Tightened oversight of special taxing districts wins approval of House committee

02/06/2013 12:35 PM

Kentucky’s first attempt to simplify and unify the oversight the more than 1,200 special taxing districts won overwhelming support in its first step Wednesday, cruising through the House Local Government Committee.

House Bill 1, sponsored by House Speaker Greg Stumbo, passed 13-1. Freshman Rep. Toby Herald of Beattyville was the lone no vote.

Kentucky Auditor Adam Edelen discovered in his review last year that the commonwealth has more than 1,200 of these entities that fall into 53 categories, which include health departments, sewer and water districts, libraries, soil conservation districts and some volunteer fire departments. Collectively, the entities brought in $2.7 billion last year.

But the regulation and accountability of those organizations have been scattered and inconsistent. In fact, Edelen named his review of the organizations “Ghost Government.”

“You’ve got a confusing muddled, morass where a lot of people don’t know what their role is,” Edelen told the committee Wednesday afternoon.

Edelen’s review found that as many as 45 percent of special districts are out of compliance with the hodge-podge of current laws. But Edelen told Rep. Jody Richards, D-Bowling Green, that libraries were a perfect 106 for 106 in compliance.

The legislation defines a special district as an entity that brings in public funds through fees or taxes, is governed separately from the local government and keeps separate accounting books from cities and counties in which they operate.

“The problem we had with the old system was you never knew who was in or who was out,” Edelen said. That new definition, he said, will allow officials to track newly created entities that fit those characteristics.

The bill requires that such districts must:

  • - file budget information to a public registry
  • - pay fees to maintain the database. The fees are according the amount of revenue a district takes in with $25 for those with less than $100,000; $250 for those bringing in between $100,000 and $500,000; and $500 for districts with more than $500,000 in revenue.
  • - be audited if they receive or spend more than $500,000 a year.
  • - adhere to local ethics codes.

Entities will have to register with the state Department of Local Government by the end of 2013, Edelen told Rep. Tom McKee, D-Cynthiana.

The entities will have to comply with the regulations, and if not, the Department of Local Government will refer them to the state auditor’s office and tell the state Finance Cabinet to cut off any state funds to the special districts.

The one concern from a legislator, Republican Rep. Adam Koenig of Erlanger, was that the Department of Local Government could waive the fees for the registry as it sees fit and request fee increases through regulation. Koenig said he’s considering an amendment to increase the oversight of the fee increases.

The fees are expected to bring in $250,000 a year, Edelen said.

And Edelen told Republican Rep. Michael Meredith of Brownsville in response to a question that Gov. Steve Beshear has committed to forming a working group to develop a new financial reporting document for these entities to use to replace the current version of the uniform financial report, which Edelen said just isn’t working.

The bill also establishes procedures to allow for special districts that are no longer active – or those that go rogue — to be dissolved. Currently, only 10 special districts have charters that include a pathway to shut the entity down.

Many continue to sit. For instance, Edelen said Cumberland County has an airport authority that hasn’t met in more than 20 years.

The committee’s chairman, Rep. Steve Riggs, D-Jeffersontown, told Edelen and Stumbo that the reforms are overdue. He said he once tried to find out the names of board members on a special district and was told by a receptionist that the entity “doesn’t release that information.”

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