Court Opinion

ID: 5282969
Source: CourtListenerOpinion
Date Created: 2022-01-06 22:50:41.608119+00
Date Added: 2024-06-11T08:28:25.904652
License: Public Domain

VENTERS, J.,
dissenting.
I respectfully dissent. As the majority concedes, Appellants raise “important, legitimate questions” about the recurrent and now habitual practice of the executive and legislative branches to suspend certain statutes in order to divert license fees and *123user fees collected from citizens engaged in regulated activities. Citing to Armstrong v. Collins, 709 S.W.2d 437 (Ky.1986), defenders of the practice justify it upon the questionable grounds that the suspensions are just “temporary” and the diverted money is just “surplus,” and, therefore, subject to dispensation far removed from the purposes that justified their collection. It’s the same rationalization invoked by the heroin addict who needs just one more “temporary” fix, or the alcoholic who isn’t really drinking because he only had “two beers.”
It is, of course, beyond the purview of the judicial branch to concern itself with the wisdom of such fiscal policies, whether they are invoked once or perpetuated in serial fashion through a number of budget cycles. We address only the legality of the policy. I agree with Franklin Circuit Judge Phillip Shepherd’s conclusion in the Louisville Soccer Alliance case that this supplemental method of funding state government unconstitutionally converts license fees, lawfully collected pursuant to the state’s police power, into tax levies which, when diverted to other purposes, violates Kentucky Constitution § 180.11
Until now, it had been the well-settled law of this Commonwealth that the state’s police powers — that is, the power to regulate certain occupations and activities in order to protect the health, welfare, and safety of the public — “cannot be used to raise revenue unless it be an incident in the accomplishment of a proper end of promoting order, safety, health, morals or general welfare, to which end the fees have a reasonable relation. The object [of the fees collected] must always be regulation.” Bond Bros. v. Louisville & Jefferson Cnty. Metro. Sewer Dist., 307 Ky. 689, 211 S.W.2d 867, 873 (1948). To emphasize the point, it is worth noting that the fees collected from Louisville Soccer Alliance and other businesses, individuals, and institutions subject to state regulatory agencies have passed constitutional muster only because they are not imposed for the purpose of raising general revenue for the state, but are instead fees collected under the police power for the specific purpose of regulating the activity of charitable gaming. See Commonwealth v. Louisville Atlantis Cmty./Adapt, Inc., 971 S.W.2d 810, 815 (Ky.App.1997), citing Long Run Baptist Ass’n v. Sewer Dist, 775 S.W.2d 520, 522 (Ky.App.1989) and Gray v. Methodist Episcopal Church, 272 Ky. 646,114 S.W.2d 1141,1142 (1938).
The fundamental principle, acknowledged just 23 years after the adoption of the present Constitution in City of Henderson v. Lockett, 157 Ky. 366, 163 S.W. 199 (1914), provides that license fees generated under the police power may not be so large as to achieve a revenue-producing purpose:
The fee that may be imposed under the police power is one that is sufficient only to compensate the municipality for issuing the license and for exercising a supervision regulation over the subjects thereof. Anything in addition to this amounts to a tax for revenue, and cannot be upheld as a valid exercise of the police power.”
163 S.W. 199, 201 (1914). (emphasis added).
Under this fundamental principle, the millions of dollars of so-called “surplus” *124fees swept from the accounts of the regulatory agencies for purposes not connected with the agencies’ police powers became, in substance and effect, tax revenue levied and collected for one purpose but ultimately devoted to another. That is a violation of § 180. Moreover, the funds at issue here cannot fairly be regarded as “surplus” because there is absolutely no indication in the record that they are not needed to achieve the purpose for which they were originally collected.
The Majority brushes aside that principle citing to Field v. Stroube, 44 S.W. 363 (Ky.1898) as support for the theory that the funds in question are merely “surplus,” like pocket change leftover at the end of the day, money not needed by the agencies to perform their regulatory functions. But, the “surplus” funds involved in Stroube bear no similarity to the current situation.
In Stroube, a special levy had been imposed to fund the construction of a new courthouse for Bracken County. When the construction project was completed, money collected for the project was left over. To be clear, it was impossible to use the levied funds for the intended purpose because that purpose had been fully achieved. When the diversion of the leftover money, “the surplus,” was challenged, the Court held “when the object to be attained by the levy has been accomplished, and a surplus remains, it must be treated as a part of the general funds of the county and available for general county ' purposes.” Field v. Stroube, 103 Ky. 114, 44 S.W. 363 (1898). In stark contrast, it is obvious beyond dispute that the “object to be attained” by the imposition of the regulatory fees has not been accomplished and, indeed, since all of the agencies involved are ongoing and enduring components of our bureaucracy, the only reasonable conclusion is that the object to be attained (ongoing regulation) has not been finally achieved, nor will it be attained in the foreseeable future.
Other cases in which “surplus” funds were properly transferred into the general fund follow the same pattern: there was a true surplus left over after the purpose of the assessment was completed. See, e.g. Fannin v. Davis, 385 S.W.2d 321 (Ky.1964) (involving road and bridge construction); City of Ashland v. Bd. of Educ., 286 Ky. 69, 149 S.W.2d 728 (1941) (construction of school buildings); Overall v. City of Madisonville, 125 Ky. 684, 102 S.W. 278 (1907) (construction of a municipal lighting plant; Falls City Const. Co. v. Fiscal Court, 160 Ky. 623, 170 S.W. 26 (1914)) (courthouse construction).
I agree with the resolution in each of the foregoing cases because in each instance, a true “surplus” existed — money was collected that could not be used for its intended purpose. The impossibility of matching the ultimate cost of a particular project with the actual revenue generated by the fees levied to attain it virtually assures that, in the usual case, some surplus will exist when the objective is finally achieved. Because the fees cannot reasonably be refunded, a one-time diversion of the surplus to the general fund as a kind of escheat does not convert the surplus into general tax revenue. But here, the money swept into the general treasury was not the loose change left over when the objective had been achieved. To the contrary, the license fees and user fees collected by the regulatory agencies here were intended to pay for ongoing regulatory functions, such as policing the building industry and charitable gaming activities, which have not ended. They were not, like the funds levied in Stroube and other cases, assessed to fund a finite objective like a bridge or courthouse project. There can be no “surplus” of funds when the purpose for collecting the fees continues, and the fees continue to be collected from the regulated *125parties. To call such fluids “surplus” is to ignore the plain meaning of the term.
The majority chides the Appellants for failing to provide statistics showing that the fees being collected by the affected agencies greatly exceeded the actual costs of administering the regulated activity. That completely misses the point. Appellants’ central contention is that legislative raid on the agencies’ restricted fuhds was illegal and, because those funds were diverted to the general treasury, they are no longer available to service the agencies’ ongoing regulatory responsibilities, thereby increasing the user fees and license fees that must be charged in the future. The claim that the fees are excessive arises only because the fees were accumulated in restricted funds that were diverted from the regulating agencies, the fact that each agency here has ongoing regulatory responsibilities proves with absolute certainty that the funds are not surplus.
I also agree with Judge Shepherd’s conclusion that the legislation enacted to cover the ongoing diversion of restricted funds violates § 51 of the Kentucky Constitution. See Grayson Cnty. Bd. of Educ. v. Casey, 157 S.W.3d 201 (Ky.2005). I disagree with the Majority’s conclusion that Armstrong completely settles the issue. As Judge Shephefd observed, “the Court in Armstrong was very explicit that its ruling applied only to ‘temporary, determinable suspensions of statutes relating to the appropriation of public funds.’ ” 709 S.W.2d at 446. The judge further noted “if the reasoning of [the Appellees] is accepted, the legislature could merely pass an omnibus bill with the title ‘an act related to state government’ and completely circumvent the requirements of Section 51.”
The Majority charitably refers to this funding mechanism as a “budget balancing measure.” It is more accurately likened to the blue smoke and mirrors used by the sideshow magician to hide the rabbit up his sleeve. It is a sleight-of-hand technique for shifting the financial burden of the general government while avoiding the unpalatable prospects of increasing taxes, decreasing services, or both. The diversion of regulatory fees to the general fund amounts to a tax on the future participants in the regulated activities, a decrease in the future services of the regulatory agencies, or both. Doing so violates § 180 of the Kentucky Constitution.
Today, we further enable the state’s dependence upon the biennial sweep of regulatory accounts. This case arose from the 2008 budget process and the sweep of $51 million of “surplus” funds from regulatory accounts after a “temporary” suspension of the statutes prohibiting the practice. That telfiporary fix has been repeated in every subsequent budget cycle. In fiscal year 2012, $116.5 million was diverted from regulatory accounts; in 2013, the figure was $89.1 million; based upon the 2012 budget bill, $86.1 million will be transferred in 2014. The current executive branch budget bill (HB 235) estimates that for fiscal year 2015, $214.7 million will be transferred and, in 2016, $69.8 million will be transferred. That the diversion of fees collected under the police power for regulatory purposes is now built into the budget planning process simply proves that the funds being collected are not really “surplus,” and that the biennial suspension of statutes prohibiting the practice is not really temporary. The regulatory agencies pow know they must artificially produce a “surplus” by assessing higher fees ahd providing less service and less protection. Our complicity in that practice nullifies § 180. Therefore, I dissent.
SCOTT, J., joins.

. Ky. Const. § 180: "Every act enacted by the General Assembly, and every ordinance and resolution passed by any county, city, town or municipal board or local legislative body, levying a tax, shall specify distinctly the purpose for which said tax is levied, and no tax levied and collected for one purpose shall ever be devoted to another purpose.” (emphasis added).