FRANKFORT — Kentucky lawmakers took $700,000 in excess funds from the agency that oversees charitable gaming in 2008 and to help pay off a $265 million shortfall in the budget. Should the state have been allowed to juggle the finances like that? The state Supreme Court on Wednesday asked that.
The court is examining two cases challenging how much flexibility the governor and legislature have in using fees collected by regulatory agencies for something other than overseeing the industries paying the money.
The question arose in two lawsuits brought against the state. A group of nonprofits, led by the Louisville Soccer Alliance, and a group of home builders challenged the use of the fees to pay off general fund debt accrued by the state.
In both cases, attorneys said fees collected to pay for regulation can be used only for that purpose. Converting the regulatory fees to general use is tantamount to making the fees taxes, which legislators didn't levy on the industries in question, said attorney Edward O'Daniel, who represents the home builders and contractors.
"That excess money, if taken, constitutes a tax," said Oliver Barber, who represents the nonprofits.
Steve Pitt, the attorney handling the case for the state, said lawmakers acted within their legal ability when taking the money. Whether the move is popular or not isn't before the justices, Pitt said.
"It's a political and legislative concern, not a court concern," Pitt said.
The justices did not give an indication as to when they would rule in the two cases.
Both the charitable gaming outlets and the home builders sued after Gov. Steve Beshear took $700,000 from the Office of Charitable Gaming and more than $4 million from the office that regulates home builders and contractors. They were part of $51 million in state money moved around to close the $265 million shortfall in 2008.
A trial court found the move unconstitutional in 2011, but the Kentucky Court of Appeals reversed that decision and upheld the governor's decision.
Justice Will T. Scott noted the state has gone to the well of excess regulatory funds five times in the last 10 years to cover budget shortfalls.
"It's obviously being treated as a tax," Scott said.