This is an action for a declaration of rights instituted by a taxpayer against the members of the Franklin County fiscal court to determine the right of the fiscal court to pledge certain tax funds for the construction of an addition to the courthouse. The specific question involved is whether the fiscal court can pledge tax funds which have already accrued but not as yet been collected. Section 157 of the Constitution and KRS 68.110(1) prohibit the fiscal court from expending any money in any one year that will exceed the amount levied and collected in taxes for that year without a referendum. The funds which the fiscal court now wishes to pledge were accrued because of an amendment made by the legislature to KRS 132.160, which became effective July 1, 1966. Prior to the amendment ad valorem taxes were levied upon distilled spirits as of January 1 of each year, but did not become due until after the federal tax became due or was paid when the spirits were removed from the warehouse for transfer in bond or out of the state. As a practical result of this statute, the tax was not normally paid until the spirits were taken from bond and placed in the bottle. The 1966 amendment abolished the delay in the payment of the tax by providing that the tax assessed on all spirits while in bonded warehouses as of January 1, 1967 and January 1 of each year thereafter becomes due on September 15 of the year in which it is assessed and becomes delinquent on January 1 of the following year.
The legislature, recognizing that there would be an overlapping period wherein current taxes and back taxes would be collected at the same time, provided that the tax collected for spirits in bond for years prior to 1966 should be used for “capital outlay” by all taxing jurisdictions. As a result of this amendment, Franklin County now has owing for certain distilled spirits located in that county $524,-150.29 as of January 1, 1967. This is for tax levied prior to the 1966 amendment on spirits then in the warehouse and which will be paid as they are removed from bond. The parties now request this court to determine whether these funds can be pledged as security for a loan to local banks in the amount of $500,000 for the construction of an addition to the courthouse. We are of the opinion they can. The intent and purpose of section 157 of the Constitution was to prevent local governments from incurring indebtedness that would be carried from one year to the next, thereby precluding effective operation of the government. The funds here involved are already accrued. They bear no relationship to the current operating budget of the county and do not constitute an obligation of that budget. For this reason, their pledge as security will not encumber normal revenue accruing in future years. The purpose of the Constitution was to require local governments to adopt a “safe, sane and conservative plan of pay as you go” system *329of financing, consequently each year’s income must pay each year’s indebtedness. Here the funds are already accrued and therefore their present expenditure will in no way encumber or affect next year’s budget.
We have previously held that a fiscal court may make levies to accumulate a fund with which to pay for the erection of a courthouse in the future. Combs v. Letcher County, 107 Ky. 379, 54 S.W. 177. There we held:
“We think, therefore, that, without in fact going in debt for a court house, the fiscal court might take steps ‘to secure’ one by making a levy within the limitations of the law for the purpose of accumulating a fund with which to pay in cash for the court house when erected. The constitution does not prohibit this. It simply commands the county to live within its income, and create no indebtedness in any year beyond its income, unless authorized by a vote of the people.”
We see no distinction between that case and the present except that in the present case the funds accrued themselves because of an amendment in the taxing statute. The purpose for which the funds are to be expended meets the requirements of the statute requiring that they be used for “capital outlay.”
It is therefore concluded that the fiscal court may legally pledge the funds in question as security for the loan.
Judgment affirmed.
WILLIAMS, C. J., and MILLIKEN and PALMORE, JJ., concur. HILL, MONTGOMERY and STEIN-FELD, JJ., dissent.