Beshear v. HAYDON BRIDGE CO., INC., No. 2007-SC-000058-TG.

• Decision Date: 17 March 2010
• Docket Number: No. 2007-SC-000058-TG.
• Citation: 304 SW 3d 682
• Parties: Steve BESHEAR (in His Official Capacity as the Governor of the Commonwealth of Kentucky), et al., Appellants, v. HAYDON BRIDGE COMPANY, INC., et al., Appellees.
• Court: United States State Supreme Court — District of Kentucky

304 S.W.3d 682

Steve BESHEAR (in His Official Capacity as the Governor of the Commonwealth of Kentucky), et al., Appellants, v. HAYDON BRIDGE COMPANY, INC., et al., Appellees.

No. 2007-SC-000058-TG.

Supreme Court of Kentucky.

January 21, 2010.

As Corrected March 17, 2010.

Christopher W. Brooker, Mark Stephen Pitt, Virginia Hamilton Snell, Wyatt, Tarrant & Combs, LLP, Louisville, KY, Counsel for Appellants.

Francis Lee Dickerson, Frankfort, KY, Counsel for Appellee Kentucky Workers' Compensation Funding Commission.

H. Edward O' Daniel, Jr., Springfield, KY, Mark David Guilfoyle, Deter, Benzinger & Lavelle, PLLC, Crestview Hills, KY, Counsel for Appellees Haydon Bridge Company, Inc.; Greater Louisville Auto Dealers Association; Kentucky Automobile Dealers Association; M & M Cartage Co., Inc.; Springfield Laundry and Dry Cleaning, Inc.; and Usher Transport, Inc.

Opinion of the Court by Justice SCOTT.

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) (I960)." Thompson v. Kentucky Reinsurance Ass'n, 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(l)(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 342.122(l)(b). In addition, it increased the 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(l)(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 calendar year. KRS 342.122(l)(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 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.

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 two-year 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.

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(l)(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

B. The KWCFC Assessment Rate for Employer's Premiums.

KRS 342.122(l)(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

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