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Circuit Court Declares Escheat Provision in Budget Bill Unconstitutional

03.08.2007

In American Express Travel Related Services, Inc. v. Jonathan Miller, Case No. 06-CI-1151 (Franklin Cir. Ct., Div. II, Jan. 31, 2007), the Franklin Circuit Court (“Court”) declared Section 39 of 2006 House Bill 380 (“HB 380”), the biennial budget bill for Kentucky, unconstitutional as violating Ky. Const. §51.

Section 39 of HB 380 shortened the period of time under KRS 393.060 that a holder of a traveler’s check can retain it before it is presumed abandoned and escheats to the State. Prior to the enactment of HB 380, the escheat period for traveler’s check was fifteen years. HB 380 shortened that period to seven years.

American Express Travel Related Services, Inc. (“American Express”) challenged the statute on several substantive and procedural bases. In particular, American Express argued that Kentucky Constitution Section 51 prohibits the General Assembly from passing laws related to more than one subject, as well as passage of any revision, amendment, or extension to a law, “by reference to its title only.” Section 51 requires that any such revision, amendment, or extension, be enacted by publishing the law, complete with deletions, additions, and creations. The Court determined that Section 51 was intended to enable members of the General Assembly to better understand the change in the law and to know what they are voting for or against.

American Express also argued that the proper constitutional process regarding the escheat provision was not followed. The Kentucky Department of Treasury argued that Section 39 represented merely a suspension of KRS 393.060 for the two year biennium period. Under that analysis, no republication of KRS 393.060, with the proposed changes, would be necessary for the statute to pass constitutional muster.

The issue before the Court was whether Section 39 was an amendment, revision, or extension, or just a suspension or modification of KRS 393.060. The Court analyzed the difference between suspensions and modifications versus amendments, revisions, or extensions, and concluded that the distinction between the two types of alternatives to legislation involved the permanency, or lack thereof, to a law. In furtherance of this analysis, the Court reviewed Armstrong v. Collins, 709 S.W.2d 433 (Ky. 1986), where the court upheld the suspension of certain appropriations as necessary to fulfill the General Assembly’s primary obligation - balancing the budget. In Armstrong, the Legislature suspended the operation of certain statutes until the money appropriated for certain programs was reduced.

The Department of Treasury, in the instant case, cited no financial emergency to necessitate the change in the statute affecting American Express. Further, the Legislature did nothing to alter or suspend appropriations but, rather, altered the operation of law governing the escheat of property due to the State as a way to raise revenue. The Court determined that the suspension of appropriations versus a change in the law as a revenue raising mechanism is a crucial element in determining whether there is a suspension or modification versus a revision or an amendment.

The Court held that there was no impending financial emergency motivating the legislation and concluded that because the legislation changed the rules in order to raise revenue, rather than suspend appropriations, the General Assembly’s effort to raise revenue by changing the operation of the statute was an amendment to, and not a suspension of, the statute. The Court held that the General Assembly was required “…to follow the constitutional and statutory procedures that have been created to protect Kentucky’s citizens from stealth legislation.” Because the General Assembly failed to follow the dictates of Kentucky Constitution Section 51, the Court concluded that Section 39 was unconstitutional and, therefore unenforceable.

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