Turnpike Authority of Ky. v. Wall

• Decision Date: 24 June 1960
• Citation: 336 S.W.2d 551
• Parties: TURNPIKE AUTHORITY OF KENTUCKY, a Corporation, et al., Appellants, v. Thomas H. WALL, on behalf of himself and all other taxpayers of the Commonwealth of Kentucky, Appellee.
• Court: United States State Supreme Court — District of Kentucky

Page 551

336 S.W.2d 551

TURNPIKE AUTHORITY OF KENTUCKY, a Corporation, et al., Appellants, v. Thomas H. WALL, on behalf of himself and all other taxpayers

of the Commonwealth of Kentucky, Appellee.

Court of Appeals of Kentucky.

June 24, 1960.

John B. Breckinridge, Atty. Gen., Holland McTyeire, Asst. Atty. Gen., H. D. Reed, Jr., Frankfort, Cornelius W. Grafton, Louisville, for appellee.

Henry E. McElwain, Jr., Oldham Clarke, McElwain, Dinning, Clarke & Winstead, Louisville, for appellee.

PALMORE, Judge.

This action was brought by the appellee as a taxpayer, for himself and all other taxpayers of the state, against The Turnpike Authority of Kentucky (hereinafter called the Authority) and its individual members for a declaration of rights as to the constitutional validity of Senate Bill 223, Laws 1960, c. 172 (KRS 175.410 to 175.990, hereinafter called the Act) enacted by the General Assembly at its regular 1960 session. Various questions of constitutionality and interpretation not specifically presented in the complaint were raised by counterclaim.

The judgment of the trial court declared three provisions of the Act unconstitutional and void but upheld the remainder of the Act upon a determination that such provisions are separable.

Appellants (defendants) seek reversal on the ground the judgment is erroneous in declaring any part of the Act unconstitutional. By cross-appeal appellee (plaintiff) questions the correctness of those portions of the judgment declaring the remainder of the Act valid.

Statutory authority for the construction and financing of toll turnpikes directly by the Department of Highways (hereinafter called the Department) through the issuance of revenue bonds of the Commonwealth already exists in KRS 177.390 to 177.570 (Chapter 157, Acts of 1950) and was held constitutional in Guthrie v. Curlin, Ky. 1953, 263 S.W.2d 240. The 'Kentucky Turnpike' now in operation from Louisville southward was constructed and financed pursuant to that authority.

The Act here in question does not repeal or amend KRS 177.390 to 177.570 but provides an alternative method to achieve the same objectives. It creates the Authority as an independent corporate agency of the Commonwealth composed, ex officio, of the Governor, Lieutenant Governor, Attorney-General, Commissioner of Highways, and State Highway Engineer, and vested with the ordinary incidents of corporate existence but with no power of taxation, nor those powers of cities, counties and other political subdivisions usually associated with the functions of local government (policing, local legislation, etc.). It is authorized under certain conditions to construct toll turnpikes (including service stations, garages, restaurants and various other facilities) and issue its revenue bonds to finance them, and the Department may lease any such turnpike project from the Authority for an agreed rental, but not beyond the end of the legislative biennium in which the lease is executed. As of the end of that legislative biennium it may exercise an 'option' to renew for the ensuing legislative biennium, but no longer, and so on for successive biennial terms until final maturity of the bonds to which the lease is related.

The option cannot be renewed until after adjournment of the session of the General Assembly at which appropriations shall have been made for the operation of the state government for the ensuing biennium, and the lease is automatically renewed for two years, effective on the first day of such biennium, in the absence of written notice of the Department's election not to renew, delivered to the Authority before the close of business on the last working day in April immediately preceding the renewal biennium.

During each biennial term when the lease has been renewed and is in force the Department is obligated (to the extent of its 'available funds * * * not required by law or by previous binding contract to be devoted to some other purpose') for the agreed rental for that biennium, but as an incident of renewal receives all the tolls and other revenues of the turnpike project. They are segregated and pledged for payment of and credited against the rent. Thus the liability assumed by the Department upon renewal for a biennium is the difference between the amount of rent agreed upon in advance and the revenues actually produced by the project.

In addition to the tolls and other revenues of the project, while the lease is in force there is required to be set aside and paid over to Authority, for application as provided in the bond obligation, and to be credited against the rent in the same manner as the tolls and other revenues of the project, 'all motor fuel taxes collected by the department on gasoline and other motor fuels consumed on such turnpike, except the two-sevenths of said motor fuel taxes provided in KRS 138.220 to be set aside for * * * rural and secondary roads.' A formula based on estimated mileage per gallon for various types of vehicles is provided for determination of the amount of taxes collected on motor fuels consumed on the turnpike.

In the event the tolls and revenues (including fuel taxes) so provided shall at any time appear insufficient to defray the rental obligations on schedule the Department must estimate the rate of deficiency on a semi-annual basis and pay the amount thereof to the Authority in equal monthly payments out of 'any other available funds of the department not required by law or by previous binding contract to be devoted to other purposes,' and, as it is expressed in § 12(4) of the Act, it may covenant to make up all or any part of such deficiency 'from any funds or tax revenues available for general purposes of the department and not required by law to be devoted to some other purpose.'

If the Department elects not to renew the lease at the end of any biennium the right to establish and collect the revenues of the project passes to the Authority, which must then make out for its bondholders as best it can from the turnpike revenues (including fuel taxes) alone. In such event, however, the turnpike must remain open, subject only to the exaction of tolls; neither the Authority nor its bondholders are authorized to close the road and deny its use to the traveling public. Under such circumstances, however, if the revenues should prove insufficient to service the bonds the Authority could increase the tolls.

The Department may agree, in the lease or otherwise, that after completion of the project it 'will continuously pay all or any part of the cost of repairing, maintaining and operating the project' as a public highway equitably belonging to the Commonwealth. As to this agreement the Department is contractually bound not only for the biennium but for the entire period of years until final maturity of the bonds.

When the Authority's bonds for a project have all been paid the project is to be conveyed to the Commonwealth, but this is subject to a further provision that a turnpike project may be combined for financing purposes with one or more others, in which event tolls may be continued (or, if previously discontinued, reimposed) in the interest of such common financing.

The Act says that the bonds issued by the Authority shall neither constitute a debt nor be supported by a pledge of the faith and credit of the Department or of the Commonwealth. The period to maturity may not exceed forty (40) years, and the bonds may be sold at public or private sale in such manner and for such price as the Authority may determine will best effect the purposes of the Act, the cost of the money not to exceed a rate of 6% per annum.

The bonds and the income therefrom are exempt from taxation within the Commonwealth and are eligible for investment of funds of public officers and public bodies, insurance, trust, saving and investment companies, trustees and other fiduciaries.

The chancellor held the following portions of the Act invalid:

(1) § 17, wherein the bonds are declared eligible investments for fiduciaries and public funds (as not germane to the title);

(2) The provisions of §§ 7(h) and 12(5) authorizing the pledge 'for any period extending beyond the end of a legislative biennium in which such pledge is made, of motor fuel taxes identified as being paid on motor fuel consumed on a turnpike project of the Authority' (as creating a debt in violation of Const. §§ 49, 50); and

(3) The provision of § 12(4) authorizing a covenant by the Department to 'make up any deficiencies of revenues of a turnpike project, from time to time, 'from any funds or tax revenues available for general purposes of the department and not required by law to be devoted to some other purpose," (also as creating a debt in violation of Const. §§ 49, 50).

The further principal respects in which appellee contends the Act should have been held invalid are:

(a) The over-all substance of the legislation is not sufficiently indicated by the title;

(b) The provision for a contract between the Department and the Authority is a fictional arrangement designed to permit the Authority to do what the Department cannot itself do, to-wit, created a debt of the Commonwealth in substance if not in form, violating Const. §§ 49, 50;

(c) The lease would be a long-term contract with option to cancel rather than a short-term lease with option to renew, creating a continuing obligation violating Const. §§ 49, 50;

(d) Renewal or non-cancellation of the lease prior to the beginning date of the biennium for which it is to be effective would be premature and illegal;

(e) The provisions for permanent maintenance by the Department create an obligation in futuro, also violating Const. §§ 49, 50; and

(f) The provisions authorizing reimposition of tolls on a turnpike project after it is once freed are illegal.

The title of the Act is as follows:

'An act relating to turnpikes and providing a method, alternative to KRS 177.390 to 177.570, for the...