Because cities generate the majority of their revenue through the imposition of taxes and fees upon their citizens, the expenditure of city funds must be for the common good and not for the benefit of a select few. Sections 171 and 179 of the Kentucky Constitution and KRS 82.082 require public funds to be spent in furtherance of a public purpose.
To determine whether an appropriation or expenditure is for a public purpose, consider the following three factors:
1. First, evaluate whether the city may independently engage in the activity that it is funding. If the city may not engage in the activity in question, it is likely that the city could not donate funds to another organization to perform that activity.
2. Next, look to whether the city has any control over either how the money is spent or the organization itself. If the city has no control over how the money is spent, there is a likelihood the appropriation will be invalid.
3. Finally, determine whether the expenditure is primarily benefiting the public at-large rather than an individual or private business. OAG 00-2.
The above questions should be answered before a city appropriates any public funds to a private entity. If a donation is made, the city should enter into a written agreement addressing how any funds are to be spent and what benefit the city will receive in return for the donation.
For a complete discussion of public purpose spending that expands on the factors set forth above, see OAG 99-5 and the City Officials Legal Handbook.