## Facts

- Private citizens and taxpayers filed a constitutional test suit challenging two 1974 Kentucky statutes: the Local Development Authority Act (KRS 99.610–99.680) and the Tax Increment Act (KRS 99.750–99.770).
- The Local Development Authority Act created an independent local development authority (LDA) governed by seven mayoral appointees, plus the mayor or designee as a nonvoting member.
- The LDA was authorized to perform “public and essential governmental functions,” including adopting a development plan that set project boundaries and proposed land ownership and use patterns.
- After making the plan available for public inspection, the LDA could acquire property within the project area, clear or renovate improvements, develop lower-income housing, and dispose of property at fair cash value, without requiring approval by the city’s legislative body.
- The Tax Increment Act established tax-increment financing (TIF), diverting increases in ad valorem tax revenues generated within a project area into a special fund to pay redevelopment costs and related debt.
- The challenged financing mechanism redirected tax increments that otherwise would flow to general governmental purposes, including constitutionally earmarked school revenues.
- The trial court upheld both statutes, and the challengers appealed.

## Issues

1. Whether the Local Development Authority Act unconstitutionally delegated core municipal governmental powers to an independent authority not subject to control by the elected municipal legislative body.
2. Whether the Tax Increment Act unconstitutionally diverted ad valorem tax revenues, including revenues levied for school purposes, to non-school redevelopment uses.

## Decision

- The Supreme Court of Kentucky reversed the trial court.
- The court held the Local Development Authority Act unconstitutional because it vested broad municipal-type powers in an unelected, independent authority without required approval or control by the municipal governing body.
- The court held the Tax Increment Act unconstitutional because it diverted incremental tax revenues, including school tax revenues, from their constitutionally restricted purposes to redevelopment financing.
- The court treated the statutes as an interrelated legislative program and declared both invalid.

## Legal Principles

- State constitutional limits restrict delegations of inherently governmental municipal functions (such as planning-type decisions, acquisition, and disposition of property) to independent local authorities lacking sufficient control by elected governing bodies.
- Tax revenues levied for school purposes must be used exclusively for education; a statutory scheme that captures and redirects incremental school tax revenues to redevelopment expenses violates that constitutional restriction.
- When an integrated statutory redevelopment program depends on an unconstitutional financing mechanism and an unconstitutional allocation of governmental power, courts may invalidate the program in full rather than preserve isolated components.

## Conclusion

The Kentucky Supreme Court invalidated statutes authorizing an independent redevelopment authority and tax-increment financing, concluding that the authority’s powers were improperly removed from elected municipal control and that tax increments—especially school revenues—could not be diverted to redevelopment projects.


Miller v. Covington Dev. Auth., 539 S.W.2d 1 (Ky. 1976)