Could a Kentucky agency sign a personal service contract extending beyond the current budget biennium?

Plain-English summary

A legislator asked whether Kentucky agencies and the Government Contract Review Committee could approve personal service contracts lasting beyond the current budget biennium. The Attorney General said yes. The contract term itself did not withdraw money from the Treasury or bind a future General Assembly to appropriate funds. The opinion required actual financial commitments within each biennium to remain within available appropriations.

The AG said the Committee's ordinary approval process was sufficient because the full Legislature retained control of future budgets. A “funding out” clause helped give the contractor actual notice of the possibility of future nonfunding, but was not what gave the Legislature that power. The opinion distinguished contract duration from authority to pay for performance in a later biennium.

Currency note

This opinion was issued in 2007. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Could a Kentucky personal service contract extend beyond the current biennium? A: The AG said yes, provided actual financial commitments did not exceed available appropriations for the current biennium.

Q: Did signing a multiyear contract guarantee future funding?
A: No. The opinion said the General Assembly could decline to fund the contract in a later budget.

Q: Did the contract need extraordinary legislative approval?
A: The AG said the Government Contract Review Committee's ordinary process sufficed; future appropriations remained with the full Legislature.

Q: What did a funding-out clause accomplish?
A: The AG said it informed the contractor of the Legislature's existing power not to fund later work, reducing misunderstanding. The clause was not essential to create that power.

Background and statutory framework

The opinion applied Section 230 of the Kentucky Constitution's restriction on Treasury payments to appropriated purposes. It repeated an earlier AG view that a contract could extend beyond a biennium if actual commitments stayed within current appropriations. It also mentioned the termination provision required by KRS 45A.695(1), while distinguishing that provision from notice of future nonfunding.

Citations and references

Statute: KRS 45A.695(1).

Constitution: KY. CONST. § 230.

Source

• Landing page: https://kdla.access.preservica.com/uncategorized/IO_e1c6d46e-d150-4b67-b065-2404a09b68f9/
• Original PDF: https://kdla.access.preservica.com/download/file/IO_e1c6d46e-d150-4b67-b065-2404a09b68f9

Original opinion text

OAG 07-006
September 10, 2007
Subject:

Authority of Government Contract Review Committee
to approve a personal service contract whose term
extends beyond the current fiscal biennium

Requested by:

Representative Brent Yonts
15th Legislative District

Written by:

James M. Herrick
Assistant Attorney General

Syllabus:

Agencies may enter into personal service contracts
with terms extending past the expiration of the current fiscal biennium, subject to the power of the General Assembly to choose not to fund such contracts in future budgets. The Government Contract Review Committee can approve such contracts because the ultimate decision on funding for each biennium is made by the full legislative body.

Constitutional
provision construed:
OAG’s cited:

KY. CONST. § 230

OAG 89-16, OAG 82-154, OAG 78-102, OAG 96-10

Opinion of the Attorney General

OAG 07-006
Page 2

Representative Brent Yonts has requested an opinion as to
whether a state agency may lawfully enter into personal service contracts whose duration extends beyond the end of the budgetary biennium. Specifically, the following questions are posed:

1. Whether the Transportation Cabinet may enter
   into personal service contracts for periods extending beyond the current biennium.
2. What constitutes the “approval of the Legislature”
   for purposes of allowing a personal service contract to
   cross over the biennium.
3. Whether a personal service contract containing a
   “funding out” or termination clause satisfies Section 230 of
   the Constitution of the Commonwealth of Kentucky.
4. Whether a member of the Government Contract
   Review Committee violates his/her oath to uphold the Constitution of the Commonwealth of Kentucky by voting for a personal service contract that clearly extends beyond the biennium, and thereby authorizes money to be drawn on the treasury, regardless of statute, “funding out” clause or termination provision.
5. Whether the Government Contract Review Committee’s jurisdiction includes the ability to approve personal service contracts that contain effective dates crossing over the current biennium for purposes of Section 230
   of the Constitution.
   In OAG 89-16, we had occasion to consider a very similar issue
   and opined, in part, as follows:
   Section 230 of the Kentucky Constitution prohibits
   money from being drawn from the State Treasury except in
   pursuance of an appropriation made by law. An appropria-

OAG 07-006
Page 3

tion may only be made while the General Assembly is in
session. OAG 82-154.
….
There is no constitutional provision of which we are
aware that prohibits the state from entering into a contract
for more than two years. However, one who contracts with
the state is chargeable with the knowledge of the limitations imposed on any state contract. 72 C.J.S. Supp. Public Contracts §4. Thus, the General Assembly is not required to appropriate funds after the biennium, if, in fact, general funds are required. The General Assembly’s power to authorize the expenditure of state funds from the Treasury is inherent and based in the Kentucky Constitution. Com. ex rel. Armstrong v. Collins, 709 S.W.2d 437 (Ky. 1986). Therefore, the legislature would not be bound to continue funding a personal service contract beyond the current fiscal biennium, regardless of the presence or absence of a “funding out” provision. The fact that the term of the contract exceeds the biennium does not in itself authorize the drawing of funds from the State Treasury. “[A]lthough an agency may contingently obligate the Commonwealth, the General Assembly has the final authority to ignore the obligation during the biennial budget process by not funding that particular obligation.” OAG 9610. The purpose of a “funding out” provision is to ensure, for the contract holder’s benefit, that the contract holder has actual knowledge of the General Assembly’s power to refuse funding for the contract in future budgets. Since any contractor is already legally “chargeable with the knowledge of the limitations imposed on any state contract,” actual knowledge is not strictly essential; however, actual knowledge prevents any misunderstandings and ensures equitable dealing on the part of the Commonwealth. A “funding out” provision would accomplish this purpose more effectively than the termination provision alone (mandated by KRS 45A.695(1)).

OAG 07-006
Page 4

Accordingly, as we concluded in OAG 89-16, an agency may enter into contracts for periods extending beyond the current fiscal biennium without offending Section 230 of the Kentucky Constitution. “The only caveat … is that to be constitutional, the administrator must be scrupulously careful to see that actual contract financial commitments do not go beyond available appropriations of a biennium.” OAG 78102. Regarding the mechanism for approval of such a contract by the General Assembly, there need not be any special type of approval beyond what is routinely used for personal service contracts in general. The ordinary process of the Government Contract Review Committee is sufficient, since the actual funding of the contract in each biennium would be determined by the full membership of the General Assembly during each subsequent budgetary session.

Gregory D. Stumbo
Attorney General

James M. Herrick
Assistant Attorney General