Local Government Finance 101 Kara A Millonzi Albert
Local Government Finance 101 Kara A Millonzi Albert & Gladys Coates Distinguished Term Professor of Public Law and Government millonzi@sog. unc. edu Fall 2019
Which of the following actions can the General Assembly take? A. Enact a law removing all current board members and replacing them with designated others B. Enact a law to unincorporate a municipality C. Enact a law to change the budget allocations made by a governing board D. Enact a law creating an exception to the conflict of interest statutes for a particular jurisdiction E. All of the above F. None of the above
Which of the following actions can a local government or public authority take? A. A county board may exempt a property from paying taxes B. A county board may abolish all of the cities in its jurisdiction C. A city board may levy a new quarter-cent sales tax D. A water and sewer authority may provide law enforcement services within its territorial boundaries E. All of the above F. None of the above
But the law does not allow us to do it… WHAT STATUTE SAYS WE CAN’T DO IT? ? ? We need to do this for our citizens… What Statute Says We Can Do It!
What services is a city required to provide? A. Law enforcement services B. Planning/zoning C. Parks and recreation services D. All of the above E. None of the above
Elections Juvenile Detention Soil and Water Conservation Cooperative Extension County Home Register of Deeds Sheriff Courts Public Health Social Services Medical Examiner Jails EMS Cemeteries Cable/Broadband Electric Police Natural Gas Community Colleges Emergency Mgmt. Schools Libraries Solid Public Waste Transportation Airports Parks & Building Sewer Recreation EMS Animal Control Code Ambulance Enforcement Schools Hospitals Airports Water Land Public Regulation Tax/Fee Parking Housing Fire/Rescue Collection Regulatory Stormwater / Community & Streets/ Watershed Economic Dev. Sidewalks/Street Powers Lighting Downtown Development / Redevelopment Mental Property Assessment
NC vs. Other States Heavy reliance on general-purpose local governments (counties and cities) to perform most local functions (e. g. schools do not have taxing authority) Counties and cities have broad authority to enter into interlocal agreements and form regional partnerships Counties and cities have extensive authority to regulate and direct urban development State has primary responsibility for funding education and highways Counties have authority to provide most urban-type services Counties have primary responsibility for human services at the local level
Public Purpose Limitation “The power of taxation shall be exercised. . . for public purposes only. . . ” N. C. Const. Art. V, Sect. 2(1)
Is it a Public Purpose? Statutory Authority Follow Statutory Process Reasonable Connection to Unit's Citizens Public Interest Outweighs Private Benefit Public Purpose
Due to a terrible fire, the high school located in a city was destroyed. Because most of the kids that attend the high school are residents of the city, the city’s governing board wants to appropriate funds to help rebuild the school. Public Purpose?
Public Purpose? City asks county to fund half of a major road project. Although the road project is within the city, it is a necessary part of an economic deal the county is working on to locate a large industrial manufacturing facility to the unincorporated part of the county, located just outside city limits.
No Exclusive Privileges or Emoluments “No person or set of persons is entitled to exclusive or separate emoluments* or privileges from the community but in consideration of public services. ” N. C. Const. Art. I, Sect. 32 *A salary, fee, or profit from employment or office.
Exclusive Emolument? The county hires a new manager. The county and the new manager enter into an employment contract whereby, among other things, the county agrees to loan the manager $50, 000 to make a down payment on a new home located in the county. The loan is to be repaid over a period of 3 years. If the manager is terminated for cause or quits before the expiration of the 3 -year period, the loan immediately must be repaid in full.
Exclusive Emolument? A beloved city resident leaves his faucets running all day to accommodate his many cats. He has recently fallen behind on his rather high water bill. The department’s normal procedure is to shut off the water and impose a penalty for the delinquency. The city manager feels sorry for the resident and requests that the city’s governing board make an exception and waive his outstanding utility fees and late penalties. To a cheering crowd, the board votes unanimously to do so.
Gifts/Grants to Private Entities
Local nonprofit approaches your board and asks for the following: • Reduction of building inspection fees for new addition to the nonprofit’s building • Waiver of park shelter rental fees for nonprofit’s summer camp program • Forgiveness of remaining special assessment payments due on the property • Additional law enforcement patrol around nonprofit’s building during evening hours • $5, 000 grant from the local government to support the nonprofit’s programs • $10, 000 grant from the local government to help nonprofit fix its roof
Gifts/Grants to Private Entities Local governments generally do not have authority to provide gifts to private entities. Instead, a “[county or city] may contract with and appropriate money to any person, association, or corporation, in order to carry out any public purpose that the [county or city] is authorized by law to engage in…. ” GS 153 A-449 & GS 160 A-20. 1
Local Government Budget & Fiscal Control Act BUDGETING CASH MANAGEMENT & INVESTMENTS OBLIGATING & DISBURSING PUBLIC FUNDS ACCOUNTING & FINANCIAL REPORTING AUDITING
A local government may expend vending machine proceeds without going through the normal budget process.
Vending Machine Rule “[A]ll moneys received and expended by a local government or public authority should be included in the budget ordinance [or project ordinance]. . . No local government or public authority may expend any moneys, regardless of their source, except in accordance with a budget ordinance or project ordinance…. ” Exceptions: Trust Funds; Agency Funds
Lawful? Area Authority for MH/DD/SA to support its work with those in the community suffering with substance abuse issues. The authority’s director deposits the money in the area authority’s bank account and directs the finance officer to expend the funds for a program targeted to teens with substance abuse issues.
Official Depositories: G. S. 159 -31 A local government’s or public authority’s governing board must select the unit’s official depositories.
Daily Deposits: G. S. 159 -32 All moneys “collected or received” by an “officer or employee” of local government or public authority must be deposited daily “with the finance officer or in an official depository” or submitted to a “properly licensed and recognized cash collection service. ” $500 exception Finance officer must “audit” collections at least once annually
Employee Compliance Sheriff James received $2, 665 check made out to “Washington County Detention” Sheriff deposited $2, 000 in Sheriff’s Office bank account and used rest for Sheriff’s Office petty cash Money used for Sheriff Office purposes Sheriff did not follow LGBFCA requirements Jury found Sheriff guilty of EMBEZZLEMENT
Internal Control Activities Preventative Detective Corrective
Budgeting LGC Review Segregation of Duties Rotation of Duties Cash Management & Investments Duplication of Duties Written Procedures Routine. Training Independent Audits Internal Auditing Board Review Accounting & Financial Reporting Obligating & Disbursing Public Funds
A local government or public authority is statutorily prohibited from passing on any credit card or debit card charges to individuals who pay for local government services electronically.
Credit Card Surcharge • A fee for paying with a credit card Convenience Fee • A fee for the convenience of using an ALTERNATIVE payment method (not the primary payment option)
Because a Register of Deeds is independently elected, the Register of Deeds’ Office does not have to following the county’s budgeting and disbursement processes.
How do you preaudit?
G. S. 159 -28 Budget Ordinance / Project Ordinance Determine costs of goods or services Preaudit process Order goods / execute contracts Goods arrive / services performed Disbursement process Pay for goods / services
Budget Ordinance/ Project Ordinance Determine costs of goods or services Preaudit process Order goods / execute contracts Goods arrive / services performed Disbursement process Pay for goods / services
Preaudit Process Before an obligation is incurred: 1 Check to see if there is an appropriation in budget ordinance or project ordinance for amount due this fiscal year 2 Check to see if sufficient funds remain in the appropriation to cover amount that will come due this fiscal year 3 Affix signed preaudit certificate to any “writing” that evidences contract/agreement/order* Finance Officer or Deputy Appointed by Governing Board
Preaudit Certificateate “This instrument has been preaudited in the manner required by the Local Government Budget and Fiscal Control Act. ”
Process triggered when: 1. A local unit enters into contract or agreement (or places an order) for goods or services that are accounted for in the budget resolution; AND 2. the local unit is obligated to pay money by the terms of the contract/agreement/order; AND 3. the local unit anticipates paying at least some of the money in the current fiscal year (fiscal year in which the contract/agreement/order entered into)*.
Is a Preaudit Required? • City clerk purchases approximately $40 in supplies (donuts, cookies, drinks) from local Walmart before each board meeting and pays with p-card. • County parks and recreation director orders t-shirts in April from Amazon. com for summer sports camp program that begins in June. The cost is $5. 90 per shirt. • County manager hires new finance officer in September for $56, 000 salary. • City planning department places a phone order for $100 in office supplies in December. • Village advertises for bids for new police station construction project. (The newspaper provides the advertisement for free. ) • County enters into contract with town in February to buy water. The rate will be $6. 20 per 1000 gallons plus a $21 monthly fixed fee. • Town enters into contract with county to provide water to properties in the unincorporated area of the county. County agrees to collect payments from customers and remit money to town. The county will not buy water from the town and will not subsidize the payments from individual customers. • City enters into multi-year construction contract with contractor--$120, 000 is expected to come due this fiscal year; $340, 000 is expected to come due next fiscal year.
If No Preaudit…. . Contract/agreement/order is VOID and cannot be enforced Any individual or officer who enters into contract/agreement /order or causes funds to be disbursed without following statutory processes may be held personally liable for amounts committed or disbursed
*Exemptions from Step 3 (Certificate Requirement) Contracts approved by the LGC “Payroll expenditures, including all benefits for employees of the [local unit]. ” Electronic transactions (charge card, credit card, debit card, gas card, procurement card), if public authority follows LGC rules.
LGC Rules Resolution Encumbrance System Polices and Procedures Training Quarterly Reports
Budget Resolution Determine costs of goods or services Preaudit process Order goods / execute contracts Goods arrive / services performed Disbursement process Pay for goods / services
Before Money is Disbursed… Finance Officer (or Deputy Finance Officer) must: 1. Check to make sure amount is payable 2. Check to see if there is (still) an appropriation in budget ordinance or project ordinance for amount due 3. Check to see if sufficient funds remain in the appropriation to cover amount due 4. Affix signed disbursement certificate to check, draft or electronic payment*
Disbursement Certificate Local Unit 1000 Blue. Sky Drive Anywhere, NC 27000 “This disbursement has been approved as required by the Local Government Budget and Fiscal Control Act. ”
*Exemptions from Certificate Requirement • Payment for any obligation that has been approved by the Local Government Commission (LGC) • Payroll expenditures, including all benefits for employees of the local government. • Electronic funds trasnsfers, BUT only if the LGC adopts rules governing these transactions AND only if the unit follows the LGC rules
Board Override • If finance officer or deputy finance officer disapproves invoice, bill, or other claim, governing board may vote to pay. • Check or draft signed by governing board member • Governing board members who vote in favor of paying expense are liable if illegal payment
- Slides: 45