Taxing Districts-Misguided Audit Report

Kentucky Auditor Adam Edelen did a great job surveying special districts throughout the state. His research found that there are an estimated 1,268 special districts, such as libraries, fire, sewer and water districts, spending a staggering total of $2.7 billion per year. They are also holding more than $1.3 billion in reserves. Kentucky’s special districts levy taxes and charge fees from every Kentuckian to pay for local services, but they are overseen only by unelected boards. It is truly un-American to allow taxation without representation and we can no longer sit idly by while our elected officials evade responsibility for special districts. In most counties in Kentucky, special districts spend even more than county governments.

These little districts sure add up to be one big layer of government which we cannot afford to ignore. In fact, these little districts should be scrutinized because they are spending a lot of public money. We need much greater scrutiny than Edelen’s suggestion for yet another state run database. A database cannot approve a budget or evaluate performance, a database cannot evaluate just and meaningful tax rates. A database can give us a false sense of security that if papers are filed, everything is okay. Well, a database can create more cost and confusion when the simple solution is staring us in the face. It is time we have elected officials take responsibility and scrutinize special district budgets and tax rates. This state legislative session, Senate Bill Number 1 is the “Special District” bill. This is a historic opportunity for special district tax reform in Kentucky. Our state leaders should work with county fiscal court judges to make the fiscal courts responsible for approving special district budgets and tax rates. No other solution will be as economical or efficient. Many fiscal court judges have expressed concern and interest in not having enough oversight over special districts. Those judges are to be admired and commended for putting aside political interests to be a part of creating a more accountable, efficient government. These people are genuine leaders. Edelen traveled throughout the state enjoying a lot of attention for calling special districts scandalous but his main solution to fixing the scandal is woefully inadequate. The centerpiece of his proposal is to create and fund another state database to track special districts. The Department of Local Government already has one and no one really looks at it. This approach adds more meaningless bureaucracy to state government. He is using a garden hose to try to put out a raging fire. Meanwhile, our money is going up in smoke. Maybe he’s afraid his political aspirations will get burned. He’s not alone – most elected officials are afraid to take control of special districts because they are a powerful group. Special districts also offer politicians an easy scapegoat for tax hikes. It may be that as an elected official, he does not want to alienate the people who run these districts and have worked to get him elected – the fire chiefs, rescue squads, library boards and other local community leaders who tend to be popular and are good at fundraising.

Historically, as shocking as it may seem, no elected official in county or state government is directly responsible for special districts. The laws are designed this way to help elected officials stay in power and not be held accountable for taxes. The way this whole deal is organized makes it easy for special districts to tax and spend without anyone having to answer to the public. There is no requirement for special districts to balance a budget every year. In fact, only half of the special districts in Kentucky even submit a budget to their fiscal court or the Kentucky Department of Local Government, as required by state law. It is time for the taxpayers to demand that elected officials take responsibility for special districts this state legislative session. The Tea Party studied Edelen’s report and offers the following insights: Edelen’s database is a distraction. Somehow, he thinks if we have a list of special districts on the Internet, they will be accountable and efficient. Fact is, we already have a database and no one really looks at it. Furthermore, he does not estimate the cost of yet another database or whether the database will reveal which special districts have audits with negative findings. Edelen’s “Citizen Auditor” database just showed if a district had filed a report, not if the report was damaging. What if the special district audit report shows that money is missing or internal controls are lacking? When would the public learn about that? It is misleading to the public if all they see is a database showing whether a report was filed or not. In short, the new database is an expensive public relations stunt more than meaningful reform. Quick analogy: It would be akin to having a child in school and only seeing their attendance, not their grades. This allows the student to move on to the next grade despite having flunked all their courses. In short, the database is a way to allow the public to see if the special district filed paperwork, but we do not have access to the paperwork or performance measures of that district. Edelen puts most of the burden on the taxpayer to be the regulator. This is unfair and misguided. While taxpayers should be informed, they should not be the folks responsible for overseeing special district financial reports. Taxpayers should not have to police these entities via an internet database search of their financial records. This would be akin to giving your teenager a credit card without any limits. The only way of seeing what they did was to look up what they already spent on a website. Requiring special districts to report whether they filed financial reports on the Internet will not give the public the real scrutiny that should be required of elected officials who should oversee and be responsible for special districts. The Internet/database cannot replace true oversight. Very simply, unelected officials should not be able to raise taxes. It is an insult to taxpayers to think that paying for a database is going to fix the problem of taxation without representation. Edelen recommends that the Department of Local Government should disclose special districts that are not in compliance with financial reporting laws. Fact is, DLG already has this information and it is available to the public. Existing state laws allow DLG to enforce compliance but DLG has never done this. It is unreasonable to assume DLG will do this with new or different state laws. History and practice has been to ignore state laws that would make DLG an enforcer. DLG is nothing but a paper tiger and any expectation that this would change is nothing but wishful thinking or ignorant bliss if you are someone who wants to skirt the issue and get re-elected. Edelen recommends that any district not in compliance with financial reporting requirements will get audited by the KY Auditor. This is opportunistic, not effective. What if I’m a special district that just had an audit but did not file my annual budget? Will I have to pay thousands of dollars to get another audit because I failed to file a budget? Audits are expensive. This approach only makes sense if the entity has not had an audit and needs one. We don’t need redundant audits that will cause the taxpayer to pay redundant taxes while the Auditor’s office gets fat. It makes more sense to require that the special district budgets be approved by the fiscal courts. Immediate accountability will take place. The audits and all other financial records should also be filed with the fiscal courts and the Auditor’s office. Any negative audit findings should be reported by the Auditor’s office every year. Special districts with consecutive negative findings should be run by the county. When considering any solution, the real focus should be proactive, not reactive. We need to shift Auditor Edelen’s focus, and that of any other elected official, from following a paper trail to proactively examining special district budgets and financial reports before money is spent by special districts. This responsibility has to be specific and since the fiscal courts vote to approve the creation of special districts, it makes perfect sense that they also should have fiscal oversight of these entities. Ultimately, the goal is to ensure that taxes are accounted for and public money is spent efficiently and effectively. Putting charts and graphs on a database will not do what needs to be done. Elected officials have to be responsible for taxation and be accountable to the public. Fiscal courts holding public meetings to analyze special district finances and approving their budgets and tax rates is an economical and practical solution. Trying to replace that with an Internet paper chase creates nothing but an expensive illusion that something is being done. Taxpayers are urged to write to their local county fiscal court judge and ask them to step up and approve special district budgets, performance measures, and to evaluate their financial reports. Judges that seek effective and efficient government will be eager to make this happen. Contact your state legislator and ask them to make fiscal courts responsible for special districts. Once special districts are created, fiscal courts now have little control over what special districts do or how they tax and spend. That is the real scandal here and the only cost-effective way to fix this mess is to make elected officials directly responsible for special districts. Any other recommendation is going to cost taxpayers even more money and with sloppy results. Don’t let any elected official trick you into thinking differently. Any elected official who says otherwise is part of the problem, not a part of the solution.