Can a Kentucky urban-county government create a hotel-only special assessment district with non-adjacent properties?

Plain-English summary

Lexington-Fayette's government expected the local tourism organization, VisitLex, to petition for a special "management district" made up only of hotels, where the assessed hotels would pay for marketing aimed at filling hotel rooms. Two features of that idea raised legal questions: the hotels would not all be next to each other, and properties outside the district might get some indirect benefit from the advertising. The city asked the Attorney General whether KRS 91.752 allows an industry-specific district like that.

The opinion said yes. Kentucky lets urban-county governments create management districts to fund "economic improvements" that specially benefit property in the district, paid for by special assessments on that property. The general rule for special assessments is that the assessed property has to actually benefit. The opinion read the statutes (KRS Chapter 91) and found nothing requiring the properties in a district to be contiguous. The proposed economic improvement, targeted advertising to boost hotel demand, fits squarely within the statute's list, which includes "promotion of commercial activity."

On the indirect-benefit point, the opinion explained that the test for whether a property is in the district is whether it receives a benefit, not just where it sits. The statute even lets property owners contest both the assessment and their inclusion. And the fact that nearby properties outside the district might enjoy some incidental or secondary benefit does not force them into the district or invalidate it. The assessment can be calibrated to match the benefits properties receive. So the city may establish a hotel-only district as long as the special assessment is charged and calculated on a "fair basis" and otherwise complies with KRS Chapter 91.

What this means for you

Urban-county governments and local government attorneys

Under this opinion, KRS 91.752 permits an industry-specific (here, hotel-only) management district. The district's properties need not be contiguous, and incidental benefit to non-assessed neighbors does not invalidate it, provided the special assessment is on a fair basis under KRS Chapter 91.

Hotel owners

For hotels that could be assessed, the opinion notes the statute gives property owners a right to contest both the assessment amount and their inclusion in the district (KRS 91.758(4)(c)).

Economic development and tourism officials

The opinion treats targeted advertising and sales efforts to increase hotel-room demand as a qualifying "economic improvement," specifically the "promotion of commercial activity" under KRS 91.756(1)(b)(3).

Common questions

Q: Can a Kentucky urban-county government create a district just for hotels?
A: Yes, according to this opinion. The Attorney General read KRS 91.752 to allow an industry-specific "hotel only" management district.

Q: Do the properties in the district have to be next to each other?
A: No. The opinion found nothing in the statute requiring the properties in a management district to be contiguous.

Q: What if properties outside the district benefit from the advertising?
A: The opinion says incidental or secondary benefit to non-assessed neighbors does not require their inclusion or invalidate the district. The key is whether an assessed property receives a benefit.

Q: Is there any limit on the assessment?
A: Yes. The opinion conditions its conclusion on the special assessment being charged and calculated on a "fair basis" and otherwise complying with KRS Chapter 91.

Background and statutory framework

KRS 91.752 lets urban-county governments establish management districts to finance economic improvements that specially benefit property in the district. KRS 91.750(4) defines a management district, KRS 91.750(1) defines "economic improvement," and KRS 91.750(5) defines the "property" benefited. KRS 91.756(1) lists what an establishing ordinance must contain, including the assessment method (which may use any fair basis authorized by KRS 91A.200 to 91A.290), and KRS 91.756(1)(b)(3) lists "promotion of commercial activity" as an economic improvement. KRS 91.758(4)(c) gives owners the right to contest assessment or inclusion. Applying the rule that special assessments require benefit (Louisville Mem'l Gardens v. Carpenter) and plain-text and whole-statute canons (Owen v. Univ. of Ky.; Lewis; Beckham), the opinion concluded a noncontiguous, industry-specific district is permissible.

Citations and references

Statutes:
- KRS 91.752 (management districts); KRS 91.750(1), (4), (5) (definitions)
- KRS 91.756(1), (1)(b)(3) (ordinance contents; commercial-activity promotion)
- KRS 91.758(4)(c) (right to contest); KRS 91A.200 to 91A.290 (assessment method)

Cases:
- Louisville Mem'l Gardens, Inc. v. Carpenter, 261 S.W.2d 627 (Ky. App. 1953)
- Owen v. Univ. of Ky., 486 S.W.3d 266 (Ky. 2016)
- Lewis v. Jackson Energy Co-op. Corp., 189 S.W.3d 87 (Ky. 2005)
- Beckham v. Bd. of Educ. of Jefferson Cnty., 873 S.W.2d 575 (Ky. 1994)

Source

• Landing page: https://www.ag.ky.gov/Opinions/Pages/default.aspx
• Original PDF: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG%2021-12.pdf

Original opinion text

The full opinion as issued by the Office of the Kentucky Attorney General:

Commonwealth of Kentucky
Office of the Attorney General
Daniel Cameron, Attorney General
Capitol Building, Suite 118, 700 Capital Avenue, Frankfort, Kentucky 40601
November 18, 2021
OAG 21-12
Subject: Whether, under KRS 91.752, the Lexington-Fayette County Urban Government may establish an industry-specific "hotel only" management district that benefits noncontiguous properties and provides indirect benefit to properties not within the defined district.
Requested by: Susan Speckert, Commissioner of Law, Lexington-Fayette Urban County Government
Written by: Carmine G. Iaccarino; Olivia F. Amlung, Assistant Attorneys General
Syllabus: Under KRS 91.752, the Lexington-Fayette Urban County Government may establish an industry-specific "hotel district" comprised of noncontiguous properties even if the district may provide indirect benefit to properties not within the defined district.

Opinion of the Attorney General

By statute, urban-county governments may establish "management districts . . . for the purpose of providing and financing economic improvements that specially benefit property within the management district." KRS 91.752. Expecting that VisitLex may petition to establish a particular management district under this authority, the Lexington-Fayette Urban County Government asks whether, under KRS 91.752, it may establish an industry-specific management district. If so, the Lexington-Fayette Urban County Government would consider a petition to establish a management district for the sole benefit of hotels within a certain defined area even though some of those properties may not be contiguous to each other and indirect benefit might inure to other properties not within the defined district. For the reasons below, it is the Attorney General's opinion that an industry-specific management district, like the one described here, is permissible under KRS 91.750 through KRS 91.762.

First, the "general rule" is "that special assessments against property will not be upheld unless there is benefit to the property." Louisville Mem'l Gardens, Inc. v. Carpenter, 261 S.W.2d 627, 628 (Ky. App. 1953) (collecting cases). With that starting point in mind, the General Assembly has defined a "management district" as an area "that is to be benefited by economic improvements and subjected to the payment of special assessments for the costs of the economic improvements." KRS 91.750(4). Moreover, an ordinance establishing a management district must include, among other things, an "accurate description of the boundaries of the management district designated either by map or perimeter description," a "description of the economic improvements that may be undertaken within the management district by its board," and the "method of assessment of the properties that may include any fair basis authorized by KRS 91A.200 to 91A.290." KRS 91.756(1).

The statute also broadly defines "economic improvement" to include "any activity or service for the improvement and promotion of a management district that is of special benefit to property within the district," but such improvements do not include services ordinarily provided throughout the urban county. KRS 91.750(1); see also KRS 91.750(5) (defining "property to include "any real property benefited by economic improvements"). Instead, "economic improvements" may include the planning, administration, and management of development or improvement activities; landscaping, maintenance, and cleaning of public ways and spaces; the promotion of commercial activity or public events; the conduct of activities in support of business recruitment and development; the provision of security for public areas; the construction and maintenance of capital improvements to public ways and spaces; and any other economic improvement activity that specially benefits property. See generally KRS 91.756(1)(b).

In recognizing the "general rule" governing special assessments, KRS Chapter 91 authorizes management districts to benefit certain defined properties within demarcated geographic borders. But not all properties within the geographic boundaries of a management district must be included within the district or subject to the special assessment. See KRS 91.750(5) (defining "property"); KRS 91.758(4)(c) (affording property owners the right to contest the assessment or inclusion within the district).

According to Lexington-Fayette Urban County Government, it may be asked to establish a management district for the benefit of hotels within Fayette County. The proposed economic improvement "would be tailored to hotels only" and would include "targeted advertising and sales efforts to increase the demand for hotel rooms." Although the "question whether property assessed for improvements will be benefited by the improvement is one of fact to be determined by the legislature or the legislative body of the local governmental unit," Carpenter, 261 S.W.2d at 628, the economic improvement proposed here is one clearly envisioned by the statute. KRS 91.756(1)(b)(3) (listing the "promotion of commercial activity or public events" as one form of "economic improvement").

The Lexington-Fayette Urban County Government suggests there is some ambiguity in the text that could be read to require that properties within a management district be contiguous and that such a district may not provide indirect benefit to properties not within the defined district. But the "[t]he text is law," Owen v. Univ. of Ky., 486 S.W.3d 266, 272 (Ky. 2016), and each of the statutes "must be read as a whole and in context with other parts of the law." Lewis v. Jackson Energy Co-op. Corp., 189 S.W.3d 87, 92 (Ky. 2005). Doing so, this Office is satisfied that the statute contains no requirement that properties within a management district be contiguous. Similarly, the text does not provide that a management district is invalid if incidental or secondary benefits accrue to neighboring properties.

If the General Assembly had intended to limit economic development within a management district to only contiguous properties, it would have said so. Instead, the General Assembly has provided that "property" within a management district must include only those real properties benefited by economic improvement. KRS 91.750(5). In fact, the statute provides a method to challenge not only the proposed assessment on a property but also the inclusion of the property in the management district. KRS 91.758. Because "[w]e are not at liberty to add or subtract from the legislative enactment nor discover meaning not reasonably ascertainable from the language used," Beckham v. Bd. of Educ. of Jefferson Cnty., 873 S.W.2d 575, 577 (Ky. 1994), and considering the whole of the statutory regime, Lewis, 189 S.W.3d at 92 ("[A] court must not be guided by a single sentence or member of a sentence, but must look to the provisions of the whole and to its object and policy."), this Office is satisfied that the determination of whether a property is included within a management district and therefore subject to the special assessment is not based on geographic location alone, the key determination is whether the property will receive some benefit. Carpenter, 261 S.W.2d at 628.

Finally, the possibility that properties not subject to a special assessment may enjoy some incidental or secondary benefit does not invalidate a management district created under KRS Chapter 91. The statute permits the framers of a management district to calibrate any special assessment to match the benefits provided within the district. See KRS 91.756(1)(d). Put differently, if properties within a district may enjoy to varying degrees the economic improvements for which the district was established, the assessment imposed may be applied in a manner that reflects that reality. But the mere fact that properties not within a management district might also enjoy incidental or ancillary benefits from the economic improvements within the district does not require their assessment or inclusion within that district. Here again, the text contains no such requirement and this Office lacks any authority to add such requirement "not reasonably ascertainable from the language used" in the statutes. Beckham, 873 S.W.2d at 577.

Conclusion. For these reasons, it is the Attorney General's opinion that, under KRS 91.752, the Lexington-Fayette County Urban Government may establish an industry specific "hotel only" management district, like the one described here, so long as the special assessment is charged and calculated on a "fair basis" and otherwise complies with the relevant provisions of KRS Chapter 91.

Daniel Cameron
ATTORNEY GENERAL
Carmine G. Iaccarino
Olivia F. Amlung
Assistant Attorneys General