Opinion of the Court by Justice ABRAMSON.
The 2008-2010 biennial budget bill (HB 406, 2008 Ky. Acts, ch. 127) provided, among many other things, for the transfer to the state's General Fund of more than $10 million from various funds created
Both cases were resolved by summary judgment. In Klein the trial court ruled that the 2008-2010 budget bill's transfer of agency funds to the General Fund was lawful and thus dismissed Klein's claims, but in Soccer Alliance the trial court held that the transfer in effect transformed a lawful regulatory fee into an unlawful tax, a tax violative of sections 51 and 180 of the Kentucky Constitution. Separate panels of the Court of Appeals affirmed the result in Klein and reversed in Soccer Alliance. Both panels held that the challenged transfers did not run afoul of the asserted constitutional restrictions on the General Assembly's authority to tax and to regulate. We granted motions for discretionary review in both cases to consider Klein's and Soccer Alliance's contentions that the fund transfers amount to a surreptitious tax. Because the two cases raise similar issues, we have consolidated them for consideration in this single opinion, and for reasons addressed herein we affirm.
With H.B. 44 (1978 Ky. Acts, ch. 117), the 1978 General Assembly created "a department of buildings, housing and construction." The Department's organization and duties are provided for in Kentucky Revised Statutes (KRS) Chapter 198B. The Department was tasked at its inception with the promulgation of "a mandatory uniform state building code," and has since then been responsible for revising the code and enforcing it. The enforcement regime includes the licensing of building contractors, such as the Klein appellants, and the oversight, through permits and inspections, of building construction and the installation of such major building components as plumbing systems; electrical systems; heating, ventilation, and air conditioning systems; and fire protection sprinkler systems. At least a dozen funds have been created within the Department dedicated to different aspects of its mission, the source of virtually all of which
Following the 1992 constitutional amendment legalizing charitable gaming in Kentucky (Ky. Const. § 226), the 1994 General Assembly created the Division (now Department) of Charitable Gaming to oversee such gaming and to ensure that it serves legitimately charitable purposes and not commercial or illegal ones. 1994 Ky. Acts, ch. 66 (H.B.206), now codified at KRS 238.500-238.995. The Department carries out its duties largely through a system of licenses, inspections, and audits, and its activities are funded through the "charitable gaming regulatory account," the sources of which include fines imposed by the Department and a fee imposed on all charitable gaming, including that carried on by the Soccer Alliance appellants. The fee is a percentage of gross receipts from charitable gaming in Kentucky, with the percentage to be periodically adjusted so that the amounts collected by the Department stay roughly in line with its necessary expenses. KRS 238.570.
The two cases now before us involving these agencies have their genesis in then newly-elected Governor Beshear's January 2008 Executive Order (08-011) requiring the state's executive offices and agencies "to immediately reduce costs" in an effort to address what the Governor referred to as "a projected General Fund budget shortfall" of hundreds of millions of dollars. The Executive Order purported to revise certain appropriations to the state's executive agencies to amounts less than had been appropriated by the General Assembly for the 2007-2008 fiscal year, and in that way to reduce General Fund expenses. And in order to increase General Fund income, the Order also transferred to the General Fund certain amounts from specified agency accounts not financed through the General Fund. Pursuant to the Executive Order, $700,000 was thus transferred from DCG's regulatory account, and a total of $6,495,200 was transferred from a dozen funds within HBC.
Not long thereafter the General Assembly enacted the 2008-2010 biennial budget,
2008 Ky. Acts, ch. 127, Part III, General Provisions, 29. House Bill 406 also provided that "[n]otwithstanding the statutes or requirements of the Restricted Funds enumerated below," certain additional amounts were to be transferred from various
The Klein appellants brought their suit challenging the HBC transfers on June 25, 2008, and the Soccer Alliance appellants filed their challenge to the DCG transfer on July 23, 2008. In broad terms, both sets of appellants contend that regulatory fees, such as those the agencies collected here, may only be used by the collecting agency for regulatory purposes and that their transfer, in any amount, to the General Fund for general revenue purposes has the effect of converting them, at least to the extent of the transfer, to taxes, taxes that violate both procedural prerequisites and substantive limitations imposed by our Constitution. The Commonwealth concedes a basic distinction between regulatory fees and taxes and agrees that in general such fees may only be used for the regulatory purposes for which they were collected, but it maintains that no constitutional violation occurs when fees incidentally collected in excess of the agency's regulatory expenses are transferred to the General Fund. In the Commonwealth's view, transfer of such incidental excesses, or surpluses, is all that took place in these cases, and thus, it contends that the challenged transfers did not amount to taxes and were lawful.
The two Court of Appeals panels that reviewed these cases agreed with the Commonwealth. The Klein panel opined that because "the primary purpose of the legislation imposing the fees paid to the HBC is to regulate the trades governed by the HBC ... even if the transfer to the General Fund produced a revenue for the public, it does not become a tax." Similarly, reversing the trial court's judgment in Soccer Alliance, another panel held that "there is no indication that the [DCG] fee is intended to generate excess revenue for the state. Simply because the revenue exceeded the expenditures in 2008 does not support the trial court's determination that the regulatory fee was somehow converted into an unconstitutional tax." Klein and Soccer Alliance take issue with those conclusions on a number of grounds, each of which we address in turn.
This is by no means, of course, the first time that budget-balancing measures adopted by the General Assembly have caused Kentucky citizens to cry "foul." The outrage often concerns what is perceived to be the General Assembly's apparent disregard of its own statutorily expressed commitments. The statutory provisions are often of two types, purpose provisions and anti-lapse provisions,
KRS 238.510(1). Among the Department's powers and duties are the "licensing [of] charitable organizations [and] charitable gaming facilities," the "[p]rescribing [of] reasonable fees for licenses," and the "[c]ollecting and depositing [of] all fees and fines in the charitable gaming regulatory account and administering the account." KRS 238.515(1), (3), and (7). To which end, KRS 238.570(2) provides that
The statutes thus define a regulatory purpose, dedicate certain revenue sources to that purpose, and provide that some, at least, of the monies collected from those sources shall not lapse at the close of a fiscal year.
As another example, KRS 198B.650 to 198B.689 create the Kentucky Board of Heating, Ventilation, and Air Conditioning Contractors, KRS 198B.652; establish its powers and duties, including the licensing of master and journeyman contractors, KRS 198B.650, KRS 198B.654; and authorize the collection of licensing and inspection fees in a reasonable amount "not to exceed the actual costs for the administration of the program." KRS 198B.6673. KRS 198B.6674 provides that
Here again, then, specified sources of revenue are dedicated to a particular regulatory purpose, and at the close of the fiscal year unexpended monies collected from those sources do not lapse to the General Fund, but are to remain in the agency's account.
When, as in the cases now before us, the General Assembly provides in a budget bill for the transfer of funds from agency accounts such as these to the General Fund, its authority to do so may be reasonably questioned on a couple of grounds. On the one hand, the transfer might be seen as an improper repurposing of statutorily dedicated funds, and on the other hand the transfer might be viewed as a violation of the statutory anti-lapse provisions.
Without distinguishing these separate grounds of complaint, in Armstrong v. Collins, 709 S.W.2d 437 (Ky.1986), this Court noted the General Assembly's broad authority to amend legislation and its express authority under Section 15 of the Kentucky Constitution to suspend it, and in light thereof, with one notable exception, the Court upheld several transfers
In Armstrong, the fund transfers were challenged as violative of Section 51 of the Kentucky Constitution, which section requires that laws enacted by the General Assembly relate to a single subject, that that subject be reflected in the title, and that amended statutes be reenacted. The budget-bill fund transfers did not run afoul of those requirements, the Court held, because they effected only temporary suspensions of the pertinent statutes, not amendments of them, and because the transfer of funds from one purpose to another was an "appropriation[], in the broad sense," id. at 444, and thus came within the subject and title of an appropriations bill.
Klein and Soccer Alliance acknowledge Armstrong, but because their claims are not based, at least not primarily, on Section 51, they insist that Armstrong provides little guidance. Their claims, rather, are based on a reading together of Section 180 of the Kentucky Constitution and a line of cases decided by our predecessor Court, a line extending from City of Henderson v. Lockett, 157 Ky. 366, 163 S.W. 199 (1914).
In City of Henderson v. Lockett, our predecessor Court addressed a claim that a city's newly imposed license fee on automobiles amounted to an unconstitutional form of taxation. The Court upheld the ordinance on the ground that it did not impose a tax, but rather a regulatory fee. In the course of doing so, the Court deemed the regulation of automobiles a legitimate exercise of the city's police power, but cautioned that
163 S.W. at 201.
Thus, according to Klein and Soccer Alliance, Section 180 and City of Henderson pose a dilemma. If, on the one hand, the monies collected from them are deemed taxes, Section 180 forbids their being transferred in any amount to the General Fund and "devoted to another purpose."
Although far from meritless, we are convinced that Klein and Soccer Alliance's reading of Section 180 and City of Henderson is too narrow and mechanical. Under their reading, the General Assembly could never provide for the lapsing of a dedicated fund's year-end surplus to the General Fund, but the law has long been to the contrary. Indeed, before Section 180 was a decade old, the former Court of Appeals held that where surpluses of "tax levies for various county purposes" had accumulated over a few years, Bracken County could use the surpluses "[f]or the purpose of building a much-needed court house." Field v. Stroube, 103 Ky. 114, 44 S.W. 363 (1898). When it was urged that under Section 180 the surplus taxes could not be diverted from their original purposes, the Court explained that, "when the object to be attained by the levy has been accomplished, and a surplus remains, it must be treated as a part of the general funds of the county and available for general county purposes." Id.
Reiterating this idea a few years later, the Court elaborated as follows:
Whaley v. Commonwealth, 110 Ky. 154, 61 S.W. 35, 38-39 (1901). Since Stroube and Whaley, the rule that the Commonwealth (and other taxing authorities) are not precluded by Section 180 from using surplus dedicated taxes for General Fund purposes has remained so well settled as to appear only infrequently and tangentially in our cases. See, e.g., Nichols v. Henry, 301 Ky. 434, 191 S.W.2d 930 (1945); Fannin v. Davis, 385 S.W.2d 321 (Ky.1964).
For the same reason — the impossibility for any given fiscal period of precisely matching income and expense — the lapse of surplus regulatory fees to the General Fund does not transform the fee into an unlawful tax.
In City of Henderson itself, the Court reversed the trial court's invalidation of the fee, because the plaintiffs had made no showing that the amount of the fee was unreasonable for its stated purpose. Where the amount exacted does not exceed what is reasonably necessary for regulatory purposes, the fact that, in a given fiscal period, the amount actually collected turns out to be somewhat more than the amount actually expended, with the excess
Even if there were such a rule — and as noted we conclude there is — permitting the transfer of fund surpluses to the General Fund, both Klein and Soccer Alliance contend that the rule does not apply here, because the amounts transferred from their funds were not genuinely "surplus." Essentially, their claims are that in the years leading up to the challenged transfers, regulatory fees were increased while the agencies' belts were being tightened. The "surpluses" thereby generated and swept into the General Fund, Klein and Soccer Alliance maintain, thus have everything to do with revenue raising and little to do with regulation, contrary to both Section 180 and City of Henderson.
We are not unsympathetic to these legitimate concerns. While the General Assembly "must be empowered to use adequate devices to balance the budget," Armstrong, 709 S.W.2d at 443, that empowerment does not extend to sidestepping the Constitution by transforming non-revenue levies into unenacted taxes. Cf. Clean Water Coal. v. The M Resort, LLC, 255 P.3d 247 (Nev.2011) (holding that the transfer of $62 million from a Las-Vegas-area interlocal water management coalition to the state's general fund converted a valid local utility assessment into an unconstitutional special tax); Hawaii Insurers Council v. Lingle, 120 Haw. 51, 201 P.3d 564 (2008) (holding that the transfer of regulatory fees from agency fund to general fund converted fees to taxes in violation of the separation of powers doctrine); Alliance of Am. Insurers v. Chu, 77 N.Y.2d 573, 569 N.Y.S.2d 364, 571 N.E.2d 672 (1991) (invalidating transfer from state-controlled secondary insurance fund to general fund and noting that the transfer had, in effect, converted mandatory contributions to the fund to general revenue taxes). As noted above, however, the burden of establishing that a regulatory fee does not bear a reasonable relationship to the cost of administering the regulatory program is on the party challenging the fee. We agree with the Court of Appeals panels that neither Klein nor Soccer Alliance has met that burden.
The Klein appellants, indeed, have not even specified which fee, or fees, they seek to challenge. As noted above, H.B. 406 provides for the transfer to the General Fund of monies held in several distinct funds maintained within HBC. The Klein appellants themselves point to the disparate treatment of the different funds, with, for example, only a nominal transfer of $100 from the fund devoted to fire protection sprinkler systems, but a transfer of $2.75 million from a fund or funds devoted to the regulation of electrical systems. The validity of the individual transfers depends on the unique set of statutory provisions establishing and governing each fund as well as on the specific amounts within and transferred from the individual accounts. The Klein appellants' generic attack on the transfers as a whole simply does not provide an adequately detailed basis for assessing the validity of any of the HBC transfers.
The statutory formula thus seeks to ensure that the amount collected during the current biennium will match the amount budgeted for that period, with a slight hedge against the possibility that, compared with the prior biennium, charitable gaming receipts during the current biennium will decrease. While it might be that the hedge creates a likelihood that the fee will generate a small surplus, at the time of Soccer Alliance's suit the statutory formula
Immediately prior its 2007 amendment, KRS 238.570 provided that
1994 Ky. Acts ch. 66 § 15(2). This provision, too, was clearly meant to ensure that the fees collected would correspond to the agency's expenses. The summary the Soccer Alliance appellants have provided of the fee's performance up until 2007, assuming the summary's accuracy, makes clear that under the old approach surpluses were not a matter of course — there were years when the fees generated did not cover the budget — and that the surpluses that were generated were not in amounts so disproportionate to the agency's expenditures as to suggest a revenue-raising intent.
As summarized by Soccer Alliance, the surpluses have ranged from less than $200,000 to about $800,000, with a mean in the neighborhood of $500,000, compared to annual expenditures of roughly $2.8 million — a surplus of less than 20% of expenditures, a far cry from the 6000% "surpluses" deemed invalid in Reeves. According to the Soccer Alliance appellants, no transfers were made to the General Fund in fiscal years 2001 to 2004. In 2005 the General Assembly transferred $191,200 from the DCG surplus to the General Fund; in 2006 it transferred $1,100,000; and in 2008, after the General Assembly adopted the new formula for determining the fee, it transferred the $700,000 at issue here. We agree with the Court of Appeals panel that these amounts — about $2,000,000 over a period of eight years — are not such as to suggest that the statutorily determined fee is intended to generate excess revenue for the state, as opposed to protecting the agency from income fluctuations. We conclude, therefore, that the $700,000 transfer provided for in H.B. 406 comes within the general rule permitting the transfer of surplus agency funds to the General Fund.
Even if the challenged transfers do not run afoul of Section 180 and City of Henderson, they are still unlawful, the Klein and Soccer Alliance appellants maintain, because they are contrary to that portion of Armstrong disallowing the budget-bill transfer to the General Fund of what the Armstrong Court referred to as "private funds." In Armstrong, as previously noted, the plaintiffs maintained that transfers provided for in a budget bill from various special or restricted funds to the General Fund violated Section 51's requirements that Acts of the General Assembly have a single subject reflected in the title and that amended statutes be reenacted. The Court upheld for the most part the challenged transfers, because the budget bill did not amend but only suspended statutes barring the transfers and because the transfers were enough like appropriations to come within the subject and title of an appropriations bill. The Court excepted from its general holding, however, what it referred to as transfers from "private funds:"
Armstrong, 709 S.W.2d at 446-47. Accordingly, the Court invalidated the budget bill before it "[t]o the extent that private funds were transferred." Id.
Soon after Armstrong, the Court reiterated its "private fund" holding in Thompson v. Kentucky Reinsurance Ass'n, 710 S.W.2d 854 (Ky.1986). Thompson addressed a challenge to the wholesale transfer to the General Fund of monies held in a recently created workers' compensation secondary insurance fund called the Kentucky Reinsurance Association (KRA). Upholding the trial court's invalidation of the transfer, the Court explained that
710 S.W.2d at 857.
More recently, in Haydon Bridge I, 304 S.W.3d at 682, we applied the "private fund" holdings of Armstrong and Thompson to a current workers' compensation fund — the Special Fund portion of the Benefit Reserve Fund (BRF) maintained by the Kentucky Workers' Compensation Funding Commission (KWCFC) — and held that where, as in that fund, public monies have been commingled indistinguishably with "private" contributions — in that case insurance premiums — the commingled fund must be deemed entirely "private" under Armstrong, and thus not subject to budget — bill transfer to the General Fund.
Relying on the quoted portions of Armstrong and Thompson, and on Haydon Bridge I, the Klein and Soccer Alliance appellants note that the agency funds at issue here likewise get no support from the General Fund
If the source of the money in the state's coffers were the sole determinant of its character, then all of the state's money, even the General Fund, would be "private," since ultimately all of the state's money comes from private individuals and
Next, both the Klein and Soccer Alliance appellants maintain that even if the Constitution does not preclude the challenged transfers, KRS 48.315 does. That statute provides that
There follows a list of some sixty-three statutes, beginning with KRS 15.430 (establishing the Law Enforcement Foundation Program Fund) and ending with KRS 342.480, a statute that was repealed as of January 4, 1988. This long list of statutes, both active and defunct, is concluded with an "etc." Because the HBC and DCG funds at issue here are not among those included in the KRS 48.315 list, the appellants contend that the General Assembly should be deemed to have declared them off limits with respect to budget-bill transfers. The Court of Appeals panels rejected that contention and held that the concluding "etc." brought the challenged funds within the purview of KRS 48.315's grant of authority. Although we agree with the appellants' assessment of the statute as hopelessly ambiguous, we are convinced that the Court of Appeals panels addressed the ambiguity appropriately.
The problem, plainly, is that the statute does not make clear its applicability to statutory funds not included in the list. On the one hand, the painstaking listing suggests, if not the exhaustion of everything the General Assembly had in mind, at least the deliberate exclusion of something. The fact that amendments to the statute have removed funds from the list also strongly suggests that some, at least, of the unlisted statutory funds are meant to be outside the ambit of KRS 48.315.
We are left simply with an ambiguous statute, at least with respect to fund-creating statutes not on the list. The appellants contend that in this position the presumption should be against KRS 48.315's application to unlisted statutes, but for a couple of reasons we think the presumption goes the other way. First, as we noted in Haydon Bridge I, 304 S.W.3d at 703, KRS 48.310(2) provides more generally for the suspension of statutes in budget bills: "A budget bill may contain language which exempts the budget bill or any appropriation or the use thereof from the operation of a statute for the effective period of the budget bill." Absent some clear indication that KRS 48.315 was meant not to apply, then, the general budget-bill authority under KRS 48.310(2) suggests that the General Assembly, as a rule, does not intend to deprive itself of whatever authority it has to suspend statutes for the sake of effecting budget-bill fund transfers.
Another reason for presuming, in the absence of some clear indication to the contrary, that KRS 48.315 applies to these transfers, is simply that the General Assembly applied it. The statute is, after all, the General Assembly's handiwork, and absent some compelling reason to think otherwise, the General Assembly may be presumed to know its own intent. What circumstances might provide a clear indication that KRS 48.315 was meant not to apply we need not decide (although a statute's having been removed from the list would pose an interesting question), since the appellants have offered no reason for exempting the HBC and DCG funds beyond their absence from the KRS 48.315 list, and that, we agree with the Court of Appeals panels, is not enough.
The appellants, in kitchen-sink fashion, refer us to several other Sections of the Constitution allegedly violated by the challenged transfers. Since all of these additional claims rely on the contention that the transfers had the effect of converting regulatory fees to taxes, our previous rejection of that contention answers these additional claims as well.
Section 51 was not violated because, under Armstrong's construction of that Section, a budget bill may provide for the suspension of anti-lapse provisions so as to allow for the transfer of fund surpluses to the General Fund. Because the appellants have not shown that anything beyond fund surpluses was involved in these transfers, no question arises as to whether a budget bill can suspend statutory provisions providing for the purpose of a levy.
Section 2 was not violated, either with respect to due process or to equal protection, because, under the cases cited above in the discussion of Section 180 and City of Henderson, the repurposing of surplus agency funds serves a valid public purpose and does not impose a tax, much less an unequal tax. As noted in that discussion, we are not unwilling to entertain claims that regulatory fees have become so divorced
Because the transfers did not effect a tax, sections 171 and 181 were not implicated.
Finally, the Soccer Alliance appellants complain that DCG upped the rate of the charitable gaming fee from .53% to.60% in July 2008 in violation of KRS 238.570(3)(b)'s provision that the rate be adjusted "[o]n October 1 of each odd-numbered year." They want their fees back to the extent of the allegedly unlawful increase. Apparently, DCG neglected to adjust the rate in October of 2007 and was attempting to correct the lapse. Be that as it may, the Court of Appeals panel declined to address this claim because, although it was broached in the trial court, the trial court did not rule on it. We agree with the Court of Appeals panel that "review" here is not appropriate.
As Soccer Alliance correctly notes, an appellate court may affirm a trial court's judgment on a ground the trial court did not address, provided only that the alternative ground was brought to the trial court's attention and is otherwise supported by the record. Fischer v. Fischer, 197 S.W.3d 98 (Ky.2006). Here, however, the Soccer Alliance appellants are not asking us to affirm on an alternative ground the trial court's judgment invalidating the $700,000 transfer from DCG to the General Fund. It is asking rather that we in effect supplement the judgment by finding the necessary facts and ruling in the first instance on a separate claim, a claim that was introduced in the trial court, but for whatever reason was dropped there and never adjudicated. That we cannot do. As an appellate court, we review judgments; we do not make them. Calhoun v. CSX Transp. Inc., 331 S.W.3d 236, 245 (Ky.2011) ("In this Commonwealth, it is axiomatic that appellate courts are not fact-finders.").
In sum, although we agree with the appellants that under Sections 51 and 180 of the Kentucky Constitution, and under City of Henderson and its progeny, the state's regulatory agencies may not be turned into conduits of tax revenue in the guise of regulatory fees, it is not unlawful for the General Assembly to provide in a budget bill for the suspension of anti-lapse provisions in agency enabling statutes and for the transfer to the General Fund of surpluses incidentally existing in agency accounts. Because the appellants have not shown that the budget-bill transfers they object to crossed the line from lawful surplus to unlawful tax, we agree with the Court of Appeals panels that their claims for relief must be denied. Accordingly, in both 2012-SC-000071 (Klein) and 2012-SC-000197 (Soccer Alliance) we hereby affirm.
MINTON, C.J.; CUNNINGHAM, KELLER, and NOBLE, JJ., concur. VENTERS, J., dissents by separate opinion in which SCOTT, J., joins.
VENTERS, J., dissenting.
I respectfully dissent. As the majority concedes, Appellants raise "important, legitimate questions" about the recurrent and now habitual practice of the executive and legislative branches to suspend certain statutes in order to divert license fees and
It is, of course, beyond the purview of the judicial branch to concern itself with the wisdom of such fiscal policies, whether they are invoked once or perpetuated in serial fashion through a number of budget cycles. We address only the legality of the policy. I agree with Franklin Circuit Judge Phillip Shepherd's conclusion in the Louisville Soccer Alliance case that this supplemental method of funding state government unconstitutionally converts license fees, lawfully collected pursuant to the state's police power, into tax levies which, when diverted to other purposes, violates Kentucky Constitution § 180.
Until now, it had been the well-settled law of this Commonwealth that the state's police powers — that is, the power to regulate certain occupations and activities in order to protect the health, welfare, and safety of the public — "cannot be used to raise revenue unless it be an incident in the accomplishment of a proper end of promoting order, safety, health, morals or general welfare, to which end the fees have a reasonable relation. The object [of the fees collected] must always be regulation." Bond Bros. v. Louisville & Jefferson Cnty. Metro. Sewer Dist., 307 Ky. 689, 211 S.W.2d 867, 873 (1948). To emphasize the point, it is worth noting that the fees collected from Louisville Soccer Alliance and other businesses, individuals, and institutions subject to state regulatory agencies have passed constitutional muster only because they are not imposed for the purpose of raising general revenue for the state, but are instead fees collected under the police power for the specific purpose of regulating the activity of charitable gaming. See Commonwealth v. Louisville Atlantis Cmty./Adapt, Inc., 971 S.W.2d 810, 815 (Ky.App.1997), citing Long Run Baptist Ass'n v. Sewer Dist., 775 S.W.2d 520, 522 (Ky.App.1989) and Gray v. Methodist Episcopal Church, 272 Ky. 646, 114 S.W.2d 1141, 1142 (1938).
The fundamental principle, acknowledged just 23 years after the adoption of the present Constitution in City of Henderson v. Lockett, 157 Ky. 366, 163 S.W. 199 (1914), provides that license fees generated under the police power may not be so large as to achieve a revenue-producing purpose:
163 S.W. 199, 201 (1914). (emphasis added).
Under this fundamental principle, the millions of dollars of so-called "surplus"
The Majority brushes aside that principle citing to Field v. Stroube, 44 S.W. 363 (Ky.1898) as support for the theory that the funds in question are merely "surplus," like pocket change leftover at the end of the day, money not needed by the agencies to perform their regulatory functions. But, the "surplus" funds involved in Stroube bear no similarity to the current situation.
In Stroube, a special levy had been imposed to fund the construction of a new courthouse for Bracken County. When the construction project was completed, money collected for the project was left over. To be clear, it was impossible to use the levied funds for the intended purpose because that purpose had been fully achieved. When the diversion of the leftover money, "the surplus," was challenged, the Court held "when the object to be attained by the levy has been accomplished, and a surplus remains, it must be treated as a part of the general funds of the county and available for general county purposes." Field v. Stroube, 103 Ky. 114, 44 S.W. 363 (1898). In stark contrast, it is obvious beyond dispute that the "object to be attained" by the imposition of the regulatory fees has not been accomplished and, indeed, since all of the agencies involved are ongoing and enduring components of our bureaucracy, the only reasonable conclusion is that the object to be attained (ongoing regulation) has not been finally achieved, nor will it be attained in the foreseeable future.
Other cases in which "surplus" funds were properly transferred into the general fund follow the same pattern: there was a true surplus left over after the purpose of the assessment was completed. See, e.g. Fannin v. Davis, 385 S.W.2d 321 (Ky. 1964) (involving road and bridge construction); City of Ashland v. Bd. of Educ., 286 Ky. 69, 149 S.W.2d 728 (1941) (construction of school buildings); Overall v. City of Madisonville, 125 Ky. 684, 102 S.W. 278 (1907) (construction of a municipal lighting plant; Falls City Const. Co. v. Fiscal Court, 160 Ky. 623, 170 S.W. 26 (1914)) (courthouse construction).
I agree with the resolution in each of the foregoing cases because in each instance, a true "surplus" existed — money was collected that could not be used for its intended purpose. The impossibility of matching the ultimate cost of a particular project with the actual revenue generated by the fees levied to attain it virtually assures that, in the usual case, some surplus will exist when the objective is finally achieved. Because the fees cannot reasonably be refunded, a one-time diversion of the surplus to the general fund as a kind of escheat does not convert the surplus into general tax revenue. But here, the money swept into the general treasury was not the loose change left over when the objective had been achieved. To the contrary, the license fees and user fees collected by the regulatory agencies here were intended to pay for ongoing regulatory functions, such as policing the building industry and charitable gaming activities, which have not ended. They were not, like the funds levied in Stroube and other cases, assessed to fund a finite objective like a bridge or courthouse project. There can be no "surplus" of funds when the purpose for collecting the fees continues, and the fees continue to be collected from the regulated
The majority chides the Appellants for failing to provide statistics showing that the fees being collected by the affected agencies greatly exceeded the actual costs of administering the regulated activity. That completely misses the point. Appellants' central contention is that legislative raid on the agencies' restricted funds was illegal and, because those funds were diverted to the general treasury, they are no longer available to service the agencies' ongoing regulatory responsibilities, thereby increasing the user fees and license fees that must be charged in the future. The claim that the fees are excessive arises only because the fees were accumulated in restricted funds that were diverted from the regulating agencies. The fact that each agency here has ongoing regulatory responsibilities proves with absolute certainty that the funds are not surplus.
I also agree with Judge Shepherd's conclusion that the legislation enacted to cover the ongoing diversion of restricted funds violates § 51 of the Kentucky Constitution. See Grayson Cnty. Bd. of Educ. v. Casey, 157 S.W.3d 201 (Ky.2005). I disagree with the Majority's conclusion that Armstrong completely settles the issue. As Judge Shepherd observed, "the Court in Armstrong was very explicit that its ruling applied only to `temporary, determinable suspensions of statutes relating to the appropriation of public funds.'" 709 S.W.2d at 446. The judge further noted "if the reasoning of [the Appellees] is accepted, the legislature could merely pass an omnibus bill with the title `an act related to state government' and completely circumvent the requirements of Section 51."
The Majority charitably refers to this funding mechanism as a "budget balancing measure." It is more accurately likened to the blue smoke and mirrors used by the sideshow magician to hide the rabbit up his sleeve. It is a sleight-of-hand technique for shifting the financial burden of the general government while avoiding the unpalatable prospects of increasing taxes, decreasing services, or both. The diversion of regulatory fees to the general fund amounts to a tax on the future participants in the regulated activities, a decrease in the future services of the regulatory agencies, or both. Doing so violates § 180 of the Kentucky Constitution.
Today, we further enable the state's dependence upon the biennial sweep of regulatory accounts. This case arose from the 2008 budget process and the sweep of $51 million of "surplus" funds from regulatory accounts after a "temporary" suspension of the statutes prohibiting the practice. That temporary fix has been repeated in every subsequent budget cycle. In fiscal year 2012, $116.5 million was diverted from regulatory accounts; in 2013, the figure was $89.1 million; based upon the 2012 budget bill, $86.1 million will be transferred in 2014. The current executive branch budget bill (HB 235) estimates that for fiscal year 2015, $214.7 million will be transferred and, in 2016, $69.8 million will be transferred. That the diversion of fees collected under the police power for regulatory purposes is now built into the budget planning process simply proves that the funds being collected are not really "surplus," and that the biennial suspension of statutes prohibiting the practice is not really temporary. The regulatory agencies now know they must artificially produce a "surplus" by assessing higher fees and providing less service and less protection. Our complicity in that practice nullifies § 180. Therefore, I dissent.
SCOTT, J., joins.
