Kansas Attorney General Opinion 2013-018

November 18, 2013
ATTORNEY GENERAL OPINION NO. 2013-18
Todd Luckman, City Attorney
City of Auburn
2887 SW MacVicar Ave.
Topeka, KS 66611
Re: 	Bonds and Warrants—Cash-Basis Law—Limits of Indebtedness
Synopsis: 	For purposes of the cash-basis law, the term “indebtedness” refers only to
financial obligations that are binding, not those that are contingent on
future events. 	As applied to a ten year contract for the wholesale
purchase of natural gas that may be terminated with three years’ notice,
any expenses beyond the three year period are contingent on the city not
cancelling the contract and therefore do not constitute an indebtedness of
the city. 	Cited herein: K.S.A. 10-1101, 10-1113, K.S.A. 2013 Supp. 10-
1116.
* 	* 	*
Dear Mr. Luckman:
As the City Attorney for the City of Auburn, you ask whether a proposed contract for the
wholesale purchase of natural gas would violate the cash-basis law. 1 This law generally
prohibits municipalities from incurring indebtedness in excess of the amount of funds
they have on hand, unless one of the exceptions to the law applies. 2 As relevant here,
the law contains a specific rule for municipal enterprise funds set up for the financing of
municipal utility services. 	For these funds, the limit of indebtedness is “100% of the
accrued revenue of the current fiscal year plus any balances carried forward, cash
reserves, intergovernmental grants, and sums advanced to qualify for intergovernmental
grants.”3
1 K.S.A. 10-1101 et seq.
2 K.S.A. 10-1113.
3 K.S.A. 2013 Supp. 10-1116(b)(2).

Todd Luckman
Page 2
You explain that the City of Auburn purchases natural gas at wholesale from an entity
called the National Public Gas Agency (NPGA) and operates a utility that resells this
natural gas to city residents. 	The standard NPGA contract lasts for ten years and is
automatically renewed every year, restarting the ten year period. 4 The standard
contract may be terminated by either party with three years’ notice, but because of
concerns about the cash-basis law, the city has modified the standard contract to allow
the city to terminate the contract at any time due to insufficient funds. As a result of this
modification, NPGA charges the city additional fees that it would not charge under the
standard contract.
You wish to know whether the standard contract, without the existing modification,
would satisfy the requirements of the cash-basis law. 	You inform us that the city has
enough money on hand to cover the cost of natural gas service for three years, but not
enough to cover the entire ten year period. 	Thus, your question boils down to whether
the city’s “indebtedness” for purposes of 	the 	cash-basis 	law 	would 	be 	the 	city’s
obligations under the entire ten year contract or only the city’s obligations for the three
year period during which the city would be required to pay for natural gas in the event of
a cancellation.
Attorney General Opinion No. 98-13 discussed the meaning of the term “indebtedness”
as used in the cash-basis law and concluded that the term refers only to financial
obligations that are binding, not those that are contingent on future events. 5 The
opinion based its analysis, in part, on the Kansas Supreme Court’s decision in City of
Wichita v. Wyman, 6 which held that the City of Wichita could act as a self-insurer for
workers’ compensation purposes without having enough money on hand to cover all
potential future claims. The Court reasoned that such an arrangement would not violate
the cash-basis law because “until an award and judgment to pay compensation to an
injured workman are assessed against the city, its liability is only contingent, not
absolute.” 7
Attorney General Opinion No. 98-13 considered a proposed agreement that would have
required a county to make annual payments over the course of forty years into a trust
fund set up for the care of the county landfill. 	Even though the payments were not due
until future dates, the opinion concluded that the entire forty year sum constituted
indebtedness for purposes of the cash-basis law because the payments were not
dependent on any contingency but would become an unconditional, binding obligation
once 	the 	agreement 	was 	executed. 	Thus, 	whether 	an 	expense 	constitutes
indebtedness does not depend on when payment is due. 	Instead, the key distinction is
whether the obligation is contingent on future events or binding and certain to occur.
4 We are not offering an interpretation of the terms of the contract. This opinion is based on the facts as
stated in your request letter.
5 See also Attorney General Opinion No. 2007-25 (same).
6 158 Kan. 709 (1944).
7 Id. at 713; see also Int’l Ass’n of Firefighters v. City of Lawrence, 14 Kan. App. 2d 788, 799-802 (1990).

Todd Luckman
Page 3
Under the standard natural gas contract you describe, the City of Auburn would only be
bound to pay for three years’ worth of natural gas supply at any given time. 	Because
the obligation to pay any expenses beyond this three year period would be contingent
on 	the 	city 	not 	cancelling 	the 	contract, 	those 	expenses 	would 	not 	constitute 	an
indebtedness of the city for purposes of the cash-basis law.
Sincerely,
Derek Schmidt
Attorney General
Dwight Carswell
Assistant Attorney General
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