Can a Kentucky county pay first-time homebuyer grants or forgivable loans to its own employees?

Plain-English summary

Boone County wanted to offer a recruiting and retention perk: help county employees buy their first home, either with a one-time grant or a forgivable loan secured by a mortgage that shrinks the longer the employee stays and keeps living in the county. The county worried about whether spending tax dollars that way is legal.

The Attorney General said yes, with conditions. The key is that the homebuyer help has to be set up as part of the employee's compensation. A fiscal court has statutory authority to hire county employees and to set their reasonable pay, so a housing benefit folded into that compensation falls inside the county's powers.

Two limits apply. First, the spending must serve a public purpose, which Kentucky courts read broadly (economic welfare, retaining workers, and the like all qualify, and some incidental private benefit to the employee does not defeat the public purpose). Second, the program has to respect the constitutional bar on a government lending or pledging its credit and on committing future funds. The county can grant or loan money for a public purpose, but it cannot become a guarantor or surety on someone else's debt.

What this means for you

County officials and fiscal courts: Based on this opinion, a homebuyer-incentive program is within your authority if you build it as employee compensation rather than as a freestanding housing subsidy. The opinion ties the authority to KRS 67.080 (corporate powers of the county) and KRS 64.530(1) (the duty to fix reasonable compensation for county employees). Because it is compensation, it is also subject to the statutes governing pay of public officers and employees (KRS 64.475–740), so the program has to comply with those.

County attorneys: The opinion flags two constitutional guardrails to design around. Section 171 requires taxes and appropriations to be for a public purpose; Sections 177 and 179 forbid the county from giving, pledging, or loaning its credit or becoming a surety or guarantor. A forgivable loan secured by a mortgage is permissible as a loan for a public purpose; what the opinion warns against is the county backstopping third-party obligations.

County employees: If your county adopts a program like this, the opinion treats the benefit as compensation, which carries the tax and public-pay-law consequences that come with compensation rather than a gift.

Common questions

Q: Can a Kentucky county legally pay for its employees' first homes?
A: The Attorney General concluded a fiscal court may, as long as the help is structured as part of the employee's compensation and serves a public purpose. The county's authority to hire and set reasonable pay is what supports it.

Q: Does helping one employee buy a house count as a "public purpose"?
A: The opinion says it can. Kentucky courts read public purpose broadly, including retaining employees and promoting economic welfare, and the fact that an individual also benefits does not by itself defeat the public purpose.

Q: What can't the county do?
A: It cannot lend or pledge its credit, become a guarantor or surety on someone's obligations, or commit future funds in the way Sections 177 and 179 of the Kentucky Constitution prohibit. It can make a grant or a forgivable loan for a public purpose, but not backstop third-party debt.

Q: Does a forgivable loan have to be secured?
A: The county described securing the forgivable loan with a mortgage that is reduced in annual increments as long as the employee keeps living in the county and stays employed. The opinion treated that structure as part of the compensation arrangement it approved.

Background and statutory framework

Section 171 of the Kentucky Constitution requires that taxes be levied and collected for public purposes only, and Section 3 limits emoluments or privileges to those given in consideration of public services. The opinion explains that if a purpose is public under Section 171, the manner of spending is also proper under Section 3. Kentucky's highest court has recognized promotion of economic welfare, relief of unemployment, and stimulation of industry as legitimate public purposes, and has held that a public purpose exists when the end bears a reasonable relation to the public interest and falls within legitimate government activity.

Fiscal courts derive their power from the legislature and may exercise only the powers the legislature has expressly or by necessary implication conferred. KRS 67.080 grants a fiscal court the corporate powers of the county and authority over county employment, and KRS 64.530(1) directs the fiscal court to fix the reasonable compensation of county officers and employees (with stated exceptions). Because the incentive is compensation, it is subject to the statutes on public-officer and -employee pay at KRS 64.475–740. The opinion closes by reminding the county of the constitutional prohibition (Sections 177 and 179) on loaning or pledging the county's credit or committing future funds.

Source

• Landing page: https://www.ag.ky.gov/Opinions/Pages/default.aspx
• Original PDF: https://www.ag.ky.gov/Resources/Opinions/Opinions/OAG%2025-06.pdf

Original opinion text

April 9, 2025

OAG 25-06

Subject: Whether a fiscal court is permitted to establish a program to incentivize employees to live in the county through first-time homeowner loans or grants.

Requested by: Jordan Dallas Turner, Boone County Attorney

Written by: Jason Woodall, Assistant Attorney General

Syllabus: The Boone County Fiscal Court is permitted to establish a program to incentivize home ownership as part of employee compensation.

Opinion of the Attorney General

The Boone County Fiscal Court ("BCFC") has asked the Office of the Attorney General to provide an opinion on whether the BCFC has authority to annually budget a sum to be used to incentivize employees of the fiscal court or other county-based agencies to live within the county by assisting first-time homeowners with the purchase of homes in Boone County. The County "believes it would profit from the expenditure by bringing in a new county resident who would be paying county taxes on the property; securing an employee more likely to remain in the employment of the County or a County-based agency; and maximizing continued employment with or within the County by providing this additional incentive. Although the BCFC has not yet determined exactly how the funds would be distributed, the BCFC envisions a one-time grant or a forgivable loan to assist an employee with purchasing the home. If the County chooses the forgivable loan option, it would be secured by a mortgage, the amount of which would be reduced in annual increments over the period of time the employee committed to continued residency and remained a County employee.

The concern that prompted this opinion request rests with "whether the disbursement of public funds arising out of this program is an appropriate expenditure of tax dollars." Section 171 of the Kentucky Constitution states, "Taxes shall be levied and collected for public purposes only." Ky. CONST. § 171. Section 171 is complemented by Section 3 of the Kentucky Constitution, which requires emoluments or privileges only to be given in "consideration of public services." Ky. CONST. § 3. See Indus. Dev. Auth. v. E. Kentucky Reg'l Planning Comm'n, 332 S.W.2d 274, 276 (Ky. 1960) ("If taxes could not be imposed for a purpose, money already in the treasury could not be appropriated to that purpose."); Hayes v. State Prop. & Bldgs. Comm'n, 731 S.W.2d 797, 801 (Ky. 1987) ("If the purposes served by an action constitute public purposes for which tax revenues may be levied and expended under Section 171, the manner of the use and expenditure is also proper under Section 3, and is not a private use as distinct from a public use.").

What constitutes a public purpose or public service has been interpreted broadly. Kentucky's highest court "has recognized promotion of economic welfare, relief of unemployment, and stimulation of industry as legitimate public purposes." Stovall v. E. Baptist Inst., 375 S.W.2d 273, 275 (Ky. 1964). "A public purpose exists if the end to be achieved bears a reasonable relation to the public interest or welfare and is within the scope of a legitimate government activity." Dannheiser v. City of Henderson, 4 S.W.3d 542, 545 (Ky. 1999) (characterizing the Court's holding in Stovall). Moreover, "[t]he fact that there will be some private benefits . . . does not negate its public purpose." Stovall, 375 S.W. 2d at 275.

While the legislature has the authority to determine if a project or service constitutes a public purpose, municipalities—and thereby fiscal courts—derive their power from the legislature. Faulconer v. City of Danville, 232 S.W.2d 80, 82 (Ky. 1950); Burns v. Moore, 209 S.W.2d 735, 736 (Ky. 1948) ("A fiscal court is a court of limited jurisdiction and may exercise only such power as the Legislature has expressly or by necessary implication conferred upon it." (citation omitted)). Thus, while there seems to be a broad understanding of public purpose, the local government or fiscal court still needs some legislative grant of authority to act.

KRS 67.080 lists the powers of a fiscal court and states that the fiscal court may "[e]xercise all the corporate powers of the county unless otherwise provided by law." KRS 67.080(1)(e). However, "[t]he fiscal court shall not exercise executive authority except as specifically assigned by statute." KRS 67.080(3). The fiscal court has authority to hire and set reasonable compensation for county officers and employees. See OAG 76-25 (finding that based on the authority under KRS 67.080, "the fiscal court is responsible for the hiring and firing of county employees."); KRS 64.530(1) ("[T]he fiscal court of each county shall fix the reasonable compensation of every county officer and employee except the officers named in KRS 64.535 and the county attorney and jailer."). Therefore, to the extent the proposed first-time homebuyer incentive is part of the employee's compensation, the fiscal court has authority for the program.

Of course, as compensation, the loan or grant would be subject to the laws related to the compensation of public officers and employees. See KRS 64.475–740. The homebuying incentive program must comply with these statutes.

The BCFC should also be mindful that the government may not loan credit or commit future funds. The Commonwealth and its local governments are prohibited from giving, pledging, or loaning its credit to any individual or company. See KY CONST. §§ 177, 179. These constitutional provisions "attempt to prevent transactions which might result in future liabilities against the general tax revenues of this state and thereby encroach on the freedom of future generations to utilize those resources as they deem appropriate." Hayes, 731 S.W.2d at 800. Thus, while BCFC may grant or loan funds (if for a public purpose), it may not grant loan credit, meaning the BCFC may not become a surety on or guarantor of the payment of any bonds or other obligations in which state money was invested. See Indus. Dev. Auth., 332 S.W.2d at 278.

With those limitations in mind, the fiscal court may, under its authority to hire and set reasonable compensation for county employees, establish a program that incentivizes home ownership in the County through a grant or loan that would be part of the employee's compensation.

Russell Coleman
ATTORNEY GENERAL

Jason P. Woodall
Assistant Attorney General