publication" provision of Section 51, it is also reversed. This
mandated rate freeze was a proper suspension under Section 15 of the
Kentucky Constitution and thus valid under Section 51 of the Kentucky
Constitution .
Having reversed in part and affirmed in part the opinion of the Franklin
Circuit Court, this matter is remanded to the Franklin Circuit Court for such
further proceedings as are necessary and consistent with this opinion.
Cunningham, Noble, Schroder and Venters, JJ., concur. Minton,
C.J ., and Abramson, J., concur in result only.
44
COUNSEL FOR APPELLANTS :
Christopher W. Brooker
Mark Stephen Pitt
Virginia Hamilton Snell
WYATT, TARRANT 8s COMBS, LLP
500 W. Jefferson St.
Suite 2800
Louisville, KY 40202-2898
COUNSEL FOR APPELLEE KENTUCKY WORKERS'
COMPENSATION FUNDING COMMISSION :
Francis Lee Dickerson
Kentucky Workers' Compensation
Funding Commission
P.O. Box 1128
42 Millcreek Park
Frankfort, KY 40302-1128
COUNSEL FOR APPELLEES HYDON BRIDGE COMPANY, INC; GREATER
LOUISVILLE AUTO DEALERS ASSOCIATION; KENTUCKY AUTOMOBILE
DEALERS ASSOCIATION ; MSsM CARTAGE CO ., INC; SPRINGFIELD LAUNDRY
AND DRY CLEANING, INC . ; AND USHER TRANSPORT, INC .
H. Edward O' Daniel, Jr .
110 W. Main St.
Springfield, KY 40069
Mark David Guilfoyle
Deter, Benzinger 8s Lavelle, PLLC
45
Thomas More Park
207 Thomas More Parkway
Crestview Hills, KY 41017-2596
,suprrum (~vurf of ~irufurkV
2007-SC-000058-TG
STEVE BESHEAR (IN HIS OFFICIAL CAPACITY
AS THE GOVERNOR OF THE
COMMONWEALTH OF KENTUCKY), ET AL
APPELLANTS
ON APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE WILLIAM L. GRAHAM, JUDGE
NO . 03-CI-01547
V.
HAYDON BRIDGE COMPANY, INC ., ET AL
APPELLEES
ORDER OF CORRECTION
The Opinion of the Court by Justice Scott rendered on January 21, 2010,
is hereby corrected by substitution of the attached opinion in lieu of the
original opinion. The purpose of this Order of Correction is to correct the
subheadings beginning on page 29 of the original opinion and to correct
typographical errors on pages 4, 12, 17, 24 ; and 27 of the original opinion ; said
corrections affected pagination so as to necessitate substitution of the entire
opinion. None of the changes affect the holding of the original Opinion of the
Court.
ENTERED : March
., 2010 .
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