Did private financing of the University of Kentucky library trigger state capital construction rules?
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This page answers the general question as of 1994. Ask about yours and see what current Kentucky law means for your facts, with citations you can check.
Plain-English summary
In 1994, Kentucky's Attorney General concluded that the proposed University of Kentucky library did not fall under the state's Capital Construction and Equipment Financing Act. Under the arrangement described to the office, the University of Kentucky Alumni Association, a private corporation, would receive financing, construct the building, and transfer it to UK after the bonds were retired. The AG treated the organization spending the money and carrying out construction as decisive.
The opinion separately examined whether the Alumni Association and the Athletic Association were affiliated corporations under the university financial management statute. It found the Alumni Association was not, because UK did not effectively control it and it could operate without substantial university assistance. It assumed the Athletic Association was affiliated for the analysis but expressly lacked information on one statutory criterion.
Currency note
This opinion was issued in 1994. 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.
Historical summary
University library financing
The arrangement described to the AG sent money from the Athletic Association to the Alumni Association, which would use it for debt service on bonds issued by the Lexington Fayette Urban County Government. After retirement of the bonds, the Alumni Association would transfer library ownership to UK. The opinion concluded that, on those facts, the private corporation and private capital used for construction placed the project outside KRS 45.750-.800.
Alumni Association's status
The AG applied the Financial Management Act's affiliated-corporation definition. It found that the Alumni Association was organized under KRS Chapter 273 and was not a public agency, but that UK did not effectively control it and it could operate without substantial university assistance. It therefore did not meet the definition the opinion used.
Athletic Association's status
The Athletic Association met three of the four affiliated-corporation criteria in the AG's account. Because the office lacked evidence on whether it could operate without substantial university assistance, it assumed the fourth criterion was met. The project still remained outside the capital construction statute because the Alumni Association, not the Athletic Association, would conduct the construction and spend the financing.
Common questions
Was the proposed UK library subject to KRS 45.750-.800?
The AG answered no for the financing arrangement it reviewed. A private corporation would construct the library with private capital before transferring it to the university.
Did the Alumni Association count as a university affiliated corporation?
The AG said no. It found UK did not effectively control the Alumni Association and that the organization could operate without substantial university assistance.
Did the AG definitively classify the Athletic Association?
No. It assumed the Athletic Association was affiliated because it lacked information on one statutory criterion, and said further evidence could change that conclusion.
Why did the Athletic Association's involvement not change the result?
The opinion said the Alumni Association would obtain the bond revenue, construct the building, and transfer it to UK. The AG focused on that private builder and its private capital.
Background and statutory framework
The AG treated KRS 45.750-.800 as regulating certain legislative appropriations for capital construction. It followed OAG 81-341, which had excluded a privately financed stadium renovation later transferred to a state body. The opinion used KRS 164A.550(3)'s affiliated-corporation definition to distinguish the two UK-related associations, then applied the prior opinion's focus on who constructed the facility and spent the money.
Citations and references
- KRS 45.750-.800: Capital Construction and Equipment Financing Act addressed by the opinion.
- KRS 164A.550(3): definition of affiliated corporation used in the analysis.
- OAG 81-341: earlier private-construction analysis followed by the AG.
Source
Original opinion text
OAG 94-63
October 27, 1994
Subject: Funding for University of Kentucky Library Construction
Written by: Ross T. Carter
Syllabus: The Capital Construction Financing Act does not apply to the financing of a building's construction by a private corporation such as the University of Kentucky Alumni Association
OAGs cited: 81-341 (followed)
Statutes construed: KRS 45.750-.800
Opinion of the Attorney General
The following question has been presented:
Is the University of Kentucky library project a capital project that is subject to the provisions of KRS 45.750-.800?
It is the opinion of the Attorney General that the University of Kentucky library project is not subject to KRS 45.750-.800.
The facts, as we understand them, are these. The University of Kentucky has been receiving about $3 million per year in various forms from the University of Kentucky Athletic Association. The University intends to use that money to fund construction of a new library. For reasons that we need not consider here, the money will not be expended directly by UK, but rather will be transferred from the Athletic Association to the University of Kentucky Alumni Association, Inc., which will use the money to pay the debt service on $41 million in bonds issued by the Lexington Fayette Urban County Government. When the bonds are retired, the Alumni Association will transfer ownership of the library to UK.
The financing situation at issue here is quite similar to one we examined in OAG 81-341. That opinion dealt with the renovation of Fairgrounds Stadium by a private corporation, Louisville Baseball Committee, Inc., which planned to use private money to fund the renovation and then to transfer the renovated stadium to the State Fair Board. We were asked the precise question presented here, and our answer was:
Since the contemplated construction is to be accomplished by a private corporation with private capital, the provisions of KRS 45.750-.800 do not apply. The Capital Construction and Equipment Financing Act regulates the expenditure of certain funds appropriated by the General Assembly. Under the Financial Management Act, KRS 164A.550 to 164A.630, UK is authorized to operate affiliated corporations to assist it in performing university functions. The Financial Management Act provides a useful means of determining whether an organization operates independently or as a mere alter ego of the university itself. An affiliated corporation is defined as a corporate entity which is not a public agency and which is organized pursuant to the provisions of KRS Chapter 273 over which an institution exercises effective control, by means of appointments to its board of directors, and which could not exist or effectively operate in the absence of substantial assistance from an institution of higher education. KRS 164A.550(3).
From the materials presented to us, we learn that the Alumni Association is not a public agency; it is a private corporation organized under KRS chapter 273; UK does not exercise effective control over it; and it could exist and operate without substantial assistance from the university. Because the third and fourth criteria are not met, the Alumni Association is not an affiliated corporation.
The Athletic Association is not a public agency; it is organized under KRS chapter 273; and it is effectively controlled by UK through appointments to its board of directors. It therefore meets three of the four criteria of an affiliated corporation. We have no information regarding the fourth criterion, namely, whether the organization could exist or effectively operate in the absence of substantial assistance from the university. We will assume the criterion to be met and consider the Athletic Association to be an affiliated corporation, although further evidence may lead to a different conclusion.
Even if the Athletic Association is deemed an affiliated corporation, we do not find that the library project constitutes a capital project subject to KRS 45.750-.800. Our focus in OAG 81-341 was whether "the contemplated construction is to be accomplished by a private corporation with private capital." The contemplated construction of the UK library is to be accomplished by the Alumni Association, not the Athletic Association. It is the Alumni Association, not the Athletic Association, that obtains the bond revenue, constructs the building, and transfers the building to the university. The Alumni Association is a private corporation using private capital. Therefore we see no meaningful legal distinction between the Louisville Baseball Committee, Inc., which we examined in OAG 81-341, and the University of Kentucky Alumni Association, Inc. Both are private corporations. Neither expends appropriated public funds. Because both the funds and the corporation that expends them are essentially private, the University of Kentucky library project is not a capital project that is subject to the provisions of KRS 45.750-.800.
Chris Gorman Attorney General
Ross T. Carter
Assistant Attorney General
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