Lori Hudson Flanery in Her Official Capacity as Secretary of the Finance and Administration Cabinet, Commonwealth of Kentucky v. City of Florence, Kentucky

RENDERED: JUNE 15, 2017 _
TO BE PUBLISHED

O%upreme Tnur'f of g 7 WAL

2015- `SC- 000178 D<©ATEM".D¢

' KENTUCKY CATV ASSOCIA'TION, INC. . `_ _ - APPELLANT
(D/B/A KENTUCKY cABLE '
TELECOMMUNICATIONS ASSOCIATION,

INC. )

ON APPEAL FROM COURT OF APPEALS . '
V. ~ - __ CASE NO. 2013-CA-001112~MR
FRANKLIN CIRCUIT COURT NO. 11-CI-01418

cITY 0F FLORENCE, KENTUCKY; cITY ' APPELLEES
0F WINCHESTER, KENTUCKY; cITY 0F l -
GREENSBURG, KENTUCKY; cITY oF

MAY.FIELD, KENTUCKY; KENTUCKY

LEAGUE OF CITIES, INC.; LORI HUDSON

-‘FLANERY, IN HER OFFICIAL cAPACITY

AS‘ SECRETARY 0F THE FINANCE AND

ADMINISTRATION CABINET; AND _

THOMAS B. MILLER, IN'HIS OFFICIA_L-

CAPACITY AS cOMMISSIONER OF THE

DEPARTMENT.OF REVENUE

AND 2015-SC-00018,1-DG

LORI_ HUDSON FLANERY, IN HER 7 1 APPELLANTS
OFFICIAL CAPACITY AS SECRETARY OF

THE. FINANCE AND ADMINISTRATION

'CABINET, COMMONWEALTH OF

KENTUCKY; AND THOMAS B. MILLER,

IN HIS OFFICIAL CAPACITY AS "

COMMISSIONER OF THE DEPARTMENT

OF REVENU`E, FINANCE AND

ADMINISTRATION CABINET,

COMMONWEALTH OF KENTUCKY

ON APPEAL F`ROM COURT OF APPEALS
, V. CASE NO. 2013-CA-001112-MR `
FRANKLIN CIRCUIT COURT NO. 1 l-CI~O 1418

CITY OF FLORENCE, KENTUCKY; CITY APPELLEES
OF WINCHESTER, KENTUCKY; CITY OF
GREENSBURG, KENTUCKY; CITY OF
MAYFIELD, KENTUCKY; KENTUCKY
LEAGUE OF CITIES, INC.; AND
KENTUCKY CATV ASSOCIATION, INC.
OPINION OF THE COURT BY JUSTICE KELLER
AFFIRMING, VACATING, ANi) REMANDING

Lori Hudson Flanery, in her official capacity _as Secretary of the Finance
and Adrninistration Cabinet for the Commonwealth of Kentucky; ’I-`homas B.
Miller, in his official capacity as Commissioner of the Department of Revenue
for the Commonwealth of Kentuck'y (Cabinet); and Kentucky CATV Association,
Inc. (KYCATV] appeal the decision of the Court of Appeals reversing the
Franklin Circuit Court’s judgment in their favor and remanding with
instructions to grant judgment-in favor of` the City of Florence, Kentucky; City
of Winchester, Kentucky; City of Greensburg, Kentucky; City of Mayfield,
Kent'ucky; and Kentucky League of Cities, Inc. (Cities). This Court granted
discretionary review, and for the reasons stated herein, .we affirm the opinion of
the Court of Appeals, vacate the Franklin Circuit Court’s judgment, and

remand for entry of summary judgment in favor of the Cities.

I. BACKGROUND.

In 2005, the General Assembly enacted the Multichannel Video

Programming and Communications Services Tax (the Telecorn Tax). Kentucky

Revised Statute (KRS) 136.600 et seq. While the Telecom Tax as a Whole
changes the Way the Commonwealth taxes video telecommunications and
programming providers, the subject of this litigation is one provision
prohibiting “every political subdivision of the state” from collecting franchise
fees or taxes on franchises subject to the Telecom Tax. KRS 136.660(1)(a)-(c)
(Prohibition Provision]. The Telecom Tax authority encompasses each of the _ .
Commonwealth’s political subdivisions; however, we note that only the Cities
are parties to this litigation.

The Telecom Tax assesses a tax on the gross revenues received'by all
multichannel video programming (M\_/P) and communications service providers,
and is composed of excise taxes, sales taxes, and other similar taxes on the "
property of MVP serv-ice providers MVP service is programming provided by a
television broadcast station or similar entity and includes cable television
Services, Satellite broadcast and Wireless cable services, and internet protocol
television. v

The Telecom Tax imposes a 3% excise tax on all retail purchase of MVP
services, as well as a 2.4% tax on the gross revenues received by all providers
of MVP services, and a 1.3% tax on the gross revenues received by providers of
communications services, KRS 136.604 and KRS 136.616. These provisions
effectively impose_a 5.4%~ tax on total charges for MVP services and a 4.3% tax‘
on total Charges for telecommunications services. Revenue collected under the

Telecom Tax is then deposited into the General Fund.

Section 163 of the Kentucky Constitution provides that no utilities shall
be permitted Within a city or town Without the consent of their legislative
bodies. Section 164 of the Kentucky Constitution authorizes counties, cities,
towns, taxing districts, and other municipalities to grant franchises," subject.to
a twenty-year limitation thereon. Historically, municipalities collected /`
franchise fees as compensation for granting utilities use of municipal rights-of-
Way, pursuant to Sections 163 and- 164. Cable companies were required to
obtain the local government’s permission to use roads and rights-of~way, and
the municipalities granted them permission via permits, to which franchise fees
applied.

As noted above, the Telecom Tax’s Prohibition Provision prohibits local
governments from levying or‘ collecting franchise fees or taxes from MVP and
communications providers KRS 136.660(1)(a]-[c]. To compensate local
governments for this loss of revenue, the statute mandates that a portion of the
funds generated by the Telecom Tax be disbursed to the municipalities as
“monthly hold»harmless amounts,” which are capped at a total of
$36,408,0-00.00 annually. KRS 136.650(2)(c). The parties do not dispute that
this amounts to only 83% of the $42,100,000.00 annually collected by the ll
municipalities prior to the Telecom Tax.

In 201 1, the Cities filed a petition for declaratory relief, alleging that the
Telecom Tax violates their right to grant franchises and to Collect franchise fees
as provided in Sections 163 and 164 of the Kentucky Constitution. The

Cabinet and KYCATV denied the Cities’ allegations and all parties filed motions

for judgment on the pleadings l-The circuit court granted the Cabinet’s and
KYCATV’s motions and dismissed the petition, holding that the Telecom Tax
does not violate Sections 163 and 164.-1 The Court of Appeals then vacated the
circuit court’s judgment and remanded, finding that the Telecom Tax’s
Prohibition Provision violates Sections 163 and 164, entitling the Cities to

summary judgr`nent.2 We set forth additional facts as necessary below.

. II. STANDARD OF REVIEW.

This case concerns a matter of constitutional construction or
interpretation, which we review de novo. Greene v. Commonwealth, 349 S.W.3d
892, 898 [Ky. 2011].- _In conducting that review, we must construe the t
constitutional provisions at issue in a manner that carries out the intent of the
framers because “[t]he polestar in the construction of ~Constitutions is the
intention of the makers and adopters.” Gran.tz v. Grauman, 302 S.W.2d 364,
367 (Ky. 1957]. We gather that intent “both from the letter and the spirit of the
document.” Id. The dissent states that the majority, by looking to the framers’
intent, “dangerously teeter[s] on injecting our own policy preferences into the

case before us-a task most aptly reserved for the legislative branch.”

L .
\ .

1 The parties filed motions for judgment on the pleadings; however, they
attached exhibits to their pleadings Because the exhibits constituted matters outside
the pleadings, and the court considered those exhibits in rendering its judgment, we
treat the court’s order as a summary judgment rather than a judgment on the
pleadings Kentucky Rule of Civil Procedure (CR) 12.03.

2 The Court of Appeals’s analysis was limited to the constitutionality of the
Prohibition Provision; however, it held that “the Telecommum`cations Tax violates
Kentucky Constitution Sections 163 and 164 by prohibiting appellants from assessing
and collecting franchise fees.” To the extent that the _COA held that the Prohibition
Provision was unconstitutionally void, we ajiirm. However, we do not hold that the
Telecom Tax in its entirety is unconstitutionally void.

However, we are “si'mply doing what we are charged to do.” Jejj"erson Cnty. Bd.

of Educ. v. Fell, 391 S.W.3d 713, 727 (Ky. 2012). As this Court stated in Fell:

Where the statute is ambiguous the Court may properly resort to
legislative history. [MPMFinancial Group, Inc. v. Morton, 289
S.W.3d 193, 198 (Ky. 2009)],' Fiscal Court ofJejj’erson Co. v. City of
Louisville, 559 S.W.2d 478, 480 (Ky. 1977) (“The report of
legislative committees may give some clue. Prior drafts of the
statute may show where meaning was intentionally changed. Bills
presented but not passed may have some bearing. Wor.ds spoken
in debate may be looked at to determine the intent of the
legislature.”). Often legislative history is referenced, even where a
statute is unambiguous simply to underscore the correctness of a
particular construction. See Stephenson v. Woodward, 182 S.W.3d
162, 172 (Ky. 2005) (Resort to legislative history is unnecessary
when the statute is “abundantly clear,” but in case at bar
“legislative history is enlightening and serves only to strengthen
our foregoing conclusion.”).

Id. at 719_20.

III. ANALYSIS.

In asserting that the Telecom Tax’s Prohibition Provision does not violate

the Kentucky Constitution, Appellants make two main arguments: 1) Sections

163 and 164 neither explicitly nor implicitly provide municipalities the power to

collect franchise fees; and 2) Section 181 grants the General Assembly the

power to prohibit municipalities from collecting franchise fees.3 We address

each argument below.

Kentucky Constitution Sections 163 and 164.
Section 163 of the Kentucky Constitution provides:

No street railway, gas, water, steam heating, telephone, or electric
light company, within a city or town, shall be permitted or
authorized to construct its tracks, lay its pipes or mains, or erect
its poles, posts or other apparatus along, over, under or across the

3 We note that the Cabinet does not join KYCATV in its Section 181 argument
6

streets, alleys or public grounds of a city or town, without the

consent of the proper legislative bodies or boards of such city or

town being first obtained; but when charters have been heretofore

granted conferring such rights, and work has in good faith been

begun thereunder, the provisions of this section-shall not apply.

Section 164 of the Kentuckyl Constitution provides:

No county, city, town, taxing district or other municipality shall be

authorized or permitted to grant any franchise or privilege, or_

make any contract in reference thereto, for a term exceeding

twenty years Before granting such franchise or privilege for a term

of years, such municipality shall first, after due advertisement,

receive bids therefor publicly, and award the same to the highest

and best bidder; but it shall have the right to reject any or all bids

This section shall not apply to a trunk railway.

The Appellants argue that neither section discusses a municipality’S
right to collect franchise fees and, as such, the Court of Appeals erred in
implying that Such a right exists Rather, the Appellants contend that Section
163 only vests in municipalities the ability to control the original occupation of
its public streets and rights-of-way' and, similarly, Section 164 only vests in
municipalities the ability to grant franchises to the highest and best bidder.
The Court, having reviewed the Proceedings and Debates in the Constitutional
Convention of 1890 (Debates), finds it abundantly clear that the framers of our
Constitution intended that municipalities shall have both the power to grant
franchises as Well as the powerlto collect fees in exchange for granting those
franchises

Evident within the Debates concerning Sections 163 and 1644 is the

framers’ desire to protect the citizens of a municipality from a city council

4 During the Debates, within the Municipalities Committee, Sections 163 and
164 were titled “Section 14” and “Section 15,” respectively »

infiltrated by business interests and whose objective is to profit, at the expense
of the public, through perpetual monopolies and backroom dealings This is
precisely the notion that our predecessor Court captured in Stites v. Norton
over one hundred years ago. 125 Ky. 672, 101 S.W. 1189 (1907). “The evident
purpose of [Section 164] was to prevent councils of cities from giving away or
selling at an inadequate price the rights and privileges belonging to the
citizens, and compel the disposition of such valuable rights to be made
publicly, to the end that the citizen might obtain the greatest price possible.”
Ici. at 1190.

However, the framers’ concern was not solely limited to those who would
infiltrate the municipalities’ city councils, it was also directed toward those who
would infiltrate the General Assembly and, thereby, take from the citizens of
municipalities not only control over their franchises but also the financial
benefit such franchises would produce. See Debates, 2845. This proposition
was evidenced by Mr. Young, Constitutional Convention Delegate from `
Louisville:

If corporations are to be intrusted [s'ic] with Such privileges [to

operate a franchise], the local government ought to be alone

intrusted [sic] with the right of determining where and how the

streets or alleys of any city shall be used for any such purpose. I

know in the city of Louisville it would have been of great

importance to us if the Legi`slature had not been permitted to take

_ this question up, and allow street-car lines through our city

Without the consent of the local government

Id.

This dual intention is further illustrated by Mr. Bronston, Constitutional

Convention Delegate from Henderson, While speaking about Section 163 and
8

asserting that the cities should have full control of the placement of telephone,
electric light, and gas companies “I cannot see how any gentleman on the floor
could insist with sincerity and earnestness, that the city should not have
control of its streets and alleys, which streets and alleys are constructed by
taxation for the benefit of the city, and under its exclusive control.” Id. at
2849. As Mr. Bronston stated, the guiding themes behind the enactment of
Sections 163 and 164 were: 1) municipal control; and 2) municipal benefit via
the sale of franchises Id. Our predecessor Court echoed this notion in
Kentucky Utilities Company i). Board of Commissioners of City of Paris:

[T]he main purpose behind this section 164 was to insure that

every so often the municipality should have the opportunity of

revising the terms of the franchise which it had granted as to rates,

quality, service, and the like, and to have the advantage of

obtaining from time to time for the franchise its value which most

likely would be enhanced by the growth of population and

business .

254 Ky. 527, 71 S.W. 1024, 1028 (1933) (emphasis added).

A reading of the Debates makes clear that the municipality’s twenty-year
limitation in creating franchises emerged from the lframers’ dual concerns of
control and public benefit Ky. Const. § 164. Mr. Mackoy, Constitutional
Convention Delegate from Covington, stated: “This method [of providing a set-
year limitation] determines the actual value of the franchise, which ought to go
to the public, to whom alone it is due, and still leaves profit on capital actually
invested to the [franchise].” Debates, 2950.

Continuing in this vein, Mr. Young adamantly stated that the

municipalities should receive the full return of their franchises “The object of

'[Section 164] is, that if there is a valuable franchise or privilege given, that the
public shall get the blenefit'of it and that the profit from it shall go into the
public treasury, and not into the pockets of individuals.”' -Id. at 2952. When
asked if the provision requiring the sale of franchises after twenty years would
be more appropriate in a city ordinance than in the Constitution, Mr. Young’s
response was dispositive on the issue: ‘f[l]n the Constitution, where, to be valid,
the franchise has to be put up and sold, we are sure to get the money in the
city treasury, where it ought to go.” 'Id. [emphasis added).

The dissent states that “the clarity of the constitutional delegation ceases
at the moment a locality awards a franchise” and “[t]he ability to assess
recurrent franchise fees is not necessary to a city’s ability to grant a franchise
and it is certainly not indispensable.” These statements ignore that portion of
Section 164 that requires a city to L“receive bids . . . publicly, and award the
[fr_anchise] to the highest and best bidder.” If a city cannot charge a fee for a
franchise, there is no purpose for “receiving bids.” By granting cities the ability
to enter into a franchise agreement, the Constitution afforded them the benefit
of the full range of contract la_w. Iiiherent in contract law is the ability to
contract for and receive consideration in exchange for performance of the
contract, i.e., granting the franchise, Thus, the assessment of a franchise fee is `
an indispensable part of granting a franchise, Furthermore, there is nothing in
either Section 163 or 164 that requires the successful bidder to pay the
franchise fee in a lump sum, or to prevent a city from collecting that fee over

. the life of the franchise.

While “the franchise inheres in the sovereignty of the state,’_’ it is only
subject to the control of the General Assembly “save to the extent it has been
delegated by the Constitution . . . .” Kenti'icky Utils. Co., 71 S.W. at. 1029. lt is
clear that the framers of our Constitution intended to delegate to
municipalities control over the placement of utilities within their public spaces
and rights-of-way; and the right to reap the long-term profits of that control
through consideration paid by private franchisees to the municipality, i.e.,
franchise fees The portion of the Telecom Tax prohibiting municipalities from
levying franchise fees on MVP services, including fees intended as
compensation for the use of the municipalities rights-of-way, is contrary to
Sections 163 and 164 of the Kentucky Constitution and is thus void as
unconstitutional
B. Ke'ntucky Constitution Section 181.

KYCATV argues that the historical power of the municipalities to collect
franchise fees was a delegation of the General Assembly’s authority granted in
Section 181 of the Kentucky Constitiition. Sectionl 181 provides:

The General Assembly shall not impose taxes for the purposes of

any county, city, town or other municipal corporatio.n, but may, by

general laws, confer on the proper authorities thereof, respectively,

the power to assess and collect such taxes The General Asse'mbly

may, by general laws only, provide for the payment of license fees

on franchises stock used for breeding purposes the various

trades occupations .and professions or a special or excise tax; and

may, by general laws delegate the power to counties towns cities

and other municipal corporations to impose and collect license

fees on stock used for breeding purposes on franchises trades

occupations and professions And the General Assembly may, by

general laws only, authorize cities or towns of any class to provide

for taxation for municipal purposes on personal property, tangible
and intangible, based on income, licenses or franchises in lieu of

an ad valorem tax thereon: Provided, Cities of the_first class shall

not be authorized to omit the imposition of an ad valorem tax on

such property of any steam railroad, street railway, ferry, bridge,

gas water, heating, telephone, telegraph, electric light or electric

power company,

KYCATV contends that, through enacting the Telecom Tax, the General
Assembly` “simply withdrew” its delegation of authority to municipalities to
impose and collect “state-deterrnined license fees on franchises.” However, this
contention paints too broad a stroke over the power to impose franchise fees in
that it does not delineate between the power municipalities are granted in
Sections 163 and 164, and what powers the municipalities may have delegated
to them in Section 181.

During the Debates, the framers discussed Section 1815 extensively The
framers were cognizant of the fact that Section 164 provides municipalities
with the authority to receive consideration in the form of franchise fees on their
franchises in exchange for the use of their rights-of-way, while Section 18 1
provides the General Assembly with the power to collect license fees on
franchises in exchange for the privilege of doing business within the
Commonwealth.

The framers provided in Section 181 that municipalities shall have the
power to collect a license fee on a franchise for the privilege of doing business "
within their boundaries subject to the delegation of the General Assembly.

Debates 2689. This created the possibility of dual taxation, which concerned

some of the delegates who worried that the taxation would become overly

5 During the Debates, in the Revenue and Taxation Committee, Section 181 was
titled, in part, both as “Section 15” and “Section 16”.

burdensome'to franchise operators As a result, the framers initially included
the language “and no double tax shall be imposed” within what would become
Section 181. Ia'.

Opponents of the “no double tax” provision were specifically concerned
~that prohibiting such a double tax would leave the General Assembly unable to
collect taxes on the subject matter found in§ection 181, including franchises
due to the General Assembly also collecting ad valorem tax on all property
within the Commonwealth. Id. Mr. Mackoy, Constitutional Convention
Delegate from Covington, first voiced this concern: “ln a case from Paducah to
the Court of Appeals, it was held that no ad valorem tax could be imposed on
thel same property. That that would be double taxation; and it seems to me,
while we have always authorized municipalities to collect these license fees
that care should be taken not to make the tax a double one . . . .” Id._ Mr.
Bronston, Constitutional Convention Delegate from Henderson, then replied,
“This might, in one sense, result in double taxation; but it is in conformity with
the system Which Kentucky has had for one hundred years There 'are a good
many classes of property subjected to double taxation, because they are taxed
ad valorem, and then by license.” Id.

One framer was able -to summarize the Committee’s position before the
“no double taxation” issue was ultimately resolved. Mr. Nunn, Constitutional
Convention Delegate from Crittenden, stated:

If the Convention will turn to [Section 174], you will see that all property

in this State shall be assessed according to its value [i.e., acl valorem

tax]. That is one assessment The'first part of this [Section 181]
authorizes the Legislature to allow the State to put a tax upon the

different trades professions and occupations in the State. The latter

portion authorizes municipalities to impose a tax. Now, l will illustrate it

by taking the case of a saloon in this city. Under [Section 174] that
saloon would pay an ad valorem tax on the value of its property. Under
the first part of this section it would pay a license fee to the State, and,
under the latter part, it would pay a license fee to the city. Thus we have

a treble tax. Now the latter part of this section says that no'. double tax

shall be imposed. I would take that to imply that all three of these

powers could not be exercised under this section with this limitation
added to it; and for that reason, l think, it should be stricken out, and let
the Legislature impose all these taxes upon the different trades or
occupations in the state, if it is necessary.
Icl. at 2694. The Committee then voted to accept the section with the “no
double taxation” provision stricken from the final version of Section 181.

lt is evident from the Debates that the founders did not intend for
Section 181 to include franchise fees paid by private franchisees as
consideration for the use of a municipality’s rights-of-way. This is made
evident by the fact that the founders delineated between a franchise fee and a
license fee on franchises in Section 164 and Section 181, respectively.

The General Assembly may delegate to municipalities the authority to
collect license fees on franchises and it may withdraw that delegation, because
the municipalities power to collect license fees on franchises is derived solely
from the General Assembly’_s delegation. However, the municipalities power to
collect franchise fees under Section 164 has been delegated by the
Constitution_not by the General Assembly. To be certain, the founders
enacted both Sections 164 and 181 with the knowledge that the former
provided a constitutionally-granted power to the municipalities while the latter

provided a power to the General Assembly, which could be delegated to the

municipalities

The General Assembly Cannot withdraw that which it did not and cannot
delegate. Accordingly, we hold that the General Assembly did not have the
power under Section 181 of the Kentucky Constitution to prohibit
municipalities from collecting franchise fees in exchange for use of their rights-
of-way, as that power was constitutionally granted in Sections 163 and_164.

C. Severance of the Telecom Tax’s Prohibition Provision.

In 1996, the federal government enacted legislation that prohibited local
' governments from collecting`taxes on satellite providers of MVP. As a result,

satellite providers of such programming were exempt from local franchise fees
While non-satellite providers of such programming remained'liable for those
fees To alleviate this perceived inequity, the General Assembly enacted the

Telecom Tax, imposing an “excise tax . . . on the retail purchase of [MVP]

' service provided to a person whose place of primary use is in this state.” KRS
136.604. Furthermore, the General Assembly required the programming
providers to collect the tax from the purchasers and to remit the proceeds less
compensation for collecting the tax, to the Commonwealt_h. KRS 136.606, '
136.614, 136.620.

As we held above, the General Assembly cannot prohibit the Cities from
collecting franchise fees from franchisees as consideration for the use of the
Cities’ rights-of-way. The Cities argue that the Prohibition Provision is the only
portion of the Telecom 'l`ax that is unconstitutional and that this portion may
be severed from the remainder of the Telecom Tax. We agree. ~“Whenever a

statute contains unobjectionable provisions separable from those found to be

unconstitutional, it is the duty of the court so to declare and to maintain the
act insofar as it is valid. in that situation, a court should refrain from
invalidating more of a statute than is necessary.” 16 A Am. Jur. 2d
Constitutional Law, § 199 (2012).

KRS 446.090 provides:

lt shall be considered that it is the intent of the General Assembly,

in enacting any statute, that if any part of the statute be held

unconstitutional the remaining parts shall remain in force, unless

the statute provides otherwise, or unless the remaining parts are

so essentially and inseparany connected with and dependent upon

the unconstitutional part that it is apparent that the General

Assembly would not have enacted the remaining parts without the

unconstitutional part, or unless the remaining parts standing

alone, are incomplete and incapable of being executed in

accordance with the intent of the General Assembly.

Seve'ring the Prohibition Provision does not render the remainder of the
Telecom Tax incapable of being executed in accordance with the intent of the
General Assembly. As we noted above, one of the reasons the General
Assembly included the Prohibition Provision was to protect non-satellite
program providers from being liable for collection and remittance of tl'ie
Telecom Tax while simultaneously being liable for the franchise fee. The
General Assembly addressed that concern in KRS 136.660(5), giving providers
subject to the Telecom Tax a tax credit for any amounts paid by Way of
“franchise fee or tax.” Thus, severing the Prohibition Provision does not do
damage to one of the intended purposes of the Act: preventing double payment

by non-satellite program providers Additionally, the tax credit provided in the

Telecom Tax accomplishes another one of the General Assembly’s goals:

alleviating the perceived inequity among various types of program providers
that was created by the federal legislation.6

In conclusion, we note that political subdivisions that are not within the
purview of Sections 163 and 164 of the Kentucky Constitution remain bound
by KRS 136.600, et seq. Furthermore, nothing in' this opinion prevents
municipalities from opting to forgo collecting a franchise fee in lieu of
participating in the Telecom Tax scheme. Nor does anything in this opinion
prevent the Commonwealth from collecting the taxes due under the remaining
portions of the Telecom 'l`ax. However, the Telecom Tax’s Prohibition Provision,
KRS 136.660(1)(a]-(c), is unconstitutionally void as applied to the Cities

x CONCLUSION.

For the reasons stated above, we affirm the opinion of the Court of
Appeals, vacate the Franklin Circuit Court’s order, and remand this case to the
Franklin Circuit Court to enter summary judgment in favor of the Cities
consistent with this Opinion. 3

All sitting. Cunningham, Keller, Vanl\/Ieter, Venters and Wright, JJ.,`
concur. Minton, C.J. dissents by separate opinion in which Hughes, J. joins

MINTON, C.J., DISSENTINf}: l respectfully dissent from today’s decision

striking down portions of the Telecom Tax because I believe the majority

6 We note that the agreement between the city of Florence and TKR states: “So
that no provider of multi-channel services . . . shall receive an unfair competitive
advantage, Operator shall be entitled to relief from competition as follows If a
competing multi-channel service [ ] is available to 50% or greater of the City then: . . .
9. Operator shall have no greater responsibility to pay a franchise fee than
Competitor.” Thus Appellants’ concern that different MVP providers would pay
unequal amounts appears unwarranted, at least as to the city of Florence.

reaches its result by engagingin an overly broad interpretation of implied local
powers inconsistent with Sections 163 and 164 of the Kentucky Constitution.
To me, the only power clearly conferred by our state constitution to localities in
this field is the power to grant franchises themselves l am satisfied that,
characteristic of many other populist reforms in the 1891 Constitution, the
document extended localities the ability to grant franchises to curb cronyi'sm
and corruption. But l must dissent from the majority’s holding because the text
of our constitution simply does not support the conclusion that these
particular provisions cede to local government the absolute and exclusive
power to levy franchise fees
The majority states th'at we must “construe the constitutional provisions

at issue in a manner that carries out the intent of the framers through a
thorough analysis of both “the letter and the spirit of the law.” Grantz v.
Grauman, 302 S.W.Zd 364, 367 (Ky. 1-957). Th`en moving past the text of the
constitutional provisions themselves it draws excerpts from the Constitutional
Debates to create the critical basis for its holding. Doing so, the majority
declares that our framers clearly intended to limit this franchise-fee-levying
power exclusively to local governments The result of this imaginative
reconstruction clouds the Constitution’s text and fails to give effect to the plain
language of the words ratified by the people of the Commonwealth. If our
search for the spirit of the law includes extraneous material unrelated to
uncovering the ordinary meaning of the law, we dangerously teeter on injecting

our own policy preferences into the case before us_a task most aptly reserved

for the legislative branch. Only the text of the 1891 Constitution was 'ratified.
And our textual tools of constitutional construction are perfectly capable of
resolving this case without invalidating an otherwise properly enacted piece of_
legislation.

The issue in this case is of course, whether Sections 163 and 164 of the
Kentucky Constitution cede'to municipalities the inalienable power to assess
franchise fees or whether that power remains dormant with the General
Assembly to use or delegate as it deems appropriate l agree wholeheartedly
with the majority’s analysis of Section 163 that any company operating what is
now considered a public utility may conduct its business_and occupy public
rights-of-way in perpetuity'_only with consent of local legislative bodies l
further agree with the notion that this provision represents a clear statement
that under our current constitutional structure, the ability to grant franchises
to public utility companies is solely a local prerogative; it is a power given to
local governments that may not be usurped by the General Assembly. That is
also the only local function clearly and plainly extended by the terms of the
text. But the power to assess franchise fees if there is one, must therefore
necessarily be an implied power derivative of the locality’s power to grant the
franchise itself.

To me, construing Sections 163_and 164 to include this implied power
defies our established norm of constitutional construction. As a general rule, “a
city possesses only those powers expressly granted by the Constitution and

statutes plus such powers as are necessarily implied or incident to the

expressly granted powers and which are indispensable to enable it to carry out
its declared Objects- purposes and expressed powers.” City of Bowling Green v.
T& E Elec. Contractors, 602 S.W.2d 434, 435 (Ky. 1980) (emphasis added). And
if there are any doubts as to the existence of a particular municipal power, t
such doubt is always resolved against its existence. See City of Horse Cave v.
Pierce, 437 S.W.2d 185, 186 (Ky. 1969). It is clear that our law favors a
presumption against implied powers to -municipalities; all local powers are
either (1) expressly delegated`through the state constitution .or by act of the _
General'Assembly; or (2] both necessary and indispensable to enable it to carry
out an already properly delegated power.

To me, the clarity of the constitutional delegation ceases at the moment a
locality awards a franchise. Any implied powers beyond the grant itself are
open to speculation. The ability to assess recurrent franchise fees is not
necessary to a city’s ability to grant a franchise and it is certainly not
indispensable. But even if l could be persuaded that it makes sense to find this
implied local delegation, our constitutional precedent constrains me, in
questionable cases such as this to resolve any ambiguities against local
delegation. And moreover, we have previously held that the General Assembly
still retains great control over the local franchise-granting process While the
city possesses the sole power to grant the actual franchise or not, the General
Assembly may regulate nearly all of the terms of the deal.

.‘ In Kentucky Utilities Co. v. Board of Com’rs of City of Par'is, we articulated

that though localities are the sole governing body with the power to grant

franchises the General Assembly may dictate how they exercise that power. 71
S.W.2d 1024 (Ky. 1933). This case upheld a 1926 law enacted by'the General
Assembly requiring municipalities to provide for a sale of a new franchise at
least 18 months prior to the expiration of the current franchise and required
the franchise to be awarded to the “highest and best bidder.” Id. at 1026. Our
predecessor court recognized that the power to grant a franchise is an act of‘_
sovereignty, traditionally reserved to the legislative body, but limited in this
instance by the state constitution, which limits this legislative function by
reserving the decision to grant franchises to local municipalities Id. at 1026-
27.` See also McQuillin’s Municipal Corporations § 1748 (2nd ed.).

The court then appropriately recognized the crucial question: how far
have “the people by their Constitution...stripped from their legislature such
power and given it to local bodies here municipalities?” Id. at 1027. A fair
reading of this case supports the proposition th'at Sections 163 and 164 only
grant exclusive powers to determining who physically occupies its right-of-way.
By upholding the 1926 statute, we unavoidably ruled that the General

`Assembly may still intervene in matters of franchise and may dictate how
municipalities exercise this discretion by exercising a “dormant power” it
always retained.. Though the Telecom Tax certainly presents a different context,
the legislature is still injecting itself into the franchise process and in a way not
inconsistent with the stated terms of the constitutional text.

To resolve this case, all we must do is to simply apply a discerning eye to

the words enshrined as Kentucky constitutional law. And those words

seemingly do not cede the taxing power of the Commonwealth to local
governments as the majority declares Because l believe the majority decision
over-implies powers to localities in contrast to our stated method of
constitutional construction, l must respectfully dissent.

Hughes J. joins c

COUNSEL FOR KENTUCKY CATV AS`SOCIATION, INC.:

Douglas Frank Brent
Timothy Joseph Eiller
Jackson W. White

Stoll Keenon Ogden PLLC

Eric S. Tresh
Maria M. '-l`odorova
Sutherland Asbill 8r, Brennan_, LLP

COUNSEL FOR LORI HUDSON FLANERY, IN HER OFFIClAL CAPACITY AS
SECRETARY OF THE FINANC_E AND ADMINISTRATION CABINET,
COMMONWEALTH 'OF KENTUCKY; THO_MAS B. MILLER, IN HIS OFFICIAL
CAPACITY AS COMMISSIONER OF THE DEPARTMENT OF REVENUE,
FINANCE AND ADMINISTRATION CABINET, COMMONWEALTH OF
KENTUCKY:

d Bethany Atkins Rice
Ofi-`ice of Legal Services for Revenue

COUNSEL FOR CITY OF FLORENCE, KENTUCKY; CITY OF WINCHESTER,
KENTUCKY; CITY OF GREENSBURG, KENTUCKY; CITY OF MAYFIELD,
KENTUCKY; AND KENTUCKY LEAGUE OF CITIES, lNC.:

Barbara B. Edelman
David J ames Treacy
Haley Trogdlen McCauley
Dinsmore 85 Shohl LLP

COUNSEL FOR AMICUS CURIAE, CHARTER COMMUNICATIONS, INC.;

John Nalbandian
Taft_ Stettinius 85 Hollister, LLP

Gardner F. Gillespie "
J. Aaron G_eorge
Sheppard Mullin Richter 85 l-lampton LLP