Source: http://ksag.washburnlaw.edu/opinions/2002/2002-045.htm
Timestamp: 2019-04-19 02:46:33+00:00

Document:
If an assessment so exceeds the cost of regulation that it is apparent the Legislature is using it as a general revenue raising measure, the overage cannot stand on police power authority. If the assessment is in fact a revenue raising measure, it must be analyzed as such, which may include a determination as to whether it meets Commerce Clause and Equal Protection requirements, as well as any state constitutional requirements applicable to the type of tax it is. If an assessment cannot stand on either police power or taxing authority, it would have to be reimbursed. Whether the general fund contribution of a fund administered by an agency performing police power functions so far exceeds the direct and indirect costs incurred by the State on behalf of such agency as to be improper can be determined only as a factual matter on a case-by-case basis. While we do not have sufficient factual information to make this determination for the four scenarios discussed herein, we seriously question whether the agencies involved cost the State in indirect and administrative expenses as much as was taken from their funds during the 2002 Session. If, based on facts presented, a court determined that too much money was taken, and that the individuals and entities who pay fees and assessments to these agencies therefore are paying more than their fair share for the State's general operating expenses, it is likely the court would order those assessments reduced and payments into the general fund reversed. Cited herein: K.S.A. 9-1701; 9-1703; 9-2204; 9-2209; 9-2210; 16a-1-102; K.S.A. 2001 Supp. 16a-2-302; 16a-6-104; 16a-6-203; 17-5601; 17-5610; 17-5701; K.S.A. 44-501; K.S.A. 2001 Supp. 44-566a; K.S.A. 44-702; K.S.A. 2001 Supp. 44-703; K.S.A. 44-704; K.S.A. 2001 Supp. 44-710; 44-714; K.S.A. 44-716; K.S.A. 2001 Supp. 44-717; K.S.A. 44-719; K.S.A. 2001 Supp. 65-2801; 65-2803; 65-2812; K.S.A. 2001 Supp. 65-2836; K.S.A. 65-2846; K.S.A. 2001 Supp. 65-2852; 65-2855; K.S.A. 65-2909; K.S.A. 2001 Supp. 65-2911; 65-5509; 65-5513; 65-6910; 75-1304; 75-1308; K.S.A. 75-1310; K.S.A. 2001 Supp. 75-1315; K.S.A. 75-3170; K.S.A.2001 Supp. 75-3170a; L. 2002, Ch. 204, §§ 12, 15, 57, 74; L. 2001, Ch. 144, §126; K.A.R. 100-11-1; 100-28a-1; 100-29-7.
"(1) Is the transfer of money from a dedicated fee fund to the State General Fund permitted by Kansas Statute, or by the Federal or State Constitution?
"(2) Is there an obligation to repay the amount transferred?
"(3) If so, within what time frame do the funds need to be repaid?"
We will look at each of these funds and the transfers that were made during the 2002 legislative session. First, however, we believe it would be helpful to review the State's authority to exact these types of fees and assessments.
The power of a state to regulate business and industry for the protection of its citizens derives from its police power.
While police power is very broad and often difficult to define, there is a definite distinction between a state's police power and its power to levy taxes.
Kansas cases have recognized this distinction between police power and revenue raising measures and that the analysis of the State's authority depends on which power is being exercised.
"Thus, a tax is a forced contribution to raise revenue for the maintenance of governmental services offered to the general public. In contrast, a fee is paid in exchange for a special service, benefit, or privilege not automatically conferred upon the general public. A fee is not a revenue measure, but a means of compensating the government for the cost of offering and regulating the special service, benefit, or privilege. Payment of a fee is voluntary-an individual can avoid the charge by choosing not to take advantage of the service, benefit or privileged offered.
Thus, it is first necessary to determine whether a particular exaction is an exercise of the police power or is a tax imposed for revenue raising purposes. Then, if it is found to be an exercise of police power, it is necessary to determine whether the amount of the assessment is reasonably approximate to the cost of regulation because once "adequate remuneration has been secured the police power is exhausted."(7) Exact precision is not required;(8) the courts will tolerate some discrepancy as long as there is no evidence of legislative intent to utilize the fee as a revenue raising measure.
The issue of whether regulatory fees were assessed as pretextual revenue sources has been addressed by the Kansas appellate courts in varying circumstances and with varying outcomes. A review of these cases may be instructive.
Several years later, in City of Beloit v. Lamborn,(15) a city ordinance requiring milk distributors to obtain a permit and pay a fee was challenged. The City collected $1,125 a year in fees and paid $480 a year for the services of a state inspector. Finding that other expenses might be involved in the routine regulatory program and that emergency situations would require expenditure of greater sums, the Court found the fees were not grossly disproportionate to the expenses of regulation.
The rule of law derived from these cases is this: If an assessment is determined to so exceed the cost of regulation that it is apparent the Legislature is using it as a general revenue raising measure, the overage cannot stand on police power authority.(22) If the assessment is in fact a revenue raising measure, it must be analyzed as such, which may include a determination as to whether it meets Commerce Clause and Equal Protection requirements, as well as any state constitutional requirements applicable to the type of tax that it is.(23) If an assessment exceeds both police power and taxing authority, then it would have to be repaid. With these principles in mind, we turn now to the fund transfers about which you inquire.
K.S.A. 2001 Supp. 65-2852 authorizes the Board to assess fees for issuance of licenses and permits,(29) and K.S.A. 65-2846 authorizes, in some instances, the costs of proceedings before the Board to be assessed against the licensee. Neither of these statutes evidences a legislative intent for these assessments to constitute a tax. Rather, the intent appears to have been to support the Board's exercise of its regulatory functions.
For fiscal year 2002, the Board's twenty percent general fund credit required by statute amounted to $200,000, in light of the cap imposed by K.S.A. 2001 Supp. 75-3170a(c).(33) In addition, we are told that the Board was also billed in fiscal year 2002 for certain "direct" services, including printing and interest on the printing plant, storage of records at the records center or archives, facilities management services, central mail, personnel training and the Division of Information Systems and Communication (DISC) services, in the amount of $32,628.(34) The Board expects its fiscal year 2003 contribution to the general fund under these provisions to be approximately the same as it was for fiscal year 2002.(35) However, in addition to these exactions, the 2002 Legislature, by appropriation act, directed the transfer of an additional $200,000 from the healing arts fee fund to the general fund "to reimburse the state general fund for accounting, auditing, budgeting, legal, payroll, personnel and purchasing services and any other governmental services which are performed on behalf of the state agency involved by other state agencies which receive appropriations from the state general fund to provide such services."(36) We note that these are the same services for which the Board is required to reimburse the State under K.S.A. 2001 Supp. 75-3170a.
Thus, in fiscal year 2003, under the provisions that currently exist, the Board of Healing Arts will be required to transfer to the state general fund for services reimbursement approximately $430,000 of the applicant and practitioner fees assessed by the Board. By contrast, the information we have been provided regarding the estimated cost of direct and indirect services to the Board indicates that, as mentioned above, only $32,628 was billed for services, and the Board's allocated share of statewide indirect central services for fiscal year 2002 (for federal grant reporting purposes) was $11,851.(37) These costs are not expected to significantly increase in fiscal year 2003. No transfer similar to the additional $200,000 required by the 2002 Legislature for fiscal year 2003 was made in fiscal year 2002 and we are unaware of any legislative pattern of requiring additional transfers.
The State Bank Commissioner is charged with administering the banking, savings and loan, mortgage business and consumer credit laws of this State.(43) The purpose of these laws, generally speaking, is to protect consumers.(44) This is a police power function of the State.(45) The Bank Commissioner is authorized to assess fees and costs associated with the administration of these laws.(46) As with the Healing Arts Act provisions, none of these statutes evidences a legislative intent for these assessments to constitute a tax, but rather the intent appears to have been to reimburse the Commissioner for regulatory functions. In fact, the Bank Commissioner, at least with regard to the bank assessment, estimates on an annual basis the amount that will be needed for that fiscal year and, if any overage occurs, the amount is carried forward and the assessment commensurately reduced for the following fiscal year.
All fees collected by the Bank Commissioner are to be deposited in the state treasury and credited twenty percent to the general fund and the balance to the bank commissioner fee fund.(47) Again, according to K.S.A. 2001 Supp. 75-3170a(a), the purpose of crediting twenty percent of the money collected by the Bank Commissioner to the state general fund pursuant to these statutes is "to reimburse the state general fund for accounting, auditing, budgeting, legal, payroll, personnel and purchasing services, and any and all other state governmental services which are performed on behalf of the state agency involved by other state agencies which receive appropriations from the state general fund to provide such services."(48) We are told that the Bank Commissioner credited $200,000 to the general fund in fiscal year 2002 in accordance with subsection (c) of K.S.A. 2001 Supp. 75-3170a and expects to credit the same in fiscal year 2003.
In addition to that amount, the Legislature has ordered the transfer of $500,000 from the bank commissioner fee fund to the state general fund in fiscal year 2003.(49) The stated purpose of this transfer is the same as the purpose of the twenty percent/$200,000 requirement: "to reimburse the state general fund for accounting, auditing, budgeting, legal, payroll, personnel and purchasing services and any other governmental services which are performed on behalf of the state agency involved by other state agencies which receive appropriations from the state general fund to provide such services."(50) As with the Board of Healing Arts, the Bank Commissioner is also billed for and remits payments for certain direct services received from other state agencies, including printing, central mail services, motor pool, personnel training seminars and DISC services.(51) There was no transfer similar to the $500,000 ordered in the 2001 Session showing that this is some sort of a pattern.
We are told that, in light of the additional $500,000 transfer, as with the Board of Healing Arts, the Bank Commissioner found it necessary to increase the assessment on banks for fiscal year 2003. While this transfer also causes concern, for the same reasons cited in our discussion of the Board of Healing Arts fund transfers, in the absence of full accounting information that indicates the cost of direct and indirect support services exceeds the $200,000 requirement by $500,000, or that the $200,000 amount has been insufficient in past years, we are unable to definitively say that these payments to the state general fund from amounts collected by the Bank Commissioner constitute a clear, bad faith legislative intent to use regulatory fees for the improper purpose of raising general revenue.
"The legislature, therefore, declares that in its considered judgment the public good and the general welfare of the citizens of this state require the enactment of this measure, under the police powers of the state, for the compulsory setting aside of unemployment reserves to be used for the benefit of persons unemployed."
"(a) . . . Except as otherwise authorized by this section or by appropriations act, the moneys in this fund may be used by the secretary of human resources only for the payment of costs of administration which are found not to have been properly and validly chargeable against federal grants, or other funds, received for or in the employment security administration fund. In addition to the other purposes for which expenditures may be made from the special employment security fund as authorized by this section or by appropriations act, moneys from this fund may be used to finance activities as deemed necessary by the secretary of human resources for the efficient operation of activities under or the administration of the employment security law, except that (1) no moneys shall be used for such purposes unless the secretary has determined that no other funds are available or can be properly used to finance expenditures for such purposes, and (2) expenditures during any fiscal year for purposes authorized under this section shall not exceed $110,000 except upon approval of the state finance council acting on this matter which is hereby characterized as a matter of legislative delegation and subject to the guidelines prescribed by subsection (c) of K.S.A. 75-3711c and amendments thereto. . . .
"The moneys in this fund are hereby specifically made available to replace, within a reasonable time, any moneys received by this state pursuant to section 302 of the federal social security act, as amended, which, because of any action or contingency, have been lost or have been expended for purposes other than, or in amounts in excess of, those necessary for the proper administration of the employment security law. The moneys in this fund shall be continuously available to the secretary of human resources for expenditure in accordance with the provisions of this section and shall not lapse at any time or be transferred to any other fund, except as otherwise authorized in subsection (c) or subsection (d).
"(c) In addition to expenditures authorized by this section, the director of accounts and reports may transfer funds from the special employment security fund to the accounting services recovery fund as provided in K.S.A. 75-3728b and 75-6210 and amendments thereto.
"(d) In addition to expenditures authorized by this section, the director of accounts and reports is directed and authorized to transfer funds from the special employment security fund to the department of human resources federal indirect cost offset fund on July 1 of each year in the amount contained in appropriation bills to be expended from the federal indirect cost offset fund for that fiscal year.
Penalties and interest collected pursuant to enforcement of an act are not the same kind of "fees" as we have discussed for purposes of the Healing Arts Act and the Bank Commissioner's statutes. However, they are similar to the amounts that those agencies assess to reimburse the State for the costs of agency actions taken to enforce those agencies' statutes. It appears that they are intended as assessments to help recover the cost to the State of administering the Employment Security Law, which has been specifically referred to by the Legislature as a police power enactment.(58) We have no authority suggesting that penalties and interest must be analyzed as fees for purposes of determining whether the State has exceeded its police power authority. Nevertheless, we will look at it in those terms for purposes of this opinion.
Again, as with the two prior situations discussed, we are unable to say, in the absence of complete accounting information that indicates whether the amount transferred is greatly disproportionate to the cost of direct and indirect services, that this transfer from the special employment security fund to the state general fund constitutes a clear, bad faith legislative intent to use regulatory assessments for an improper purpose. This is particularly true with this fund, as it is composed of penalties and interest as opposed to regulatory fees.
It has been stated that the primary purpose of the Workers Compensation Act is "the compensation of workers injured in industrial accidents with as little delay as possible and without having to wait for the disposition of collateral issues in which they have no interest."(65) "The act is founded broadly upon considerations of public policy. Its purpose is to provide protection to workmen within the limits established by the act. . . ."(66) The Act also provides protection to employers who satisfy its requirements.(67) The Act and the fund created by the Act serve police power functions.(68) It appears that the original intent of the assessments imposed under the Act was to pay claims covered by the fund and to reimburse the State for the costs of administering the fund.
We are told that over the past few years, amounts required to be paid from the fund have been on a downward spiral. In response to this, the Commissioner has eliminated the assessments required under K.S.A. 2001 Supp. 44-566a for fiscal year 2003. Additionally, the Legislature appropriated $7,000,000 of the fund to the state general fund.(69) We are told that this was intended to be a one-time transfer to remove excess dollars from the fund; there is no clearly stated legislative intent to assess more than is necessary to pay claims and administer the fund and then siphon off the extra amount into the general fund. As with the previously discussed transfers, the stated purpose of the $7,000,000 is "to reimburse the state general fund for accounting, auditing, budgeting, legal, payroll, personnel and purchasing services and any other governmental services which are performed on behalf of the state agency involved by other state agencies which receive appropriations from the state general fund to provide such services."(70) The workers compensation fund is not one that is required to credit twenty percent or $200,000 to the state general fund annually pursuant to K.S.A. 75-3170 and K.S.A. 2001 Supp. 75-3170a.
We do not believe that by any stretch of the imagination one could seriously argue that it has cost the State an additional $7,000,000 to implement the Workers Compensation Act and administer the workers compensation fund. However, we are unable to say, as a matter of law, that a one-time transfer of this nature is prohibited or that it constitutes a general revenue raising measure that would have to comply with taxing laws. Additional information regarding the amounts assessed over the years, the knowledge of the Legislature regarding the status of the fund, evidence of legislative intent that more be collected than necessary, the actual costs to the State to implement the Act and administer the fund, etc. would need to be collected and analyzed to reach a conclusion in this regard. So, again, without complete accounting information, we are unable to definitively say that this transfer from the workers compensation fund to the state general fund constitutes a clear, bad faith legislative intent to use regulatory assessments for the improper purpose of raising general revenue.
If a court did find that a transfer grossly exceeds the cost of direct and indirect services, the transfer would be void as an inappropriate exercise of the State's police power and would instead be analyzed as a tax.(71) The issue then would be whether the persons and entities responsible for the assessments have paid or are paying more than their fair share of the State's general operating expenses, and whether the tax complies with other relevant constitutional requirements.
If a successful challenge of any of these or other fund transfers were to be made, the State would likely have to repay the overages. To avoid ending up in this position, we would encourage the Legislature to study the issue of indirect costs and ensure that transfers of money from fee funded agencies into the general fund are not made arbitrarily, but rather bear a relationship to the actual costs borne by the State on behalf of those agencies and the constituencies they regulate or supervise.
In summary, if an assessment so exceeds the cost of regulation that it is apparent the Legislature is using it as a general revenue raising measure, the overage cannot stand on police power authority. If the assessment is in fact a revenue raising measure, it must be analyzed as such, which may include a determination as to whether it meets Commerce Clause and Equal Protection requirements, as well as any state constitutional requirements applicable to the type of tax it is. If an assessment cannot stand on either police power or taxing authority, it would have to be reimbursed. Whether the general fund contribution of a fund administered by an agency performing police power functions so far exceeds the direct and indirect costs incurred by the State on behalf of such agency as to be improper can be determined only as a factual matter on a case-by-case basis. While we do not have sufficient factual information to make this determination for the four scenarios discussed herein, we seriously question whether the agencies involved cost the State in indirect and administrative expenses as much as was taken from their funds during the 2002 Session. If, based on facts presented, a court determined that too much money was taken, and that the individuals and entities who pay fees and assessments to these agencies therefore are paying more than their fair share for the State's general operating expenses, it is likely the court would order those assessments reduced and payments into the general fund reversed.
1. 16A Am. Jur. 2d Constitutional Law § 313 (June 2002) (citations omitted).
2. 16A Am. Jur. 2d Constitutional Law § 315 (June 2002) (citations omitted).
3. 16A Am. Jur. 2d Constitutional Law § 318 (June 2002) (citations omitted). See also V-1 Oil Co. v. Utah State Department of Public Safety, 131 F.3d 1415, 1422-23 (1997).
4. Panhandle Eastern Pipe Line Co. v. Fadely, 183 Kan. 803, 806-07 (1958). See also R.B. Enterprises, Inc. v. State, 242 Kan. 241, 248-49 (1987); State ex rel. O'Sullivan v. Heart Ministries, Inc., 227 Kan. 244, 257 (1980); Fidelity Inv. Co. v. Hale, 212 Kan. 321, 328-30 (1973); State ex rel. Moore v. City of Wichita, 184 Kan. 196, 200 (1959); Attorney General Opinion No. 86-138.
5. 252 Kan. 421 (1993).
6. Id. at 427, 431.
7. State ex rel. v. Cumiskey, 97 Kan. 343, 352 (1916).
9. State ex rel. v. Ross 101 Kan. 377, 379 (1917). See also Great Northern Railway Co. v. Washington, 300 U.S. 154, 160, 81 L.Ed. 573, 578 (1937) ("[a] law exhibiting the intent to impose a compensatory fee for such a legitimate purpose [supervision and regulation] is prima facie reasonable").
10. 97 Kan. 343 (1916).
11. Watson v. City of Topeka, 194 Kan. 585, 590 (1965).
12. 101 Kan. 377 (1917).
15. 182 Kan. 288 (1958).
16. 194 Kan. 585 (1965).
18. 183 Kan. 803 (1958).
20. K.S.A. 75-3170(a). See also K.S.A. 2001 Supp. 75-3170a(a) (a $200,000 cap is currently in place for agencies subject to K.S.A. 2001 Supp. 75-3170a).
21. 212 Kan. at 329-30. The Court did not address other possible restrictions on such a transfer, such as federal restrictions if the fund in question contains federal grant moneys. See also Attorney General Opinion No. 76-119.
22. Panhandle Eastern, 183 Kan. at 808.
23. See Great Northern Railway Co., 300 U.S. at 160, 81 L.Ed. at 578.
25. K.S.A. 65-2801. See Kansas State Board of Healing Arts v. Foote, 200 Kan. 447, 453 (1968).
27. K.S.A. 2001 Supp. 65-2836.
28. Meffert v. Medical Board, 66 Kan. 710, 714 (1903); State ex rel. v. Gleason, 148 Kan. 1, 4-5 (1938). See also State ex rel. Moore v. City of Wichita, 184 Kan. 196, 200 (1959) ("[g]enerally speaking, the power to license is an exercise of the police power").
29. See also K.S.A. 65-2909; K.S.A. 2001 Supp. 65-5509; 65-6910(a).
30. K.S.A. 2001 Supp. 65-2855. See also K.S.A. 2001 Supp. 65-2911(b); 65-5513; 65-6910(c). We assume, for purposes of this opinion, that any portion of the healing arts fee fund that does not end up in the general fund is used solely for the purpose of supervising and regulating the healing arts profession. That portion of the fee has not been questioned.
31. K.S.A. 2001 Supp. 75-3170a.
32. Fidelity Inv. Co. v. Hale, 212 Kan. 321.
33. For a general discussion of the twenty percent transfer requirement and implementation of the $200,000 cap, see Reports of Special Committees to the 1975 Kansas Legislature 1057, Proposal No. 53-Fee Agencies, Reimbursement of General Fund.
34. Correspondence from Mark W. Stafford, General Counsel for the Board of Healing Arts, July 18, 2002.
36. L. 2002, Ch. 204, § 15(b).
37. Correspondence from Dale Brunton, Director, Division of Accounts and Reports, to Mr. Lawrence T. Buening, Executive Director, Board of Healing Arts, March 15, 2002.
38. K.A.R. 100-11-1; 100-28a-1; 100-29-7.
40. United States Office of Management and Budget Circular A-87.
41. Ross, 101 Kan. at 379.
43. K.S.A. 9-1701 et seq.; 9-2209; K.S.A. 2001 Supp. 16a-6-104; 17-5601; 75-1304; K.S.A. 75-1310; K.S.A. 2001 Supp. 75-1315.
45. Blaker v. Hood, 53 Kan. 499, 507-11 (1894).
46. See K.S.A. 9-1703(a); 9-2204; K.S.A. 2001 Supp. 16a-6-203; K.S.A. 17-5701 et seq.
47. See K.S.A. 9-1703(c); 9-2210; K.S.A. 2001 Supp. 16a-2-302(c); 17-5610; 17-5701; 75-1308.
48. See also K.S.A. 2001 Supp. 16a-2-302(c).
49. L. 2002, Ch. 204, §12(h).
51. The total for such services was estimated at $134,900.00 for fiscal year 2002.
52. K.S.A. 2001 Supp. 44-714(a).
53. K.S.A. 2001 Supp. 44-710(a).
54. K.S.A. 44-704(a); K.S.A. 2001 Supp. 44-703(k).
55. K.S.A. 2001 Supp. 44-717(a)(1); K.S.A. 44-719(d)(2).
57. Id. at subsection (a). See also L. 2000, Ch. 144, § 126(b).
59. L. 2002, Ch. 204, § 57(b).
60. See L. 2000, Ch. 130, § 29(d) (no mention made of the purpose for the transfer); L. 1999, Ch. 132, § 51(c) (no mention made of the purpose for the transfer); L. 1992, Ch. 327, § 62(c) (for the purpose of financing operating expenditures funded from the state general fund); L. 1991, Ch. 13, § 3(c) (refunding a portion of the operating expenditures funded from the state general fund); L 1990, Ch. 26, § 3(c) (operating expenditures). Apparently no transfers were required to be made from this fund to reimburse the state general fund for indirect expenses during the 1993-1998 Sessions.
61. K.S.A. 2001 Supp. 44-566a(a).
62. K.S.A. 2001 Supp. 44-566a(b)(1).
63. K.S.A. 2001 Supp. 44-566a(b)(2).
64. K.S.A. 2001 Supp. 44-566a(e).
65. Kuhn v. Grant County, 201 Kan. 163, 171 (1968).
66. Matlock v. Hollis, 153 Kan. 227, 232 (1941).
67. See K.S.A. 44-501(b), (g).
68. See Kansas Malpractice Victims Coalition V. Bell, 243 Kan. 333, 363 (1988); Manzanares v. Bell, 214 Kan. 589, 610-11 (1974); Estate of Baker, 222 Kan. 127, 130 (1977).
69. L. 2002, Ch. 204, § 74(d).
71. See Attorney General Opinion No. 76-119.

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