This is an appeal from a June 27, 2002 Opinion and Order of the Franklin Circuit Court affirming an October 9, 2001 decision of the County Debt Commission (hereafter CDC), a board established under KRS 66.300.
On April 2, 2001, Warren County petitioned the State Local Debt Officer (hereafter SLDO) under KRS 66.310 for approval to issue up to $25 million dollars in “Inter-Modal Transportation Authority, Inc. First Mortgage Revenue Bonds and Notes” to provide “permanent and interim financing for an Inter-Modal Commerce and Distribution Center and Industrial Park.”1 (R.I:113-131). Warren County incorporated the Warren County Inter-Modal Transportation Authority, Inc, (ITA) as an instrumentality of Warren County to acquire, develop and finance the industrial park, and proposed that the project would be managed and the bonds and/or notes would be issued by ITA. (R.I:79-81). The Petition, dated March 30 and filed by letter dated April 2, 2001, included a Business and Finance Plan proposing a project costing approximately $80 million, financed with $43.5 million in bonds and notes, $18.5 million in state and federal grants, and $17.39 million from sale of the existing Warren County Airport.2 (Appendix 2). The Petition For Approval noted that the "County, together with surrounding counties and cities who participate in the project pursuant to an Inter-local Agreement and who become obligated under a Lease with the Corporation, will enter into a Lease with respect to the Project, the revenues from which Lease will be used to pay the debt service on the Bonds and/or Notes." The Petition for Approval included a copy of Warren County Fiscal Court Resolution 05 which made reference to the "Contract, Lease and Option Agreement" by which the County would become obligated to pay the debt service through lease payments, but no copy of the proposed "contract, lease and option agreement" was submitted. (Appendix 3).
As required by KRS 66.310(3) the SLDO held a hearing and on May 14, 2001 approved the request by Warren County for the issuance of notes and bonds to finance the construction of an airport and industrial park known as the “Inter-Modal Commerce Distribution Center and Industrial Park.” (Hereinafter “Transpark”). (R.I:136-140). The SLDO decision was appealed to the CDC by Joey Roberts, a property owner and taxpayer in Warren County, and a hearing was convened by a referee appointed by the CDC Chairman Governor Paul Patton pursuant to KRS 66.300(2) to make findings and recommendations to the CDC concerning the appeal. (R.II:245). On September 17, 2001, the referee issued Findings and Recommendations recommending to the CDC that “the decision reached by the State Local Debt Officer be upheld and that the proposed financial plan for the issuance of these bonds, including the lease agreement to be entered into by Warren County, be approved.” (R.II:246-256).
Appellant Roberts filed extensive exceptions to the Findings and Recommendations of the Referee. (Appendix 4). The CDC rendered a decision on October 9, 2001 accepting the Referee's findings and recommendations without consideration of the Appellant’s Exceptions. (R.II:157-161).
On November 13, 2001, Roberts appealed the CDC decision to the Franklin Circuit Court, asserting among other issues, that the CDC violated the law by failing to consider the entire record of the appeal, including the Appellant's Exceptions to Referee's Findings and Recommendations filed under KRS Chapter 13B.110. (R.I:1-47). On December 10, 2001, on motion of Appellee, (R.I:268-272), the Circuit Court remanded the matter with directions that the CDC distribute the Appellant's Exceptions to the CDC for their consideration and that, after consideration of the Exceptions and the record, the CDC "issue a decision as to Appellant's appeal from the decision of the State and Local Debt Officer rendered on May 16, 2001." (R.II:283-4).3 On February 25, 2002, after hearing oral arguments that day, the CDC entered an Order captioned "Resolution Approving and Adopting The Findings and Recommendations of The Referee and Affirming The Decision of the State Local Debt Officer." After reciting the procedural history of the case, the CDC's resolution consisted of two sentences "approv[ing] and adopt[ing] the findings and recommendations of the referee as its own" and affirming the SLDO decision. (R.II:290-296).
Pursuant to the Circuit Court's December 20, 2001 Order, after the CDC had again affirmed the SLDO decision of May 16, 2001, the circuit court appeal proceeded "on the remaining grounds stated in Appellant's Appeal herein." Motions For Summary Judgment and responses were concurrently filed by all parties, and on June 27, 2002 the Franklin Circuit Court issued an "Opinion and Order" granting Appellee's Motion for Summary Judgment and upholding the CDC. (R.V:638-646)(Appendix 1). On July 29, 2002, Appellant Joey Roberts filed a notice of appeal of the June 27, 2002 order of the Franklin Circuit Court. (R.V:647-650).
SCOPE OF REVIEW
This matter is on appeal from the decision of the Circuit Court affirming the decision of CDC. KRS 66.310(6) provides that an appeal of the circuit court decision to this court that "[a]n appeal may be taken from the Circuit Court to the Court of Appeals in the manner provided in the Rules of Procedure.
The scope of review by this Court of the Circuit Court affirmance of the decision of the CDC was recently restated in Johnson v. Galen Health Care, Ky. App., 39 S.W.3d 828, 833 (2001):
In an appeal of an administrative action by an agency, the circuit courts
are to provide review, not reinterpretation. (cite omitted). Thus, when
substantial evidence exists in the record to support an administrative
agency's action, the circuit court has no authority to overturn it. (cite
omitted). Our task is to determine whether or not the circuit court's
findings upholding the [agency] are clearly erroneous.
Id. at 833 (quoting Jones v. Cabinet for Human Resources, Ky. App., 710 S.W.2d 862, 866 (1986). Appellant has the burden of demonstrating that the Franklin Circuit Court 's Opinion and Order upholding the agency was clearly erroneous because the CDC decision is not supported by substantial evidence on the record as a whole.
I. The Circuit Court Decision Was Clearly Erroneous In Upholding A CDC Decision That Was Contrary To The Evidence In Assuming That Warren County Would Have a Maximum Exposure For Debt of Only 30% Of Any Deficiency Under The Lease Agreement
This argument was raised before the Circuit Court in Appellant's Motion for Summary Judgment and thus is properly preserved for review. (R.IV:461-464).
The Circuit Court committed clear error in upholding a CDC finding that was directly contrary to the evidence in the record concerning the extent of County liability for the debt service under the proposed lease.
The financial arrangement made by Warren County and its creation, the Inter-Modal Transportation Authority, called for the county to assume as lessee in a lease agreement, responsibility to pay for any shortfalls in the debt service. The debt service for the 25$ million in bonds and notes was proposed to be paid entirely through sales of appreciated property and tax revenue from jobs hoped to be created in the future industrial park.
Despite the lack of any evidence in the record that any other city or county had entered into a binding agreement to assume any liability for any portion of that debt service, the CDC adopted a finding that the maximum liability of Warren County would be only 30% of any shortfall. The evidence in the record before the CDC indicated that Warren County would be 100% liable for any deficiencies. Warren County was the sole applicant for the bond approval request. No executed approved agreements from any other city or county assuming any liability for payments on the lease agreement or any debt service were contained in the record. Appellant argued before the Referee and CDC that it must be assumed that Warren County would be liable for 100% of any deficiency in debt service payments. Yet the CDC found that Warren County would be responsible for only 30% of any liability for the bonds and notes because of unsupported assertions that other participants might be involved. The CDC finding was contrary to the evidence, since it understated threefold the extent of Warren County's financial exposure.
The CDC's finding that the “financial condition and prospects for Warren County do warrant a reasonable expectation that the bonds can be paid off without seriously restricting other expenditures of the county” rested on the clearly erroneous finding that “Warren County’s lease arrangement with the Inter-Modal Transportation Authority obligates it to cover 30% of any debt service shortfall that might occur.” Referee's Findings and Recommendations at 10. (R.II:154). The Referee noted that Judge Buchanon testified that “Warren County and several adjacent counties and nearby municipalities were to enter into an inter-local corporation agreement whereby they would be responsible for various percentages of the shortfall – Warren County’s percentage being 30%.” (R.I:148). Yet the record reflected that none of the other units of government whose participation and assumption of proportionate percentages of shortfall liability under the lease is assumed in the business and financial plan, were parties to the Warren County request for SLDO approval, nor had any of those governmental units submitted appropriate requests for approval to the SLDO to enter into lease agreements under KRS 66.310(2). The financing plan should have been evaluated considering the exposure of Warren County without factoring in the assumption of a percentage of the risk by other governmental entities in the absence of binding commitments by those other entities to assume a share of the liability. Judge Buchanon acknowledged that Warren County might be responsible for 100% of the deficit, (Transcript of Referee Hearing, V.1 p. 71)4, yet the Referee and CDC assumed a maximum County liability of 30% despite the lack of any evidence that other units of government have accepted legal liability for a proportionate share of the debt service costs through the “lease obligation.”(RI:148).
The finding was at variance with the evidence, and required that the Circuit Court reverse the decision and remand the matter for a reassessment of the potential risk to Warren County based on the assumption that 100% of the potential liability for any deficiency would fall on Warren County. Instead, and perhaps recognizing that the CDC committed clear error, the Circuit Court glossed over this matter by stating that "[e]ven assuming Warren County eventually bears the entire debt service for the park, the surplus and bond rating indicates Warren County has sufficient reserves and the ability to generate extra revenue to avoid impacting existing services." Opinion And Order, p. 5 (R.V:642). The Circuit Court conclusion went significantly beyond any evidence in the record concerning the "ability to generate extra revenue" and at what level of responsibility the county debt obligation to this project would "impact existing services", and was not proper for the Circuit Court to rehabilitate the flawed agency decision, since the Circuit Court on appeal of an agency determination "is to provide review, not reinterpretation." Johnson v. Galen Health Care, supra, at 833, quoting Jones v. Cabinet for Human Resources, Ky. App., 710 S.W.2d 86,866 (1986). It was the responsibility of the CDC, not the Circuit Court, to make a determination concerning the impact of 100% assumption of any deficiency on the county budget and whether at 100% liability the bond and note issue was still in the county's best interests. The Circuit Court affirmance of the CDC decision was clearly erroneous.
II. "Substantial Evidence" Can Be Found Only After the Trier of Fact Has Evaluated All Evidence And Has Reconciled Conflicting Evidence And Documented For Review That Reconciliation - The Circuit Court Opinion And Order Was Clearly Erroneous Since The CDC Failed to Make Findings of Fact Sufficient To Demonstrate That The Decision Was Grounded On Substantial Evidence On The Record As A Whole
This argument was raised before the Circuit Court in Appellant's Motion for Summary Judgment and was thus properly preserved for review. (R.III:441-446).
The Circuit Court decision was clearly erroneous in two other respects. The CDC failed to provide sufficient findings relative to basic evidentiary facts to demonstrate that the decision rests on substantial evidence on the record as a whole. Further, assuming the sufficiency of those findings, the CDC decision was contrary to the clear weight of the evidence and the Circuit Court affirmance was thus clearly erroneous.
A. The Agency Failed To Provide Sufficient Findings To Demonstrate That The Decision Was Based On Substantial Evidence On The Record As A Whole, Thus The Circuit Court Affirmance Of That Decision Is Clearly Erroneous
As to the first issue, the CDC/Referee failed to make adequate findings with respect to disputed basic facts, necessitating a reversal of the decision.5 In order for an agency decision to be found to rest on substantial evidence on the record as a whole, sufficient findings of fact and conclusions of law must be presented to demonstrate that the agency considered the entire record and resolved conflicts in the evidence in rendering the decision. In this case, the Referee's Findings and Recommendations incorporated by the CDC as its own were insufficient to allow the Court to determine whether the agency considered the entire record in rendering a decision.
Can a reviewing court find an agency decision to rest on "substantial evidence" where the record reflects the decision maker rested the decision on the selective excision of "facts" from the record without resolving conflicts in evidence and providing findings reflecting consideration of and resolution of the conflicts?
"Substantial evidence" is a phrase applied mantra-like with little reflection. The full phrase, "substantial evidence on the record as a whole" begins to better illume the actual standard,6 for the standard assumes without saying that the agency has considered the entire record and resolved evidentiary conflicts. In this case, the agency failed to address and resolve conflicting evidence in the record with respect to material evidentiary facts, making it impossible to determine whether the agency "consider[ed] all the evidence" in deciding the case. Bowling v. Natural Resources and Environmental Protection Cabinet, Ky.App. 891 S.W.2d 406, 409-10 (1994).
The Circuit Court rejected Appellants' argument relying on the case of Kentucky Commission on Human Rights v. Fraser, Ky., 625 S.W.2d 852 (1981) for the proposition that "f there is substantial evidence in the record to support the agency's findings, this Court must defer to that finding even though there is evidence to the contrary." As far as it went, the Circuit Court was correct. But Appellant is correct that the Courts have demanded the agencies, in order to be accorded deference for the determinations on the evidence, demonstrate that the evidence as a whole was considered and that the discretion to choose which evidence to believe, properly exercised.
The scope of review of an agency determination accords a degree of deference to the findings of fact of the agency, limiting judicial review to a determination of whether there is substantial evidence to support the findings and conclusions even where the reviewing court might come to a different conclusion. "This governing principle assumes, however, that the findings have been directed to the relevant issues in the controversy." Pearl v. Marshall, supra at 840, quoting with approval L & N Railroad Company v. Com., Ky., 314 S.W.2d 940 (1958). This Court has cautioned agencies that when questions are disputed, basic evidentiary facts must be clearly set out to inform the parties and the reviewing court of the basis for its ultimate conclusions. Shields v. Pittsburgh and Midway Coal Mining Company, Ky. App., 634 S.W.2d 440, 444 (1982). In this case, such findings are conspicuously lacking.
An administrative agency must provide adequate "findings of fact" and "conclusions of law" to support a determination, and disputed facts must be resolved in rendering a recommended or final order. KRS 13B.110(1) provides that the recommended order from a hearing officer must include his “findings of fact, conclusion of law, and recommended disposition of the hearing[.]” The statutory direction to include findings of fact and conclusions of law is a reflection of the bedrock procedural due process principles that advise the decisionmaking of an administrative agency and provide a reviewing tribunal and court with sufficient basis to determine that the decision is not arbitrary, capricious, or inconsistent with law. As this Court noted in Galen, "without specific findings of fact it is difficult, if not impossible, upon review to determine whether the administrative agency has acted arbitrarily or within its powers[.]" Galen, supra, at 833 (quoting Pearl v. Marshall, Ky., 491 S.W.2d 837, 839 (1973)).
On review of agency action, the court is concerned with whether the agency has acted arbitrarily, considering three factors: whether the agency acted within the constraints of its statutory powers, whether the party was afforded procedural due process, and whether the agency’s action is supported by substantial evidence. American Beauty Homes Corporation v. Louisville and Jefferson County Planning and Zoning Commission, Ky. App. 379 S.W.2d 450, 456 (1964). Procedural due process in administrative hearings requires “a hearing, the taking and weighing of the evidence, a finding of fact based on an evaluation of the evidence and conclusions supported by substantial evidence.” Secretary, Labor Cabinet v. Boston Gear, Inc., Ky., 25 S.W.3d 130, 134 (2000), citing Kaelin v. City of Louisville, Ky., 643 S.W.2d 590, 591 (1982). (Emphasis added). Findings of fact “are essential to support the orders of administrative agencies, at least where the order issued by the agency rests upon a factual determination.” Pearl v. Marshall, supra at 839 (1973). Without “specific findings of fact it is difficult, if not impossible, upon review to determine whether the administrative agency has acted arbitrarily or within its powers.” Id. at 839. "[M]ere recitation . . . that an applicant had met all requirements of law [is] insufficient to support" the agency decision "because such recitation [does] not evidence findings of evidentiary facts necessary to afford meaningful judicial review of the [agency's] decision." Simms v. Angel, 513 S.W.2d 176, 177 (Ky. 1974). Absent specific findings with respect to basic facts, the mere parroting of the statutory criteria, Pearl v. Marshall, 491 S.W.2d 837, 840 (Ky. 1973) or the mere recitation of statutorily-provided ultimate facts, Simms v. Angel, supra, is insufficient to support the agency decision because it "does not give any clue that [the Referee and CDC] even considered the real issues." Pearl, 491 S.W.2d at 840.
In this case the "basic facts" included a threshold determination as to whether the Business And Finance Plan was a "unitary" or a "phased plan." In the former case, the clear weight of evidence indicated that the plan rested on highly questionable assumptions that a number of future occurrences for which no contingencies had been planned would come to pass, including infusions of federal and state money; federal agency approvals, and timely sales and acquisitions of land. If the plan were a "phased" plan, Appellant demonstrated that at the end of "Phase I," as defined by the applicant and using only the applicant's own evidence, if the project were unsuccessful the debt service would swamp the available county fund balance. The simplistic grasping by the CDC of a few select facts to support the ultimate conclusions of law, ignoring a responsibility to consider all of the evidence and to provide a reviewing court with some indication that the evidence had been so considered; does not suffice. Further, on evaluation of the evidence, giving the benefit of every doubt, the record as a whole does not support approval of the bond issue, since it rests on a risky financing plan that proposes to service debt almost entirely with future federal and state grants, and revenue from the appreciated property and payroll taxes from jobs hoped to be created.
The Referee's Findings and Recommendations were inadequate to allow a reviewing court to determine that the agency weighed conflicting evidence and resolved disputed matters of fact7. Without adequate findings from the CDC as to predicate facts to support the conclusions, the Circuit Court committed clear error in concluding that the CDC rested on substantial evidence in the record as a whole.8
B. The CDC Decision Does Not Rest On Substantial Evidence Since The Weight Of Evidence Reflects That The Interest And Principal Obligations Could Not Be Met Under The Business And Finance Plan Without Seriously Restricting Other Expenditures Of The County
This argument was raised before the Circuit Court in Appellant's Motion for Summary Judgment and was thus properly preserved for review. (R.III:447-450).
At the heart of this appeal is the question of whether the Business and Finance Plan meets the statutory requirement of demonstrating that the interest and principal obligations of the bond can be met without seriously restricting other expenditures of the county. The evidence demonstrated that the business and finance plan rests on a series of assumptions that are untested, unproven and unrealistic, resulting in a certainty of a shortfall using the applicant's own projections and criteria if the project terminates at the end of “Phase I” and a probability that such liability will accrue in future years due to delays, costs and contingencies that are neither assessed nor accounted for in the plans.
The CDC ignored this evidence. The sum total of the Referee’s analysis of the record regarding the pivotal legal criteria of whether “the financial condition and prospects of the county [ ] warrant a reasonable expectation that principal and interest maturities can be met when due without seriously restricting other expenditures”, is found on page 10 of the Referee's Findings and Recommendations and states that:
i. Roberts did not present evidence as to “what county services or
expenditures would need to be curtailed in the event revenues from this
project are insufficient to advertise the bond issue[,]”
ii. Warren County maintains a $10 million account balance;
iii. Warren County’s lease arrangement . . . obligates it to cover
30% of any debt service shortfall that might occur;
iv. “[U]nder current market conditions, the bond issue would
require $1 million per year in debt service payments beginning
with the sixth year after the bonds were sold, the first five
years interest payments being capitalized.” (R.II:154).
These "findings" are grossly insufficient to support the CDC decision. With respect to the first finding, the statute does not require the Appellant to identify specific services or expenditures that would have to be curtailed; only that the Business and Finance Plan did not warrant a reasonable expectation of retiring the debt without “seriously restricting” such other expenditures. Concerning the county’s financial condition, the finding that the county “maintains” a “significant account balance . . . i.e. $10 million[.]” (R.II:154). In so doing the Referee failed to consider all of the evidence in that regard, which reflects that the county fund balance has ranged from six to ten million dollars. .Appendix 5).9 With respect to the third “finding,” the Referee concluded that the maximum liability of the county for any deficit would be 30%, despite a record reflecting no evidence that interlocal agreements obligating other counties and cities to share any liability had been executed and that Warren County could be liable for as much as 100% of the shortfall for any year.
The last finding was that the debt service on the bond would approximate $1 million per year and that the county had a fund balance of $10 million. Without more, the Appellant believes that the record reflects that the bond issue should not have been approved, since even assuming that the total risks to Warren County are “only” $1 million per year, that amount is 1/10 of its total account balance. The dedication of that significant a fraction of a county's resources to a long-term debt for one industrial park project, making those funds unavailable for other government functions, in any fair sense of the word, seriously restricts other expenditures.
In making the findings, the Referee failed to address the threshold question of whether the project was a "unitary" or "phased" project, and to demonstrate consideration of unrebutted evidence demonstrating that if the Project was phased and ended at "Phase 1" a substantial adverse economic impact would be suffered by Warren County; and conversely, if the project was a unitary project, it did not meet the requirements of law for failing to consider the environmental costs, delays and numerous contingencies associated with the project that would impair the ability to timely service the debt and in turn adversely impact the county and existing creditors.
1. The CDC Decision Was Not Supported By Substantial Evidence
In The Record As A Whole And The CDC Failed To Make Findings Sufficient To Demonstrate Consideration of Evidence That If The Project Ended At Phase I A Substantial Impact To Warren County Would be Suffered.
This argument was raised before the Circuit Court in Appellant's Motion for Summary Judgment and was thus properly preserved for review. (R.III:450, R.IV:451-455).
If the review of a proposed bond and note issuance is to be other than a rubber-stamp exercise, the CDC must scrutinize the feasibility of plans that cause a county to incur indebtedness. The CDC failed to test the assertions of the applicant in any way, choosing instead to engaged in a superficial approval of the plan without assessment of the evidence as a whole.
The application for approval of the mortgage revenue notes and bonds included a “Business and Finance Plan January 2001” containing a Business Plan Overview, a Market and Operations Analysis, Forecasted Financial Statements and Projected Financial Statements. Roberts appeal of the SLDO decision challenged that the project plans as being inconsistent with the statute because the plans were dependent on future unpledged and uncertain federal and state grants; failed to consider the impact of environmental constraints associated with the proposed site on the project timetable and costs; and were grounded in a shaky assumption of a future stream of revenue amounting to $17 million ($17,390,000) to be derived from the “net proceeds from the sale of the existing Bowling Green-Warren County Regional Airport” and construction of a new airport. (Appendix 6).
In response to the challenge to the reasonableness of the assumptions in the Business and Finance Plan relative to the disposition of the current airport and development and funding of the new airport, the ITA asserted that the proposed Transpark Project was a “phased” project and that this bond and note issuance and lease agreement were unrelated to the airport but were instead to fund “Phase I” of the project, being acquisition of 2000 acres and development of 240 of those acres for sale. According to the ITA Response to Appeal the project:
is to be constructed in phases or stages, so as to allow the County to
determine whether to undertake the development of subsequent Phases
based on the success of prior Phases[.]”
ITA Response to Appeal at p.8.
Even though one can search in vain for any indication in the business plan presented to the SLDO of anything other than a unitary business park and airport project; see Business Plan Overview, pp. 1-2 (Appendix 6); Market and Operations Analysis at p. 1 (Appendix 6), and the proposition that the Transpark project finance plan is “phased” gives every appearance of being a post hoc concoction intended to rehabilitate the bond approval decision by sidestepping the significant problems with and uncertainties presented by the projected revenue stream in the later years of the project,10 Appellant accepted for the sake of analysis the representation that the project was to be “phased” and reevaluated at the end of “Phase I.”11 Appellant demonstrated using only the evidence in the documentation offered by the ITA, and granting the County and ITA every benefit of the doubt, if the project terminates at the end of Phase I the county (and any other participating governmental entities) will face significant shortfalls in revenue relative to expenses, thus materially and adversely affecting the financial status of the county. Post-Hearing Brief of Appellant, pp. 22-34 (Appendix 7).
The CDC failed to make any finding concerning the critical factual issue of the phased or unitary nature of the project, or to address the fact that using the ITA’s own figures, if the project ends at “Phase I” as defined by the ITA, it will create a liability that exceeds the county’s account balance.
The ITA indicated that job creation as the criteria that will be used at the end of Phase I to determine whether to move to Phase II. Transcript of Referee Hearing Vol. III p. 121 (Appendix 5). Assuming that the project does not, during Phase I, generate the jobs according to projections so as to justify going to Phase II, based entirely on the numbers supplied by the ITA and accepting at face value the assumptions and projections of the Business and Finance Plan, a substantial shortfall of $11,885,000 relative to expenditures at the end of Phase I of the Project if the project ends at that point, yet there is no capacity in the proposed plan to address this possibility. Assuming for the moment the continued existence of a high-end $10 million dollar county fund balance, the deficit at the end of FY 2003 would swamp that fund balance, obviously effecting a serious restriction of other county expenditures and adversely affecting existing creditors interests in the continued solvency of the county.12
Yet instead of demonstrating any consideration of the evidence reflecting that by end of FY 2003 (the end of Phase I) a shortfall of $11,885,000 relative to expenditures will exist if the Project ends at “Phase I”, the CDC decision leapt from the date of approval of the bonds and notes to year six, noting that the interest on the bonds is “capitalized for the first five years.” What the CDC completely ignored is that in the event that Phase I is not successful, the project might never get to the sixth year. The clear weight of evidence demonstrated that the “phased approach” provided no protection against overextending the county fiscally, since the project cannot end at Phase I without causing serious harm to the County’s finances and ability to incur other debt. The CDC's failure to provide findings evidencing any consideration of, reaction to, explanation for or resolution of this significant issue; makes it impossible to find that the decision was based on substantial evidence on the record as a whole, and makes the Circuit Court finding clearly erroneous.
2. The CDC Decision Was Not Supported By Substantial Evidence
In The Record As A Whole And The CDC Failed To Make Findings Sufficient To Demonstrate Consideration of Evidence That If The Business and Finance Plan Is Unitary The Plan Is Too Speculative To Justify Approval
This argument was raised before the Circuit Court in Appellant's Motion for Summary Judgment and was thus properly preserved for review. (R.IV:455-461).
The clear weight of evidence in the record demonstrates that using the “unitary” approach (the approach actually depicted in the business and finance plan), the bond and note approval failed to meet the statutory criteria. The evidence reflects that the business and finance plan rested on a series of untested, unproven and unrealistic assumptions, giving rise to a probability that liability will accrue to the county in future years due to delays, costs and contingencies that are neither assessed nor accounted for in the plans, and that such liability will seriously restricting other expenditures of the county, in light of the commitment and representation by the County that there will be no new taxes to support the retirement of the bond and lease obligations. Accepting the representations of the Business Plan Overview and Business and Finance Plan that the project is a unitary business park/airport project, the CDC decision was in error for failing to independently scrutinize and make findings concerning the key assumptions underlying the proposed business plan, thereby precluding a defensible conclusion that the debt service can be met without seriously restricting other county expenditures, and eroding any basis for a finding that the best interests of residents and creditors would be served by approval.
The record demonstrates several critical weaknesses in the assumptions in the business and finance plans, any of which should have caused the CDC to reject the request, yet there is no indication that the CDC considered or passed on that evidence.
The evidence demonstrates that the plan understates the costs and time involved in land acquisition and development, compromising the ability to retire the debt service without county support because the debt service is contingent on the stream of income from the assumed sale of developed land at a rate of 90 acres during FY 2003, and 60 acres each year thereafter (and from assessments on income from future employment on those lands). The CDC failed to demonstrate that it reviewed this evidence and how it reconciled the evidence with the proposed plan.
Appellant argued that it was inappropriate to include in the stream of projected revenues proposed taxes to be imposed by Bowling Green after annexation of the Transpark by the City, since the annexation has not occurred, Transcript of Referee Hearing Vol.1, p.34 (Appendix 5), yet the CDC made no finding as to whether it was appropriate to include this speculative stream of income.
Appellant argued that it was inappropriate to project that by FY 2003, the acquisition of the 2000 acres and development for industrial use of 240 acres will have been completed, and 90 of those acres will have been sold since the land was not currently zoned to support industrial use. The CDC failed to make a finding concerning the viability or consistency with the statue of a financing plan for debt service that is largely dependent on independent future actions by legislative or administrative bodies such as a zoning or planning commission, nor whether the debt could be serviced without adversely affecting the county if those events might not come to pass.
The evidence reflected that the $18 million in future state or federal grants on which the plan in part relies were speculative, yet the CDC made no findings concerning the viability of the plan absent the infusion of government funds.
The CDC likewise failed to consider and assess the unrebutted evidence that the environmental constraints, particularly the site's significant sinkhole plain overlying a karst aquifer, and costs associated with constructing the project on that site, might materially affect the cost and viability of the project. 13
The CDC failed entirely to address the evidence reflecting that the Business and Finance Plan rests in substantial part on the assumption of the new airport construction, and of a stream of revenue amounting to some $17 million to be derived from the “net proceeds from the sale of the existing Bowling Green-Warren County Regional Airport,” (which is proposed to occur after the completion of a new airport that will open in fiscal year 2007), and that both of which are extremely speculative. (Appendix 7).
The failure to have responded in any manner to the evidence respecting the speculative nature of a financing plan makes judicial review of the agency decision nigh impossible. This Court is left to speculate as to whether and how the CDC considered the evidence in drawing its conclusions.
III. The Circuit Court Committed Clear Error In Upholding the CDC Decision Since The Record Did Not Contain The Terms of The Lease For Which Approval Was Sought.
This argument was raised before the Circuit Court in Appellant's Motion for Summary Judgment and was properly preserved for review. (R.IV:468-470).
Warren County sought approval from the State Local Debt Officer pursuant to KRS 66.310(2) to enter into a lease agreement obligating the county to pay any deficiency in the debt service on the $25 million bond issue. KRS 66.310(2) requires that the county obtain the approval of the state local debt officer to enter into the lease, as a lessee, and that "[I]f his approval is required, the state local debt officer shall hold a hearing for the purpose of considering the terms of the lease . . . ." Warren County’s April 2, 2001 Petition For Approval proposed to enter as lessee into a “Contract, Lease and Option” agreement by which it would pay through the lease any revenue shortfalls below the amount needed to cover the debt service on the bonds and notes. (Appendix 2). Yet the Petition for Approval by Warren County did not include the terms of the "Contract, Lease and Option Agreement “ for which the county sought authorization. The May 14, 2001 SLDO Decision approved “the form of the proposed financial plan" for the issuance of the bonds and notes but did not review the lease terms or grant the requested authorization for the County to enter into the lease, contract and option agreement. The Referee approved the County's request to enter into lease agreement despite the lack in the record of a copy of the proposed "Contract, Lease And Option" agreement, and the CDC adopted that recommendation as its own.
There is no evidence in the record that the actual language of the terms and conditions of the lease agreement were ever submitted to the SLDO, Referee or CDC. The CDC, by approving the terms of a lease that it never reviewed, committed clear error and the decision is not supported on the record.
In the film “Field of Dreams,” Kevin Costner hears a voice directing “if you build it, he will come.” He plows under a cornfield and spends all of his time, energy and savings constructing a baseball field in the middle of an Iowa cornfield. Through the magic of Hollywood, “Shoeless Joe” Jackson and other baseball stars now deceased arrive to play ball on the “Field of Dreams.” Costner’s character, by plowing under the corn crop, caused a default on the farm mortgage and avoided foreclosure only because people came to watch the ballplayers.
In this day and age, no community can afford to assume responsibility for a “field of dreams.” Any proposal to impose long-term liability on a county's residents that will be paid with public monies must be scrutinized to assure that the public and existing creditors of the county will be fully protected, and that the project is accountable and grounded in realistic assumptions.
The record before the CDC unfortunately does not provide that assurance and accountability. The CDC failed to provide sufficient findings of fact to allow a reviewing Court to determine whether the decision is supported by substantial evidence on the record taken as a whole, and on the issue of the lease and the extent of county liability, the CDC committed clear error. For want of compliance with the statutory criteria, Appellant respectfully requests that the Opinion and Order of the Franklin Circuit Court be reversed and the decision of the CDC be vacated, and for any and all other relief to which Appellant may appear entitled.
P.O. Box 1070
Frankfort, KY 40602
Counsel for Appellant Joey Roberts
11. The record in this case consists of 657 pages in five (5) volumes, identified as Volumes I, II, III, IV or V, and paginated progressively. Reference to the record will be prefaced by the volume number and the page assigned by the Clerk of the Franklin Circuit Court, for example R. I:142. Certain documents appear more than once in the record, as attachments to pleadings, and are cited only once in this brief.
22. The record before the County Debt Commission was certified to the Franklin Circuit Court. Those portions which Appellant cites have been included as appendices to this brief, and identified as "Appendix ____".
3 On remand, the parties supplemented the record before the CDC. (R.IV:491.2) The supplemental documents were filed with the Franklin Circuit Court by the custodian of records for the CDC on May 9, 2002, (R.V:595-637), and by Agreed Order included in the record before the Circuit Court. (R.IV:491-2).
44. The transcript of the Referee Hearing consists of four volumes. Those portions to which Appellant makes reference in this brief are included in Appendix 5.
5 The February 25, 2002 CDC Order included no additional findings of fact or conclusions of law beyond those contained in the Referee's Findings and Recommendations. The CDC adopted without change the Referee’s recommendations so that the validity of the CDC Order rests entirely on the sufficiency of the Referee's Findings and Recommendations.
6 The Franklin Circuit Court Opinion and Order cited Kentucky State Racing Commission v. Fuller, Ky., 481 S.W.2d 298 (1972) for support for the general statement of the standard of review. The Fuller Court framed the question in this manner: "The real issue before this court is whether there was substantial evidence on the record as a whole to support the findings of the [agency]." In the instant case, it is the lack of indicia that the agency considered and passed upon the record as a whole that requires reversal of the Circuit Court and the CDC decision.
7 The Referee’s decision is sorely wanting in basic findings of fact with respect to disputed factual issues. Juxtaposing the four-volume record and the post-hearing brief of Appellants against the scant few pages of findings and conclusion provided by the Referee, it is difficult to find any indication that the Referee read the Appellant's post-hearing brief or considered the evidence adduced and synthesized in that brief, since the Referee's decision contains no specific findings resolving factual matters disputed by Appellant.
8 The Referee’s Findings and Recommendations comprise eleven (11) pages. The “Introduction,” consisting of six of the eleven pages, provides, without the first citation to a hearing transcript that comprises four volumes, a characterization of some of the testimony presented at the hearing. Pages seven and eight address “Preliminary Matters.” After acknowledging the jurisdiction of the CDC and State Local Debt Officer over the bond issue and lease agreement, the Referee sidestepped the allocation of the burden of proof. Pages eight through eleven contain the “Findings” and “Recommendation.”
9 The CDC/Referee failed to explain the use of the $10 million, high-end figure in light of the evidence reflecting that there had been a significant fluctuation in county account balance over a two-year period. Nevertheless, Appellant gave the benefit of the doubt to the applicant in using the high-end number, since the debt at the end of Phase I would swamp the county fund balance whether at the high end or a more conservative number.
10 The acknowledged use of the "Phase I" bond revenue to purchase the land for the new airport, and the concept of the "transpark" itself as a multi-modal road, rail and air park, cast doubt on the disclaimer that "Phase I" of the project bears no relation to the airport.
11 County Judge-Executive Buchanon described “Phase 1” of the project as “[t]he purchase of up to 2,000 acres of real estate, infrastructure development, industrial development of 240 acres of land.” (T-1, p. 44, Appendix 5). Included also in Phase 1 is the purchasing of “the portion of land that the airport may be located.” (T-1 p. 45 (Appendix 5). Mr. Callahan testified that “phase one would be the expenditures for the first – fiscal year 2002 and 2003.” T-Vol. IV, p. 99 (Appendix 5).
12 The Appellant’s Post Hearing Brief at pp. 22-34, outlines why this shortfall will occur at the end of FY 2003, and demonstrates, using the applicant's own numbers and assumptions, why approval by the SLDO was inappropriate. (Appendix 7).
13 There is little question but that environmental concerns could interfere with the ability of the project to pay the principal and interest obligations on the bond issue. Costs associated with mitigation necessitated by the sensitivity of groundwater in this karstified region to contamination will impose cost and time constraints on the project, and are directly material to the ability of this project to be implemented. The CDC failed to consider the environmental costs in determining whether the proposed financing plan was realistic and feasible.