Daily Independent (Ashland, KY)

November 14, 2012

Auditor: Specials districts spend $2.7B in state

CNHI News Service

FRANKFORT — There are 1,268 special taxing districts in Kentucky which amount to “a ghost government” that spends more money annually than the state spends to educate its children.

That was the conclusion of Auditor of Public Accounts Adam Edelen when he released his report on the taxing districts Wednesday.

The review of the districts — Edelen defined them as “unelected entities that have the ability to tax or fee the public” — is the “most massive effort in the history of the auditor’s office,” Edelen said.

Taxing districts are established to fund and operate such public services as fire departments, libraries, conservation districts and a host of other quasi-government programs or services. They are required to submit their budgets to the local fiscal courts — but many don’t or at least haven’t until now.

“It is a scandal that for generations no Kentuckian has been able to determine how many special districts exist, how much money flows through them, where they are located and whether they are compliant with state law,” Edelen said.

In total, the districts spend around $2.71 billion without any real public accountability or oversight by elected officials. The districts take in $1 billion annually in tax revenues or fees assessed on the public. The rest of the expenditures are funded by grants and other funding sources.

“That’s billion with a ‘B,’” folks,” Edelen told reporters. The amount is nearly equal to the $2.73 billion the state spends to fund public schools and more than double what Kentucky spends on its road fund and Medicaid.

Edelen was careful to say that many of the districts comply with all the regulations and legal requirements. He specifically mentioned libraries, many of which were established by voter referenda, some more than 50 years ago.

“Kentucky libraries operate in 106 counties and they have built-in accountability from the state Department of Libraries and Archives,” Edelen said. Most of them have ethics and accountability guidelines and boards and staffs receive professional training from the state department.

But 40 percent of the districts submitted no budget to their respective fiscal courts and 15 percent did not file Uniform Financial Information Reports (UFIRs) to the state Department of Local Government (DLG).

Districts with annual budgets of $750,000 are required to conduct an annual audit, but half of them have not done so, according to the report. Those with smaller budgets are supposed to audit accounts at least once every four years, but again many haven’t done it.

Edelen said it is unacceptable that the current “byzantine system” treats both the good and bad actors in the same way.

“In short, the system is broken and in need of big change,” Edelen said. “A reformed and modernized system will make this ghost government more accountable to the public it serves.”

Edelen’s staff has established a website and database where the public can view the special taxing districts by county. It can be accessed online at www.Citizenauditor.ky.gov.

The report also offers several recommendations:

Modernize and reform the 50 chapters of Kentucky Revised Statutes governing special taxing districts and the 1,000 individual statutes on the districts.

Authorize DLG to notify the Auditor of any taxing district not in full compliance with laws and regulations and make those districts subject to an audit by the state auditor.

The districts should be subject to the ethics codes of the county the district serves.

“We’ve got to get a system that compels compliance,” Edelen said, adding that those districts which didn’t fully cooperate in his survey “just nominated themselves to be on a radar they didn’t want to be on.”

He said his office will likely look first at those districts which didn’t cooperate with his survey as it continues to look at their governance and accountability.

Sen. Damon Thayer, R-Georgetown, the Senate Chair of the State Government Committee, has said he plans to introduce legislation addressing special taxing districts and the problems identified by Edelen.

Edelen’s review was endorsed by DLG, a legislative task force reviewing the districts and a number of umbrella groups representing local government groups such as counties and cities.

RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. Reach him at rellis@cnhi.com. Follow CNHI News Service stories on Twitter at www.twitter.com/cnhifrankfort.