Could Fayette County schools pay Lexington's sewer construction privilege fee from school funds?

Plain-English summary

Kentucky's Attorney General concluded that the Fayette County Board of Education could use school funds to pay Lexington-Fayette Urban County Government's sanitary-sewer privilege fee and was required to pay for properties it had acquired subject to the fee. The fee helped fund sewer construction, but the AG said its allocation by “usage and acreage” reasonably measured the schools' share of the sewer service and construction costs. It therefore qualified as a public school purpose under the opinion's constitutional analysis.

The opinion distinguished this fee from an assessment based on property value. Kentucky's constitutional restrictions keep school funds for school purposes, so the key question was whether a charge bore a “reasonable and rational relationship to the value of the services provided” to the schools rather than financing improvements for others. The AG found that relationship in the usage-and-acreage formula described by the local government.

Currency note

This opinion was issued in 2009. 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 school board pay the sewer privilege fee with school money? A: The AG said yes for the Lexington-Fayette fee described in the request. It found the usage-and-acreage calculation reasonably related to the sewer services and costs attributable to school property.

Q: Why did the fee satisfy the school-purpose limitation? A: The opinion said school funds may pay a sewer charge that reasonably reflects the value of service to the schools. It treated usage and acreage as a reasonable measure of the schools' actual use and proper share of construction costs.

Q: Did the AG say every sewer construction assessment could be paid from school funds? A: No. It distinguished a charge based on usage and acreage from an ad valorem assessment based on property value, which it said would not have the same rational relationship to the schools' sewer use.

Q: Was payment optional for property the school board had already acquired? A: The opinion concluded the board was required to pay to the extent it had acquired title to property subject to the recorded privilege fee.

Background and statutory framework

Lexington-Fayette's ordinance allowed sewer construction to be funded through privilege fees apportioned among benefited properties. The local government described the fee as based on usage and acreage; the school board had acquired property under recorded fee agreements. Sections 180, 184, and 186 of the Kentucky Constitution restricted school funds to their designated school purposes.

The AG applied a Kentucky Court of Appeals decision that allowed a sewer user charge when it reasonably reflected services provided to schools. That decision warned against using school funds for public improvements benefiting others. The opinion concluded the usage-and-acreage privilege fee met the service-value test and distinguished the ad valorem assessment discussed in another sewer case.

Citations and references

• KY. CONST. §§ 180, 184, 186: constitutional school-fund restrictions discussed in the opinion.
• KRS 67A.887: assessment provision contrasted with the privilege fee.
• OAG 00-2 and OAG 92-63: earlier AG opinions cited in the school-purpose discussion.

Source

• Landing page: https://kdla.access.preservica.com/uncategorized/IO_11b1e845-cb60-492a-b9d0-7dd275af814e/
• Original PDF: https://kdla.access.preservica.com/download/file/IO_11b1e845-cb60-492a-b9d0-7dd275af814e

Original opinion text

OAG 09-001

March 10, 2009

Subject: Whether a county board of education can constitu- tionally pay a privilege fee for connecting to a public sewer system

Requested by: Edward W. Gardner, Esq.
Department of Law
Lexington-Fayette Urban County Government

Written by: James M. Herrick
Assistant Attorney General

Syllabus: A privilege fee to fund construction of a sewer sys- tem is a “public school purpose” if it bears a rational relationship to the value of the services provided to the public schools. A fee based on usage and acreage meets this standard because it is propor- tional to the services provided.

Statute construed: KRS 67A.887

Constitutional
provisions construed: KY. CONST. §§ 180, 184, 186

OAG’s cited: OAG 00-2, OAG 92-63

Opinion of the Attorney General

Edward W. Gardner of the Lexington-Fayette Urban County Gov- ernment (“LFUCG”) Department of Law has inquired as to whether the Fayette County Board of Education (“Board”) can lawfully pay a privi- OAG 09-001 Page 2

lege fee to the LFUCG for connecting to the public sanitary sewer sys- tem. It is our opinion that under the circumstances as described to this Office, the Board can lawfully pay such a fee and is required to do so.

Mr. Gardner has indicated that pursuant to Section 16-62 of the LFUCG’s Code of Ordinances, the construction of sanitary sewer facili- ties may be funded by “privilege fees” apportioned among the proper- ties to be served by the sewers, as provided for in a “privilege fee agreement” which is recorded in the County Clerk’s office after notice to all affected property owners and approval by the Urban County Council. He points out that the privilege fee is “based on usage and acreage so that each benefited property pays only its proportional share of the costs.”

The Board has acquired title to certain properties subject to recorded privilege fee agreements, but believes it cannot lawfully pay the privilege fees to the LFUCG because of constitutional restrictions on the uses of school funds. Specifically, the provisions in question are Sections 180, 184, and 186 of the Kentucky Constitution.

Section 180 directs that “no tax levied and collected for one pur- pose shall ever be devoted to another purpose.” Section 184 states that “any sum which may be produced by taxation or otherwise for purposes of common school education … shall be appropriated to the common schools, and to no other purpose. Section 186 provides that “[a]ll funds accruing to the school fund shall be used for the mainte- nance of the public schools of the Commonwealth, and for no other purpose, and the General Assembly shall by general law prescribe the manner of the distribution of the public school fund among the school districts and its use for public school purposes.” The essential ques- tion, therefore, is whether the privilege fee for sanitary sewers can be characterized as a “public school purpose.” OAG 00-2.

In a past lawsuit between these two parties, Board of Education of Fayette Co. v. Lexington-Fayette Urban County Gov’t, 691 S.W.2d 218 (Ky.App. 1985), the Court of Appeals held that the Board could pay a sewer user charge to the LFUCG even though a minimal percentage of the user charge was used for construction and expansion of the sew- ers. The court reasoned as follows:

[T]he applicability of Sections 180, 184 and 186 to the is- sue of whether a sewer user charge can be paid from school funds must be determined by a reasonable interpre- OAG 09-001
Page 3

tation of whether the commodity provided is necessary for the maintenance of the public schools and is exclusively for the benefit of the public schools. No one could seriously argue that providing electricity, water and other utilities were not necessary. By a system of metering the exact amount used by the school it can be determined, for all practical purposes, that the use is exclusively for the bene- fit of the school. It stands to reason that if piping water into a school is necessary, flushing it out is also necessary.
Particularly is this true in view of the legislative policy ex- pressed in KRS 96.930 which places a public duty upon the user of water which becomes contaminated to provide and pay for the proper disposition thereof. There would appear to be no question but that the Board must provide for and pay for the proper disposition of its sewage.

Id. at 220 (emphasis added). The court added:

There is no “duty” imposed upon the government to pro- vide sanitary sewers free of charge. The critical question presented is whether the charges imposed bear such a re- lationship to the service provided as to enable the Court reasonably to say that the school funds have been ex- pended for the exclusive benefit of the public schools.

It is the opinion of this Court that the method used by the Government of basing sewer user charges upon the volume of water used is a reasonable method of determin- ing the actual use of the sewers made by the public schools.

Id. at 221 (internal quotation marks omitted).

The Court of Appeals then, in dicta, considered a hypothetical case similar to that which is now presented to this Office:

At this time, the Government does not propose to include a substantial charge for future expansion. If such should be done then the School Board would have the opportunity to object and receive an appropriate rate reduction to the ex- tent that its public school funds were being used to con- struct public improvements for the benefit of others. See KRS 96.938.
OAG 09-001
Page 4

Id. (emphasis added). With regard to the user fee then before it, how- ever, the court concluded “that the sewer charges imposed upon the Board bear a reasonable and rational relationship to the value of the services provided and therefore are exclusively for the benefit of and necessary for the maintenance of the public schools.” Id. (emphasis added). The test for a “public school purpose,” therefore, appears to be whether the funds “bear a reasonable and rational relationship to the value of the services provided” to the public schools, or whether they are “being used to construct public improvements for the benefit of others.” Cf. OAG 92-63.

The case of Robertson v. City of Danville, 291 S.W.2d 816 (Ky.
1956), though decided on other grounds, sheds some light on this is- sue. That case concerned the legality of a statute that, inter alia, re- quired public school property to be included in annual assessments for “special improvement benefits” to finance city sewer construction. The Court in Robertson (as noted in Board of Education, supra) ap- peared to base its favorable decision on the fact that the annual levies were to be paid from the State Treasury out of monies not otherwise appropriated, so that funds appropriated to the common schools would not have to be expended. But for that fact, however, the Court seemed to acknowledge that Ky. Const. §§ 184 and 186 would have been applicable. Significantly for purposes of the present analysis, the Court recited the fact that the “improvement benefit assessments” were to be levied on an ad valorem basis. 291 S.W.2d at 819.

If the LFUCG were proceeding under KRS 67A.871 et seq. and fi- nancing sanitary sewer construction by issuing bonds, this situation would resemble the circumstances in Robertson, since KRS 67A.887 re- quires the annual assessment for bond amortization to be on an ad val- orem basis. But what distinguishes the privilege fee both from annual assessments (as in Robertson and KRS 67A.887) and from the hypo- thetical situation discussed in Board of Education, supra, is that it is not an ad valorem assessment. Rather, the privilege fee is based upon usage and acreage. This resembles the “volume of water used” stan- dard that the Court of Appeals determined to be reasonably and ratio- nally related to the value of services provided in Board of Education.

It is this Office’s reading of the Board of Education case that the expenditure of public school funds “to construct public improvements for the benefit of others” equates to an expenditure not rationally pro- portionate to the use of the sewers by the public schools; i.e., to the OAG 09-001 Page 5

“value of the services provided.” An ad valorem assessment would not have such a rational relationship. We view “usage and acreage,” how- ever, as a reasonable standard for determining the public schools’ ac- tual use of the sewers, and therefore for determining its proper share of the construction costs. Since this is not a question of using public school funds “for the benefit of others,” it is our opinion that the Board could lawfully pay the privilege fee to the LFUCG and is required to do so to the extent that it acquired title to real estate subject to such a fee.

Jack Conway
Attorney General

James M. Herrick
Assistant Attorney General