Industrial Development Authority v. Eastern Kentucky Regional Planning Commission

• Decision Date: 12 February 1960
• Citation: 332 S.W.2d 274
• Parties: INDUSTRIAL DEVELOPMENT AUTHORITY et al., Appellants, v. EASTERN KENTUCKY REGIONAL PLANNING COMMISSION, Intervenor (Orba F. Traylor, Commissioner, etc., Appellees).
• Court: United States State Supreme Court — District of Kentucky

Page 274

332 S.W.2d 274

INDUSTRIAL DEVELOPMENT AUTHORITY et al., Appellants, v. EASTERN KENTUCKY REGIONAL PLANNING COMMISSION, Intervenor

(Orba F. Traylor, Commissioner, etc., Appellees).

Court of Appeals of Kentucky.

Feb. 12, 1960.

Jo M. Ferguson, Atty. Gen., Seth T. Boaz, Jr., Asst. Atty. Gen., for appellants.

Henry Meigs, II, Frankfort, for intervenor.

Paul E. Hunley, Frankfort, for appellees.

STEWART, Judge.

This is an appeal from a judgment of the Franklin Circuit Court holding that Senate Bill 315 (later Chapter 152 of the Acts of 1958 and now designated as KRS Chapter 154) violates Sections 171 and 177 of the Constitution of Kentucky. We shall refer to KRS Chapter 154 as "the Act".

This was an agreed case submitted under KRS 418.020. It arose when the Commissioner of Finance refused to transfer funds to the Industrial Development Finance Authority created by the Act. The refusal was based on the grounds that the Act violated Sections 3, 171 and 177 of the Constitution of Kentucky.

The Act in controversy creates the Industrial Development Finance Authority (hereinafter called the Authority) as an agency independent of the executive branch of the state government. See KRS 154.020(1). The members of this body receive no compensation for their services as members. The Authority shall promulgate regulations governing its proceedings and its determinations of eligibility for loans. See KRS 154.060.

KRS 154.020(2) states that the Authority shall consist of the Lieutenant Governor who shall be the chairman, the Commissioner of Banking, the Commissioner of Economic Development, the Commissioner of Economic Security, and the Commissioner of Finance, and three additional members appointed by the Governor, one each to be appointed from lists of nominees submitted by the Kentucky State Bankers Association and the Kentucky Chamber of Commerce, and a third to be a Kentucky member in good standing with the National Association of Securities Dealers.

Under the provisions of KRS 154.070(1) any local development agency may apply to the Authority for assistance in an industrial building project (see KRS 154.010(3)) or an industrial subdivision project (see KRS 154.010(4)) and the Authority is directed to hold such hearings and examinations as shall be necessary to determine whether the public purpose of the Act will be accomplished by granting financial assistance (in the form of loans) to such applicants.

KRS 154.010(2) defines a local development agency as "any incorporated organization, foundation, association or agency, regardless of the particular name, to whose members of shareholders no profit enures, and which has as its primary function the promotion, encouragement and development of industrial and manufacturing enterprises."

The Authority is empowered by KRS 154.080, under the circumstances detailed therein, to make loans to a local development agency when it has determined that a particular industrial building project has accomplished or will accomplish the public purposes of the Act, in an amount not to exceed 30% of the cost or estimated cost of such industrial building project, as established or to be established.

Under the terms and conditions of KRS 154.090 and 154.100, before granting loans on industrial building projects not yet established, or on such projects already in existence, the local development agency must furnish proof it holds or has available or has expended or applied funds or property equal to not less than 20% of the estimated cost or the cost of establishing such project. It is also provided in these two statutes that the local development agency must show it has a firm commitment from other independent and responsible sources, over and above the loan from the Authority, necessary for the payment of all estimated cost of establishing the industrial building project. Other conditions are imposed by these two statutes which, for the purposes of this opinion, we feel we need not set forth.

KRS 154.110 provides that when the Authority has determined that the establishment of a particular industrial subdivision project will accomplish the intent of the Act, it may contract to lend a local development agency an amount not in excess of 50% of the cost or estimated cost of such project. KRS 154.120 details certain conditions that must be met by the local development agency and that must exist in respect to the proposed industrial subdivision project in order to justify the granting of the loan by the Authority.

Under the Act the General Assembly may appropriate funds to a special revolving trust and agency fund in the Treasury of the Commonwealth to be known as the Industrial Development Finance Fund. Funds obtained from other sources and from repayment of loans would also go into this fund to carry out the purposes of the Act.

The lower court decreed the Act trespasses upon Sections 171 and 177 of the Constitution of Kentucky and accordingly declared it invalid. This appeal is from that ruling. We shall discuss these two sections as they relate to the Act and, in connection with them, Section 3 of the Constitution of Kentucky, since it is also contended the Act contravenes the lastmentioned constitutional provision. Sections 3 and 171 will be considered together because, broadly speaking, they are interrelated as to the main object they seek to enforce.

Section 3 provides, in part: "* * * no grant of exclusive, separate public emoluments or privileges shall be made to any man or set of men, except in consideration of public services * * *." So far as pertinent here, Section 171 reads: "Taxes shall be levied and collected for public purposes only * * *."

This Court has recognized that the quoted excerpts taken from Sections 3 and 171 are closely allied, pointing out in Nichols v. Henry, 301 Ky. 434, 191 S.W.2d 930, 933, 168 A.L.R. 1385, that "* * * an Act which constitutes a violation of the spirit of the one likewise constitutes a violation of the spirit of the other; * * *. In fine, the inhibitions enumerated relate to private purposes as contradistinguished from public purposes; * * *."

Thus the Constitution of this state requires that taxes shall be exacted and used for public purposes only. Obviously if money is appropriated out of the treasury it must be measured by the same test as that by which it is raised by taxation and put into the treasury. If taxes could not be imposed for a purpose, money already in the treasury could not be appropriated to that purpose. See Hager v. Kentucky Children's Home Society, 119 Ky. 235, 83 S.W. 605, 67 L.R.A. 815.

In determining whether an appropriation is for a public purpose we believe we should accept in this case the pragmatic view expressed by O'Rear, J., in Hager v. Kentucky Children's Home Society, supra, 83 S.W. on page 608, that: '* * * the vital point in all such appropriations is whether the purpose is public; and that, if it is, it does not matter whether the agency through which it is dispensed is public or not; that the appropriation is not made for the agency, but for the object which it serves; the test is in the end, not in the means. (Emphasis added.) The limitation put upon the state government by the people is as to what things it may collect taxes from them for, to which it may apply their property through taxation; not upon the means by which or through which it will do it.'

Who is to determine what is a "public purpose"? The legislature is given this primary duty. This pertinent statement appears in Shean v. Edmonds, 89 Cal.App.2d 315, 200 P.2d 879, 885, quoting from County of Alameda v. Janssen, 16 Cal.2d 276, 281, 106 P.2d 11, 14, 130 A.L.R. 1141: "The determination of what constitutes a public purpose is primarily a matter for legislative discretion * * * which is not disturbed by the courts so long as it has a reasonable basis." See also Faulconer v. City of Danville, 313 Ky. 468, 232 S.W.2d 80, wherein relief of unemployment and encouragement of industry were accepted as "public purposes."

In the present instance, KRS 154.005 clearly sets out the legislative determination that the purpose of the Act is to promote the health, safety, morals, right to gainful employment, business opportunities and general welfare of Kentuckians and recites that the Authority "shall exist and operate for the public purpose of alleviating unemployment and furthering the utilization of natural and man-made resources by the promotion and development of industrial and manufacturing enterprises in local communities of the Commonwealth." The consummation of these objects shall be "public purposes for which public money may be spent."

As the central aim of the Act is to foster industrial development by attracting new industry to all parts of the state in order to reduce unemployment and in order to use the natural and man-made resources of the state as a whole, the inquiry is raised as to whether such an aim is a public purpose so as to warrant the expenditure of tax funds therefor. This Court in the fairly recent case of Dyche v. City of London, Ky., 288 S.W.2d 648, held that the relief of unemployment in the City of London and the surrounding area was a "public purpose" within the purview of the taxing power of that city, and that the City of London could lawfully incur a bonded indebtedness to construct an industrial building in an effort to attract new industry and thereby reduce unemployment. In Faulconer v. City of Danville, cited above, we held that the acquisition and ownership by the City of Danville of an industrial building was a "public project" within the application of KRS Chapter 58 which authorized the issuance of revenue bonds for such an object.

From the foregoing authorities we conclude it is clearly established in this jurisdiction that the relief of unemployment is a public purpose that would justify the outlay of public funds.

The Dyche opinion cited with approval Albritton v. City of Winona, 181...