Court Opinion

ID: 9762878
Source: CourtListenerOpinion
Date Created: 2023-08-29 02:33:11.342394+00
Date Added: 2024-06-11T07:29:38.205255
License: Public Domain

STUMBO, Justice,
dissenting.
When is a debt not a debt? When the Commonwealth is a debtor! This feat of linguistic alchemy is the result of the legal fiction known as the revenue bond. In 1957, this Court defined revenue bonds as follows:
The term ‘revenue bonds’ is a descriptive qualification indicating that the instruments are payable solely from a revenue producing public project.
Dalton v. State Property and Buildings Commission, Ky., 304 S.W.2d 342, 352 (1957).
In 1960, we moved incrementally away from the “payable solely” requirement by approving a scheme whereby the gasoline tax paid on gasoline used by vehicles traveling the turnpike built by the revenue bond proceeds could be treated as revenue of the project. Turnpike Authority of Kentucky v. Wall, Ky., 336 S.W.2d 551 (1960). In that same opinion however, we held that a provision requiring the Department of Highways to make up any shortfall in the bond payments from unencumbered Department funds ran afoul of Kentucky Constitution §§ 49 and 50.
As time has passed, we have allowed connection between the revenue produced and the project to become more and more tenuous. In Blythe v. Transportation Cabinet, Ky., 660 S.W.2d 668 (1983), we approved legislation providing for revenue bonds to cover economic development road projects secured solely by income and revenue derived from leasing the road to the Department of Transportation. No tolls were involved, but the issuing agency did have possession of the roads and, thus, something to lease for which rent could be expected.
Next, in Hayes v. State Property and Bldgs. Com’n., Ky., 731 S.W.2d 797 (1987), we sanctioned the revenue bonds issued to develop the Toyota plant. Those bonds are paid off through revenue accrued from incremental taxes and appropriated to the Commerce Cabinet for that purpose. Thus, a privately-owned business was, in part, financed by the Commonwealth under the guise of renting something the Commonwealth did not own and has little control over to the Commerce Cabinet, said rental pay*647ments being made by increases in taxes paid to the state that may, or may not, be in any way related to economic growth arising from the facility’s operation.
In the present case, that which is leased is the improvement, construction, and reconstruction of certain nonrevenue-producing, already-existing roads. At least that upon which this huge investment is being made does belong to the state, which is marginally better than the fact situation in Wall. But, facts are facts: no revenue is produced by these roads, thus these cannot be revenue bonds as the term has classically been defined.
Financing schemes such as this have been described as “moral obligation bonds” in New York. See, e.g., Schulz v. State, 193 A.D.2d 171, 606 N.Y.S.2d 916 (A.D. 3 Dept. 1993), aff'd, 84 N.Y.2d 231, 616 N.Y.S.2d 343, 639 N.E.2d 1140 (1994). Therein, as here, the court noted that “under the terms of the leases or agreements the State has no legal obligation to appropriate money to make payments, it has no legal liability to the bondholders and effectively divests itself of all but a moral obligation to appropriate the moneys necessary to fund and secure the bonds.” Id., 193 A.D.2d, 606 N.Y.S.2d at 917, 918 n. 1. That moral obligation is enforced by the very real and tangible fact that should the legislature fail to appropriate the money necessary to cover the bond obligation, the Commonwealth’s credit rating would plummet and future bond issues would be difficult, if not impossible.
Through smoke and mirrors we have allowed debt to be labeled something else for too long. The economic reality is that these bonds are debts of the Commonwealth. They are therefore in violation of §§ 49 and 50 of the Kentucky Constitution.
LAMBERT, J., joins this dissent.