Miller v. Covington Development Authority

• Decision Date: 25 June 1976
• Citation: 539 S.W.2d 1
• Parties: Esther MILLER et al., Appellants, v. COVINGTON DEVELOPMENT AUTHORITY et al., Appellees. Charles D. MITCHELL et al., Appellants, v. COVINGTON DEVELOPMENT AUTHORITY et al., Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 1

539 S.W.2d 1

Esther MILLER et al., Appellants, v. COVINGTON DEVELOPMENT AUTHORITY et al., Appellees.

Charles D. MITCHELL et al., Appellants, v. COVINGTON DEVELOPMENT AUTHORITY et al., Appellees.

Supreme Court of Kentucky.

June 25, 1976.

Samuel Milner, Eblen, Milner, Rosenbaum & Wilson, Lexington, R. Barry Wehrman, Covington, for appellants.

Jo M. Ferguson, Grafton, Ferguson, Fleischer & Harper, Louisville, Donald C. Wintersheimer, Covington, A. Wallace Grafton, Jr., Sheryl G. Snyder, Francis J. Mellen, Jr., Wyatt, Grafton & Sloss, Louisville, George F. Rabe, Lexington, for appellees.

Whayne C. Priest, Jr., Bowling Green, W. David Denton, Paducah, for amici curiae.

PALMORE, Justice.

This is a test suit to determine whether two acts of the 1974 General Assembly are valid. They are ch. 131, the Local Development Authority Act, and ch. 132, the Tax Increment Act, which have been placed in the statutes as KRS 99.610--99.680 and KRS 99.750--99.770, respectively. We find them both invalid.

Section 1 of the Local Development Authority Act states as its legislative policy 'the preservation and revitalization of historically or economically significant local areas' in first and second-class cities and counties operating under the urban county form of government, 'while at the same time accommodating necessary and desirable central city and suburban growth.'

The LDA ¹ Act creates an independent local agency consisting of the mayor or his designee as an ex officio nonvoting member and seven commissioners appointed by the mayor, with the approval of the governing body of the municipality, for staggered four-year terms. KRS 99.625.

Among the 'public and essential governmental functions' it is expressly empowered to exercise is the threshold act of establishing a development plan fixing the boundaries of a project area and designating the 'character and extent of the public and private land ownership and uses proposed within the area.' ² This plan must be 'made available for public inspection,' after which the LDA may among other things proceed to acquire any or all real or personal property within the project area, to clear any or all improvements or cause them to be renovated, to develop and construct residential housing for persons and families of lower income, ³ to subdivide, sell, lease, exchange, encumber or otherwise dispose of any of the property 'at its fair cash value,' notwithstanding the cost of its acquisition, for uses consistent with the development plan. ⁴ None of this requires approval by the municipal governing body.

With regard to its funds (a principal source of which is provided by the Tax Increment Act, discussed hereinafter), the LDA has these powers ⁵ (among others) within the jurisdiction of its municipal area for the purposes of developing the project area or areas, all without prior approval of the local governing body:

(1) To make, participate in or acquire loans for construction, development or rehabilitation of residentail housing projects if it determines that such loans are not available from private lenders 'upon reasonably equivalent terms and conditions;'

(2) To insure the payment of loans made by other lenders for those purposes if it determines that such insurance is not available from private insurers 'upon reasonably equivalent terms and conditions;'

(3) To make grants (that is, as we construe it, to donate, or give away) to builders, developers and owners of residential housing for the development, construction, rehabilitation or maintenance of residential housing as it 'shall deem important for a proper living environment, all on such terms and conditions' as it may deem appropriate;

(4) To consent to modifications in the rate of interest, times of payment, or any other terms of loans and agreements relating to residential housing projects to which it is a party;

(5) To construct residential housing for persons and families of lower income, and to construct, through lessees, industrial buildings pursuant to KRS 103.200--103.285;

(6) To acquire, establish and operate, lease or sublease residential housing for persons and families of lower income, and to contract to assume the rights, powers, obligations and duties of any local housing authority or similar agency of the federal, state, city or urban county government;

(7) To make periodic grants to reduce principal and interest payments on mortgages or rentals payable by persons and families 'of law income;'

(8) To borrow or accept funds from any source and, in that respect, to 'include in any contract for financial assistance with the federal, state, city or urban-county government any conditions which the federal, state city or urban-county government may attach to its financial aid' not inconsistent with the purposes of the LDA Act (emphasis added); and

(9) To issue revenue bonds payable solely out of the revenues of the project, including tax increments released to the LDA pursuant to the Tax Increment Act.

The Tax Increment Act is less complex. Its fundamental provision is that any taxing district, including school districts, may contract to 'release' to the LDA, for a period up to 25 years, not less than 50% or more than 95% of all ad valorem tax revenues received from a development or project area in excess of those received from the same area in the last year before its establishment. ⁶

Obviously these two statutes have the constructive public purpose of enabling urban governments to attempt the revitablization of decaying 'inner cities.' The theory on which the hypothecation of future ad valorem tax revenues is justified is that in the long run the taxing districts will be repaid in the form of a greatly enhanced tax base and that the increased revenues ('increments') meanwhile released to the LDA and used by it to create this enhancement are revenues that would not have existed otherwise. We find no fault in the purpose or in the theory, but for the reasons that follow it is our opinion that each of the acts transcends the limits of the Kentucky Constitution.

We need not encumber our opinion with an excruciating analysis of what this and other courts have said in cases involving similar problems with different facts. Counsel for all parties are familiar with all the broad principles and ancient shibboleths of constitutional law, and recognize that each new application comes down to a matter of degree and calls for a value judgment. In this case the burden of casting that judgment rests finally on the seven elected members of this court.

We mention the word 'elected' because it is appropriate to our assessment of the LDA Act. It is a fundamental proposition that a legislative body should not and ordinarily cannot divest itself of a legislative power. A state legislature may delegate legislative powers to cities because a state constitution gives it that right. Cf. Const. § 156. If, however, a state legislature purports to authorize a city to pass such powers on to an administrative agency, it attempts to authorize something it cannot do itself. For that reason cities cannot be so authorized, notwithstanding the legislature's constitutional prerogative of prescribing the bounds of their powers. If there is one essential characteristic inherent in legislative power, it is that such power must be exercised by an elected representative or representatives of the people, and not by a person, persons or agency created or designated by those representatives. Therein, we think, lies the major flaw of the LDA Act. It authorizes the agency to exercise choices that the people are entitled to have exercised by their elected representatives.

In other instances too numerous to recount, delegations of authority have been upheld on the theory that the legislative body has prescribed standards or safeguards that so confine the administrative body's powers that it can be said that they do not exceed the scope of mere details in the execution. In our judgment they are not so confined here, nor do we have the safeguard of a long-established administrative agency such as a state highway department or department of education, with a track record of experience and expertise in a well-recognized field. Nor, indeed, are the powers delegated to the LDA confined to matters so involved or so beyond the technical competence of a legislative body that it would be unrealistic not to vest them in an administrative agency.

Take for example the very first choice the LDA is required to make, the choice of an area. By what legislative criteria is the agency restricted in arriving at this vital decision? Only by its own...