ATLANTA -- The Kentucky Turnpike Authority plans to sell $150 million of tax-exempt lease bonds early next year following a recent ruling by the state Supreme Court that squelched a longstanding challenge to the agency's authority to issue such bonds, the state's debt manager said yesterday.
Don Mullis, executive director of Kentucky's Office of Financial Management and Economic Analysis, said the authority had been moving forward with the issue on the assumption that the court would rule in its favor. Responses to requests for proposals have been received within the last few days, and the authority hopes to conduct a negotiated sale by the end of January, he said.
"The ruling substantiated that we were on the fight track," Mullis said. He noted that the offering is the final piece of $300 million of bonds authorized by the Kentucky legislature in 1992.
The $300 million, in turn, is part of a $600 million package of road-building bonds approved in principle by the legislature during its 1990 session.
The state high court ruling, handed down Sept. 30, comes almost exactly four years after Noel Wilson, a retired Kentucky taxpayer, asked the Franklin County Circuit Court to bar a s.ale of $307.8 million of authority bonds.
In a lawsuit filed Oct. 2, 1990, Wilson argued that the borrowing -- a lease-purchase financing backed by appropriations of the state legislature -- was effectively a general obligation of the state and should not be sold without voter approval.
Under state law, Kentucky is barred from accumulating more than $500,000 of general obligation bonds without voter approval.
Wilson's suit also claimed that the bonds violated state law by using transportation funds that had already been committed and by not imposing a tax increase to pay debt service.
The state high court ruling, written by Justice Donald Wintersheimer, rejected the claim that the turnpike's bonds are a state obligation.
"The evidence is uncontroverted that neither the full faith and credit of the commonwealth nor the taxing authority of the commonwealth is pledged to the repayment of any part of the bond issue," Wintersheimer wrote.
"The General Assembly has the absolute option of either making the appropriation for serial lease payments or declining to do so." Wintersheimer continued. "The risk of loss is squarely on the bondholder."
The ruling came as a relief for other state-level issuers in Kentucky. Nearly all of the state's borrowings in the last three decades have been lease financings backed by appropriations. Kentucky has not sold a general obligation issue since 1965.
"The system of using revenue bonds and serial leases does not evade or circumvent the constitutional limitation," Wintersheimer wrote.
Four justices joined Wintersheimer in his opinion. But two justices -- Janet Stumbo and Joseph Lambert -- dissented.
"When is a debt not a debt?" Stumbo wrote. "When the commonwealth is a debtor," she continued. "This feat of linguistic alchemy is the result of the legal fiction known as the revenue bond."
The state Supreme Court ruling follows four years of legal hassles for the Turnpike Authority stemming from Wilson's suit.
In October 1990, delivery of $307.8 million of the authority's bonds was held in limbo for two weeks, following the circuit court's decision to grant Wilson a restraining order barring sale of the bonds.
The authority was finally able to close the bond issue after a state appeals court overturned the restraining order and the state Supreme Court declined to take a stand on the appeals court ruling.
In June 1992, Wilson asked the circuit court for another restraining order to stop the Turnpike Authority from selling refunding bonds. A $250.5 million sale went forward in October 1992 after the court denied the motion in August.
In April 1993, the authority sold $570.5 million of bonds, including $150 million of new-money bonds.
Neither Moody's Investors Service, Standard & Poor's Corp., nor Fitch Investors Service have rated the upcoming issue. The authority's unenhanced outstanding debt is rated A by Moody's and Standard & Poor's and A-plus by Fitch.
