COMMONWEALTH OF KENTUCKY
OFFICE OF THE GOVERNOR
DEPARTMENT FOR LOCAL GOVERNMENT
01 SLDO 011
IN THE MATTER OF:
COUNTY OF WARREN, KENTUCKY
INTER-MODAL TRANSPORTATION AUTHORITY, INC.
FIRST MORTGAGE REVENUE BONDS AND NOTES
ONE OR MORE SERIES
APPEAL OF THE DECISION OF THE STATE LOCAL DEBT OFFICER APPROVING THE ISSUANCE OF PROPOSED NOTES AND BONDS
* * *
Comes the Appellant, Joey Roberts, and appeals the decision of the State Local Debt Officer of May 14, 2001 approving a request by Warren County, Kentucky 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." By Petition dated March 30, 2001, Warren County petitioned the State Local Debt Officer for approval of issuance of 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." Warren County created and incorporated the Warren County Inter-Modal Transportation Authority, Inc, (ITA) as an agency and instrumentality of Warren County to acquire, develop and finance the Inter-Modal Park, and proposed that the project would be managed and the bonds and/or notes would be issued by ITA.
1. The decision appealed from is the "Decision of the State Local Debt Officer," Eugene Kiser, issued May 14, 2001, approving the plan for issuance of up to $25 million dollars in "Inter-Modal Transportation Authority, Inc. First Mortgage Revenue Bonds and Notes[.]" Warren County had sought approval of the state local debt officer, as required by KRS 66.310, for issuance of the bonds.
2. This appeal is filed pursuant to KRS 66.310(4), which provides that:
Any interested party or taxpayer may within fifteen (15) days, exclusive of Sundays and holidays, appeal to the Commission from the decision of the state local debt officer. The commission, upon the basis of the record prepared by the state local debt officer, and of any additional evidence which may be introduced, shall pass upon the decision of the state local debt officer.
The "commission" to which KRS 66.310(4) refers is the County Debt Commission, which pursuant to KRS 66.300 is empowered and charged to "hear and dispose of appeals from rulings of the state local debt officer[,]" among other duties imposed by law. KRS 66.300(2).
3. The decision appealed from was entered on May 14, 2001. Excluding Sundays and the Memorial Day holiday, the fifteen-day period for the docketing of this appeal expires on June 1; thus this appeal is timely filed.
4. While KRS 66.300(2) empowers the County Debt Commission to adopt regulations, it appears not to have adopted regulations concerning the manner in which the appeals are to be docketed. However, at the close of the hearing in this matter, the State Local Debt Officer indicated that "[t]he written appeal should be submitted to:
Gene Kiser, State Local Debt Officer
Department for Local Government
1024 Capital Center Drive, Suite 340
Frankfort, Kentucky 40601"
This appeal has been so filed, and additionally has been filed with the office of the Governor, who is by statute the Chair of the County Debt Commission. Additionally, copies of the appeal have been served on all entities believed to have an interest in the proposed bond and note issuance, in order that they may participate in the appellate proceedings as they desire and as the Commission deems appropriate.
STATEMENT OF INTEREST
5. KRS 66.310(4) provides that an appeal of the decision of the State Local Debt Officer may be appealed to the County Debt Commission by "[a]ny interested party or taxpayer[.]" Joey Roberts is a resident and taxpayer of Warren County, Kentucky, and has a direct interest in the decision to approve the revenue bond issuance since it is an obligation for which the county is liable. Additionally, Mr. Roberts uses and enjoys the natural resources of the area in which the proposed project is to be located and will be adversely affected and aggrieved by any development that will impact on air, land or water quality in that area. Mr. Roberts submitted testimony in opposition to the proposed bond issuance.
STANDARD FOR REVIEW
6. KRS 66.310 provides both the procedures and the standards by which a State Local Debt Officer must review a request by a county for approval to issue bonds. In relevant part, the statute provides that:
The state local debt officer shall hold a hearing for the purpose of determining whether any issue of bonds submitted to him for approval should be approved or disapproved. The state local debt officer shall withhold his approval if he believes the financial condition and prospects of the county do not warrant a reasonable expectation that interest and principal maturities can be met when due without seriously restricting other expenditures of the county; if in his discretion, the issue of bonds will not serve the best interests of both the county issuing the bonds and a majority of its creditors; or if it appears that the bonds or the issuance thereof will be invalid.
7. The statute further provides for a hearing on county requests for approval of a bond issuance, and outlines the requirements for public notice and the hearing, at which "[a]ny party having a material interest shall have an opportunity to be heard and to present evidence."
8. The statute further directs that "[t]he state local debt officer shall make a record of the proceedings of the hearing and shall prepare a written decision approving or disapproving the issuance of the proposed bonds." KRS 66.310(4).
KRS 66.300 provides for Commission disposition of appeals from rulings of the state local debt officer, and does not specifically identify the standard for review.
ERRORS RELIED UPON IN APPEAL
9. Appellant seeks reversal of the decision of the State Local Debt Officer on these grounds:
a. The May 14, 2001 decision of the State Local Debt Officer approving the issuance of up to $25 million dollars in bonds (hereinafter "the decision") is not valid, since the hearing procedures are at variance with and are inconsistent with the requirements of KRS Chapter 13B.
b. The decision of the State Local Debt Officer that "[t]he financial condition and prospects of the County, warrant a reasonable expectation that the payments required to meet the First Mortgage Revenue Bonds can be met when due" and that the issuance of the bonds and notes is in the best interest of the County, is not supported by substantial evidence on the record because the project is significantly dependent on future grants from state and federal government for which there are no assurances or guarantees.
The First Finding rests on the assumption that the principal and interest requirements of the Bonds and Notes will be provided "exclusively" from a lease agreement to be entered into between the Inter-Modal Transportation Authority and "the South Central Kentucky Regional Development Authority", which is apparently the vehicle through which the county will lease the development property. The sole support in the record for the finding is the representation of the county that an as-yet executed lease for as-yet acquired property will cover the costs of the bonds and notes, and on "Warren County[?s] . . . reliable record of good budget management[.]" Based on this, the Hearing Officer concluded that "the County should be able to meet the terms of the proposed bond financing without adversely affecting other expenditures of the County." The evidence in the record is insufficient to support this finding. It is clear from the financial documents that Warren County is obligated to pay the principal and interest obligations on any notes and bonds issued in support of this project, so that the County is obligated to make good on any shortfalls in financing of the project that might occur.
The "Business and Finance Plan", dated January 2001, reflects that the project is substantially dependent on current and proposed "state and federal grants to help fund the development and operations of KTT." Business Plan at p. 1. As acknowledged in the Forecasted Financial Statements for Years Ending June 30, 2001 Through June 30, 2010, "[m]anagement estimated that the Organization will receive state grants of approximately $16,100,000 over a five-year period beginning July 1, 2001, and ending June 30, 2006, for the development and management of KTT. Failure to obtain the estimated levels of state grants during the expected fiscal periods could have a significant impact on this forecast." The project has thus far existed only through a $6 million dollar grant from the Commonwealth of Kentucky, and there is no assurance, guarantee or expectation of future grants either from state or federal sources. Yet a significant amount of the project financing need, $18,350,000, is proposed to be met through future state grants of $4 million dollars per year for Fiscal Years 2002-2006, and $2,250,000 in a federal grant in Fiscal Year 2007, for which there is no assurance, and there is no indication of how the project will be financed, and the obligations on the bonds and notes met, in the absence of this funding. Given the complete lack of assurance of availability of over $18 million dollars in future support identified as being needed for development of the proposed project, and given further the obligation of Warren County to pay the principal and interest obligations on any bonds and notes, the proposed Business Plan should have demonstrated that in the absence of speculative future state or federal grants, the proposed bond and note issuance are in the best interests of the county, and that the obligations can be met thereon without seriously restricting other expenditures of the county. In the absence of this information, the decision is not supported by substantial evidence in the record.
c. The decision of the Local Debt Officer that the issuance of the bonds will serve the best interests of the county and that the payment of the obligations on the notes and bonds can be made without seriously restricting other expenditures of the county is also not supported by substantial evidence in the record for these reasons:
i. The record fails to reflect how the county will pay the obligations on the notes and bonds as they fall due and before the county begins to receive revenue from the proposed project. The County is immediately obligated to pay the principal and interest obligations on the notes and bonds as they become due, yet the County will not, according to the Business Plan Overview, begin to sell land to prospective businesses until "fiscal year 2003" and will not begin receiving "incremental county and city revenues from businesses locating in the park beginning in the fiscal year ending June 30, 2004." The Business Plan stated that "[t]he bond anticipation notes and the subsequent long-term bonds will primarily be repaid from proceeds from sales of land in the business park and from incremental county and city revenue from the development area. No tax increases are included in the business plan." Yet for a period of time commencing with the issuance of the notes and bonds in 2001 and extending until the proposed project land is acquired, developed and sold or leased, all financial obligations associated with the bonds and notes will be entirely the responsibility of Warren County and will presumably have to be met through existing general revenues or the remainder of the initial state grant to the project. The source(s) of revenue for payment of these county obligations and the fiscal impacts of payment of these obligations on the county, considered in light of other financial obligations of the county, have not been adequately addressed, and the decision to approve the bond and note issuance in the absence of this information and analysis is arbitrary and capricious and unsupported in the record.
ii. Related to this are the numerous questions that have been raised concerning the environmental constraints associated with the proposed site, and costs associated with the site assessment, development, mitigation and monitoring. As noted in comments received at the hearing, and as acknowledged by the ITA at the bond hearing, a draft Environmental Assessment has been released for comment and a hearing held thereon but a final Environmental Assessment has not been completed for the project. The information garnered in that process could have a range of impacts on the project development and in turn on the ability of the County to pay debt service on the bonds through receipts from sale or lease of the developed project land. Among the impacts could be a finding that the land is unsuitable for the development; that due to groundwater sensitivity or vulnerability, certain aspects of the project or types of businesses are unsuitable, or that mitigation or monitoring measures are needed to address environmental constraints. Any of these impacts could deter businesses from locating at the project site, delay completion of the project or increase costs associated with the project, affecting the assumptions on which the viability of the project is based. Yet the Business Plan did not account for or address these contingencies, nor did the State Local Debt Officer respond and resolve these issues in rendering a decision approving the bonds and notes. In the absence of full and fair consideration of the environmental aspects of the project feasibility, the decision to approve a county bond issuance where the ability to finance the principal and interest obligations on the bonds rests on the ability to market the resulting developed land, as being in the best interests of the county and capable of being financed without adverse impact on the county, is not supported by substantial evidence in the record.
d. The decision of the State Local Debt Officer was contrary to law in that the State Local Debt Officer, acting as Hearing Officer and presiding over the hearing as required in KRS 66.310(4), interfered with the presentation of evidence by a party with a material interest, and wrongfully excluded that evidence from the record in direct contravention of the requirements of KRS 66.310(4) providing that any party having a material interest "shall have an opportunity to be heard and to present evidence."
At the hearing, Becky Raff, staff member of the Kentucky Resources Council, Inc., on behalf of members of that organization in Warren County, including Mr. Roberts, attempted to present oral testimony regarding "the economic and environmental impact" of the proposed Intermodal Transportation Authority Inc., Transpark. Her testimony was interrupted by the Hearing Officer, who asked her the basis of her statements and stated that:
You will need to stick with the issues on the bond. . .
Not any environmental[.]
Tape of Public Hearing.
This refusal to accept into the record any evidence concerning environmental issues and costs related to the proposed project for which the bond issue is proposed (and the sale of land associated with which is the source of bond obligation repayment) is arbitrary, capricious and inconsistent with the statute, and warrants a reversal of the decision and a remand with instructions to allow the record to be fully developed.
e. The State Local Debt Officer?s decision was arbitrary, capricious and otherwise inconsistent with law, and is otherwise unsupported by substantial evidence in the record, because the Hearing Officer failed to consider evidence concerning the environmental constraints and costs associated with the project, which might materially affect the costs and viability of the project.
In addition to preventing Ms. Raff from presenting evidence concerning environmental matters, at the conclusion of the Hearing, the State Local Debt Officer indicated, with reference to environmental concerns that:
I will again tell you that environmental concerns
have nothing to do with the issuance of general
Tape of Hearing.
This failure to consider the impacts associated with environmental constraints relative to the proposed project property, renders the subsequent decision arbitrary and capricious, and inconsistent with law.
There is little question but that environmental concerns have much to do with the ability of the county to pay the principal and interest obligations on the bond issue without adverse effect on the county?s financial situation. The financing plan relies entirely on the revenues from sale of the developed land to pay the bond obligations without raising local taxes or using general county revenues. 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 Hearing Officer erred in failing to allow evidence on these matters and to consider the environmental costs in determining whether the proposed financing plan was realistic and feasible. The project is described in the Market and Operations Analysis submitted into the record by the Applicant, as a "large, environmentally friendly and attractive high-tech commerce and business park," the park which will include "[a]s the centerpiece . . . a first-class business airport" and "rail" and "highway" transportation access. The environmental constraints associated with the site and the environmental impacts of the project have a direct bearing on the project feasibility, and in turn on the ability of the county to retire the debt without cost to the county and its taxpayers. It was error to fail to allow or consider evidence relating to these matters in deciding to approve the bond issue.
f. The State Local Debt Officer erred in approving the bond issue without requiring that the applicant explain and justify the viability of the project in relation to a proposed new airport.
The Business Plan upon which decision approving the bond issuance was based, rests in substantial part on the assumption of a 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," which is proposed to occur after the completion of a new airport that will open in fiscal year 2007. According to the business plan, "[w]hen the new airport is completed, ITA will exchange the new airport for the old airport. The existing airport board will then operate the new airport. After the exchange, ITA will own the old airport and will then take the responsibility for selling the old airport. All proceeds from the sale of the old airport will be used to fund the new airport."
Assuming that the new airport is completed in fiscal year 2007 and the exchange occurs, any income from the sale of the old airport cannot be used to "fund the new airport" since the new airport will have been fully completed prior to the sale of the old.
Additionally, the record does not contain sufficient justification for the projected receipt of one-half of the $17,390,000 in fiscal year 2008 and the second half in fiscal year 2009 from the sale of the former airport property. Nor does the record explain or justify the assumption as to the sale of developed land, in light of the acknowledgment that the airport is the centerpiece of the proposed inter-modal park, yet it is assumed that purchasers will be found for the developed land beginning in FY 2004 when the airport, if developed, will not begin construction until FY 2005 and be completed until FY 2007.
Finally, the record reflects that the State Local Debt Officer?s decision failed to address and resolve conflicting evidence concerning the viability of the project in light of the determination by the Federal Aviation Administration that the proposed airport was not justified. The Forecasted Financial Statement for the Years 2001-2010 indicates that "[m]anagement estimates that the FAA will provide funding for 90% of the airport enhancements" at an estimated cost of 2.5 million dollars" yet the application does not address the assertion by Mr. Roberts that "the KTT project has previously been denied federal funding by the FAA based on failure to demonstrate need." The project viability with and without the airport, upon which the ability of the County to pay obligations on the bonds without affecting the county?s general financial status, is inadequately demonstrated and inadequately assessed in the decision.
g. The Second Finding that the "proposed financing plan for the issuance of the Bonds and Notes for the Project will serve the best interest of the County[,]" rests on nothing more than a conclusory statement by the Hearing Officer that the county has determined that the issuance of the bonds and notes will serve the best interests of the taxpayers, citizens and inhabitants of the county, and that the State Local Debt Officer "concurs with the County that the proposed financing plan for the issuance of the Bonds and Notes are for the public, is a public project for a public purpose, and appears in the best interest of the County."
The Finding is not supported by substantial evidence in the record because it failed to address adequately the issues raised in this appeal, and also because the Finding is not a finding of fact but a bald conclusion of law that identifies no facts upon which the Hearing Officer concluded that the project "appears in the best interest of the County." The conclusory assertion, without identifying the factual bases for the assertion, and without consideration and resolution of conflicting testimony regarding whether the Project and the bond issue to support the project is in the best interests of the county, is legally insufficient.
h. The Third Finding, that the proposed financing plan for the issuance of the bonds and notes "appears to be valid," rests on a finding that "it appears that the county?s contracted indebtedness will not exceed available income and revenue for the Fiscal Year in which the obligation is incurred" and is thus valid. According to the documentation contained in the hearing record, the annual debt service requirement will be up to $1 million dollars, for which the county is ultimately responsible. According to the proposed financing plan, the source of the county payment of all obligations on the notes or bonds will be from sale of the developed property, which will not occur until, at earliest, FY 2004. The Decision of the State Local Debt Officer does not identify the facts on which he bases this conclusion, and is insufficient for that reason. Additionally, the record does not support the conclusion that the indebtedness will not exceed projected revenue, once the speculative income attributed to future unpledged state and federal grants are removed from the equation.
i. The Decision is unsupported by substantial evidence in the record because of the failure of the decision to address and respond adequately to objections raised by various parties. Written comments submitted by Joey Roberts objected to the issuance of the bonds because the environmental review had not been completed, and because the Interlocal Agreements with other counties and communities provided no liability on those participants. Neither issue was responded to by the decision.
Additionally, Dr. Peter Meyer?s written statement raised a substantial question as to what evidence existed to support the assumptions that sufficient demand existed for the facilities and services to provide a reasonable basis for concluding that the income would be sufficient to service the proposed debt. No response was provided to the concerns raised.
Leslie Barras also submitted comments questioning how the debt service would be paid during the construction period, and the decision did not address this concern. Given the unresolved issues and concerns contained in the record, the decision approving the bond issue without resolving these concerns is unsupported by substantial evidence on the record as a whole.
WHEREFORE, for the reasons stated herein, the Appellant respectfully requests that the County Debt Commission accept this appeal, provide a process for introduction of additional evidence regarding the compliance of the proposed bond issuance with relevant statutes, and enter an order reversing the decision of the State Local Debt Officer approving the issuance of the bonds and notes, directing that a full due process hearing be provided and that all evidence pertaining to the proposed bond issue be accepted and considered, and that adequate findings of fact and conclusions of law be provided, and for any other relief to which Appellant may appear entitled.
Tom FitzGerald, Esq.
Kentucky Resources Council, Inc.
P.O. Box 1070
Frankfort, Kentucky 40601
CERTIFICATE OF SERVICE
I hereby certify that the original of the foregoing Appeal of Decision of State Local Debt Officer was filed this 31st day of May, 2001 with the County Debt Commission by hand delivery to the office of the Chairman of the Commission, Governor Paul Patton, and the Secretary of the Commission, Eugene L. Kiser, Jr., and that a true and correct copy of the Appeal was served by first-class mail, postage prepaid, upon Honorable Mike Buchanon, County Judge/Executive, Warren County Courthouse, 429 East 10th Street, Bowling Green, Kentucky 42101, the Warren County Fiscal Court Clerk, Warren County Courthouse, 429 East 10th Street, Bowling Green, Kentucky 42101, Terrell Ross, Financial Advisor, Ross Sinclaire and Associates, 315 North Broadway, Lexington, Kentucky 40508, Gillard B. Johnson III, Bond Counsel, Cox, Bowling and Johnson, 200 West Vine Street, PNC Plaza Suite 610, Lexington, Kentucky 40507, Hon. John Y. Brown III, Secretary of State, The Capitol, Suite 152, Frankfort, Kentucky 40601, Jerry Pearson, Warren County Treasurer, Warren County Courthouse, 429 East 10th Street, Bowling Green, Kentucky 42101, Dan Cherry, President, Inter-Modal Transportation Authority, 2325 Airway Court, Suite C, PO Box 20001, Bowling Green, Kentucky 42101, Michael Caudill, Warren County Attorney, 923 College Street, Bowling Green, Kentucky 42101 and the State Local Debt Officer, Eugene Kiser, Department for Local Government, 1024 Capital Center Drive, Suite 340, Frankfort, Kentucky 40601, this 31st day of May, 2001.
Counsel for Appellant