Sunday, May 22, 2016

The unique status of Louisville Metro

 Many of life's little mysteries can be answered by reading the Kentucky Revised Statutes.

Louisville Metro's Occupational payroll license fees are clearly income taxes, even if in order to ignore Kentucky's Constitution it is necessary to pretend they are not. If you work in Jefferson County you have to pay 1.25% of your gross income as a "license fee" for the privilege of working in Jefferson County.

On top of this you have to pay an additional 0.20 % for the transit fund. If you also reside in Jefferson County another 0.75% of your gross pay is deducted from every paycheck to fund the Jefferson County Public School system.

So, if you both live and work in Jefferson County, local payroll deductions add up to 2.20% of gross pay, unless you work in one of the several local small cities that impose their own Occupational License fees.

West Buechel, for example, has its own 1.50% payroll fee for work done within the City. These happy workers have to pay all the above. Both Louisville Metro Occupational fees and West Buechel's fees are payroll deductions.

Prior to the consolidation of Jefferson County and the City of Louisville, people who worked in West Buechel would not have paid Louisville's Occupational fees, because they did not work in Louisville, and they would have received a credit against any Jefferson County Occupational fees if they paid West Buechel's Occupational fee. KRS 68.197.

However, these days KRS 67C.101(2)(d) provides:
"A consolidated local government is neither a city government nor a county government as those forms of government exist on July 15, 2002, but it is a separate classification of government which possess the greater powers conferred upon, and is subject to the lesser restrictions applicable to, county government and cities of the first class under the Constitution and general laws of the Commonwealth of Kentucky."
The credit provisions of KRS 68.197 do not apply to the Occupational fees of Louisville Metro.

Specifically, KRS 68.197(7) provides, "persons who pay a county license fee and a license fee to a city contained in the county shall be allowed to credit their city license fee against their county license fee."

KRS 68.002 (1) defines a County to include, "a charter county government."

Louisville Metro is not a charter county government and pursuant to KRS 67C.1012(d), Louisville Metro is not a city or a county either. As mentioned, the city-county credit provisions of KRS 68.197 do not apply to the Occupational fees of Louisville Metro.

Therefore, those who live anywhere in Jefferson County and who are employed within the City limits of West Buechel pay both West Buechel and Louisville Metro Occupational fees, totaling . . . 3.7% of gross.

The really bad news is the fact you can count on West Buechel to piss that money away foolishly, and to be ungrateful to receive it.
--------------------

Tom Fox, J. D.
Southern Specialty Law Publishing Company
Louisville, Kentucky

A division of Accountable Kentucky Incorporated
a Kentucky Non-profit corporation
AccountableKY.org

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Monday, May 9, 2016

Personal liability for over-budget spending

It's a rare breed of cat who, as a city executive, knowingly spends more than the city's legislative branch authorized in an annual budget. Doing that is unusual because of the personal liability involved.

KRS 91A.030(13) provides, "No city agency, or member, director, officer, or employee of a city agency, may bind the city in any way to any extent beyond the amount of money at that time appropriated for the purpose of the agency. All contracts, agreements, and obligations, express or implied, beyond existing appropriations are void; nor shall any city officer issue any bond, certificate, or warrant for the payment of money by the city in any way to any extent beyond the unexpended balance of any appropriation made for the purpose."

KRS 92.340
" **** Any indebtedness contracted by a city of the home rule class in
violation of this subsection or of KRS 92.330 or 91A.030(13) shall be void, the
contract shall not be enforceable by the person with whom made, the city shall never
assume the same, and money paid under any such contract may be recovered back
by the city."
This is the reason most public officials are careful to not go over budget allocations. The excess spending may come out of the officer's own pockets. Plus, it's likely Official Misconduct in the First Degree, KRS 522.020
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Tom Fox, J. D.
Southern Specialty Law Publishing Company
Louisville, Kentucky

A division of Accountable Kentucky Incorporated
a Kentucky Non-profit corporation
AccountableKY.org

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An unenforceable law is just a suggestion


Local public officials function within a legal framework specific to their respective office. Part of the structure for these rules of conduct comes from Kentucky statutes and part comes from local ordinances and procedures. Some of the statutes provide specific penalties for noncompliance, but many others are enforceable only under general penal prohibitions against official misconduct. Compelling public officials to obey the law involves a mix of both civil and criminal enforcement, with a large degree of overlap.

Chapters 514, 519 and 522 of Kentucky's Penal Code contain several misdemeanor and felony offenses applicable to official misconduct. The following is a list of the more obvious examples.

514.070 - Theft by failure to make required disposition of property.
Felony or misdemeanor depending upon the amount involved.
"A person is guilty of theft by failure to make required disposition of property received when:*** He intentionally deals with the property as his own and fails to make the required payment or disposition *** An officer or employee of the government *** presumed [t]o know any legal obligation relevant to his criminal liability under this section; and [t]o have dealt with the property as his own when: (1). He fails to account or pay upon lawful demand; or (2). An audit reveals a shortage or falsification of accounts."

519.060 - Tampering with public records.
"(1) A person is guilty of tampering with public records when:
(a) He knowingly makes a false entry in or falsely alters any public record; or
(b) Knowing he lacks the authority to do so, he intentionally destroys, mutilates, conceals, removes, or otherwise impairs the availability of any public records; or
(c) Knowing he lacks the authority to retain it, he intentionally refuses to deliver up a public record in his possession upon proper request of a public servant lawfully entitled to receive such record for examination or other purposes.
(2) Tampering with public records is a Class D felony."

522.020 - Official misconduct in the first degree.
"(1) A public servant is guilty of official misconduct in the first degree when, with intent to obtain or confer a benefit or to injure another person or to deprive another person of a benefit, he knowingly:
(a) Commits an act relating to his office which constitutes an unauthorized exercise of his official functions; or
(b) Refrains from performing a duty imposed upon him by law or clearly inherent in the nature of his office; or
(c) Violates any statute or lawfully adopted rule or regulation relating to his office.
(2) Official misconduct in the first degree is a Class A misdemeanor."
522.030 - Official misconduct in the second degree.
"(1) A public servant is guilty of official misconduct in the second degree when he knowingly:
(a) Commits an act relating to his office which constitutes an unauthorized exercise of his official functions; or
(b) Refrains from performing a duty imposed upon him by law or clearly inherent in the nature of his office; or
(c) Violates any statute or lawfully adopted rule or regulation relating to his office.
(2) Official misconduct in the second degree is a Class B misdemeanor."
522.050 - Abuse of public trust.
(1) A public servant who is entrusted with public money or property by reason of holding public office or employment, exercising the functions of a public officer or employee, or participating in performing a governmental function, is guilty of abuse of public trust when:
(a) He or she obtains public money or property subject to a known legal obligation to make specified payment or other disposition, whether from the public money or property or its proceeds; and
(b) He or she intentionally deals with the public money or property as his or her own and fails to make the required payment or disposition.
(2) A public servant is presumed:
(a) To know any legal obligation relative to his or her criminal liability under this section; and
(b) To have dealt with the public money or property as his or her own when:
1. He or she fails to account upon lawful demand; or
2. An audit reveals a shortage or falsification of accounts.
(3) Abuse of public trust is:
(a) A Class D felony if the value of the public money or property is less than ten thousand dollars ($10,000);
(b) A Class C felony if the value of the public money or property is ten thousand dollars ($10,000) or more, but less than one hundred thousand dollars ($100,000); and
(c) A Class B felony if the value of the public money or property is one hundred thousand dollars ($100,000) or more.
(4) The judgment of conviction under this section shall recite that the offender is disqualified to hold any public office thereafter.
(5) Conduct serving as the basis for the conviction of a public servant under this section shall not also be used to obtain a conviction of the public servant under KRS 514.070.
--------------------

Tom Fox, J. D.
Southern Specialty Law Publishing Company
Louisville, Kentucky

A division of Accountable Kentucky Incorporated
a Kentucky Non-profit corporation
AccountableKY.org

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Wednesday, May 4, 2016

Parsing KRS 424.220 - Financial Statements 0.05

This is the fifth part of a series following after part four:

 Parsing KRS 424.220 - Financial Statements 0.04

"The officer shall procure and include in or attach to the financial statement, as a part thereof, a certificate from the cashier or other proper officer of the banks in which the funds are or have been deposited during the past year, showing the balance, if any, of funds to the credit of the officer making the statement." KRS 424.220(5)
 Funds collected go into a bank and funds expended come out. Simple.

The bank balance at the end of a reporting period can be compared to the balance shown on the Financial Statement from the prior period, and the net change can be calculated. Simple.

All funds collected or received from any source, including loan proceeds, are deposited in the bank and reported on the Financial Statement. The amount of the bank deposits should equal the funds reported as received.

The disbursements shown on the Financial Statement include all disbursements except for payments to vendors less than $1,000. This is the 21st Century. $1000 is nothing.

The plausibility test

If the net change in the bank balance from the end of one reporting period to the next is substantially different from the net difference between funds received and funds disbursed shown in the Financial Statement, the matter warrants closer examination.

Who are those small vendors that were not reported?

 --------------------

Tom Fox, J. D.
Southern Specialty Law Publishing Company
Louisville, Kentucky

A division of Accountable Kentucky Incorporated
a Kentucky Non-profit corporation
AccountableKY.org

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Parsing KRS 424.220 - Financial Statements 0.04

This is the forth part of a series following after part three:

Parsing KRS 424.220 - Financial Statements 0.03


KRS 424.220(2)(b) and (3) relate to reporting the disbursement of public funds and must be read together:

The statement shall show:
(2)(b) "The total amount of funds disbursed during the fiscal year to each individual payee. The list shall include only aggregate amounts to vendors exceeding one thousand dollars ($1,000).
(3) Only the totals of amounts paid to each individual as salary or commission and public utility bills shall be shown. The amount of salaries paid to all nonelected county employees shall be shown as lump-sum expenditures by category, including but not limited to road department, jails, solid waste, public safety, and administrative personnel."
Breaking it down we can see the first sentence of KRS 424.220(2)(b) refers to "each individual payee" and the second sentence references "vendors." Nowhere is either term expressly defined. KRS 65.140 uses the word "vendor" in the context of imposing a 30 day payment requirement upon governmental units, "which receives goods or services from a vendor." KRS 65.140(1)

This is a common sense and ordinary definition of "vendor," which means a business that supplies goods or services.

Thus, all vendors are payees, but not all payees are vendors. Aggregate payments to an individual vendor are reported in the Financial Statement if the amount exceeds $1,000. All payments to non-vendors are reported regardless of the aggregate amount paid to each. Public utility bills must be shown.

For example, a $500 charitable donation to the American Red Cross paid from public funds would be included in the Financial Statement.  In this instance the American Red Cross is not a vendor, even if the American Red Cross also sometimes sells services, such as training, as a vendor. In part, the test is to determine the nature of each transaction and payment.

Payroll

1. Payroll payments to salaried or hourly non-elected employees are aggregated by category or department.

2. Payroll payments to elected officials are reported separately and individually.


Problem areas

Just as some payees can be vendors for some transactions and non-vendors for others, employees and officials also frequently receive payments other than and in addition to payroll compensation, such as:
  • Uniform allowances;
  • Purchase reimbursements;
  • Travel allowances or reimbursements
The way KRS 424.220 reads, these payments ought to be reported separately in the Financial Statement as a non-vendor payment. That does not necessarily make any sense.

Another problem is presented by the $1,000 limit on reporting vendor payments. That amount is in KRS 424.220, which is about annual Financial Statements. KRS  424.230 gives the option of monthly or quarterly Financial Statements, but does not specifically modify the $1,000 vendor limit. Should quarterly Financial Statements include each vendor receiving $250, or more, during the quarter?

With a little bit of good faith, basic honesty and the level of transparency required by Kentucky's Open Records Act, it's not a big problem. With public officials who are cheats, liars and slobs, it doesn't make a damn bit of difference what the law requires.


--------------------

Tom Fox, J. D.
Southern Specialty Law Publishing Company
Louisville, Kentucky

A division of Accountable Kentucky Incorporated
a Kentucky Non-profit corporation
AccountableKY.org

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Tuesday, May 3, 2016

Parsing KRS 424.220 - Financial Statements 0.03

This is the third part of a series following after part two:

Parsing KRS 424.220 - Financial Statements 0.02

The Financial Statement required by KRS 424.220 is divided into three parts:
  1. Funds received;
  2. Funds held, and;
  3. Funds expended.
KRS 424.220(2) and (3) set out specific requirements for the itemized contents of the Financial Statement. KRS 424.220 (4) applies only to school districts and teacher salaries.

KRS 424.220(2)(a) mandates the Financial Statement shall show, "[t]he total amount of funds collected and received during the fiscal year from each individual source;"

A  typical Kentucky municipality receives funds from many different income sources during the course of a year. Basic bookkeeping practice records each receipt of funds in an appropriate journal entry, depending upon the reason for the funds being received.

Reporting the funds received from each "individual source" would be interpreted, most simply,  to mean general funding categories such as property taxes, state road aid, borrowing, etc. That seems to be the common accepted practice.


--------------------

Tom Fox, J. D.
Southern Specialty Law Publishing Company
Louisville, Kentucky

A division of Accountable Kentucky Incorporated
a Kentucky Non-profit corporation
AccountableKY.org

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Parsing KRS 424.220 - Financial Statements 0.02

This is the second part of a series following after part one, 

Parsing KRS 424.220 - Financial Statements 0.01


 Who must comply with KRS 424.220?  

Every public officer of a city, etc., "whose duty it is to collect, receive, have the custody, control, or disbursement of public funds," and every officer of any board or commission whose duty it is to, "collect, receive, have the custody, control, or disbursement of funds collected from the public in the form of rates, charges, or assessments for services or benefits."

These are three broad categories. One individual public officer may have responsibility for each of the three, or the collecting, holding and disbursing functions may be distributed among several public officials. .
  1. Collect or receive public funds;
  2. Have the custody or control of public funds, or;
  3. Disburse public funds
The focus of the statute and the financial report it requires is upon public funds. No mention is made of real property or tangible personal property. The subject is liquid assets received, held or disbursed. As a plural noun, "funds" has the common business meaning of readily available financial resources in general, including cash in hand and bank balances. A line of credit or a revolving credit account, such as a typical credit card, neatly fits the general definition of "funds" as readily available financial resources, even if credit card debt seems the opposite of cash on hand. They spend nearly the same, but the credit card is easier to use. 

The singular "fund" has a slightly different meaning.A singular fund is a sum of money saved or made available for a particular purpose. In this, the singular is more abstract than is the plural.

The word fund can also be used as a verb, with the abstract meaning of allocating financial resources as a bookkeeping transaction or a budget ordinance. The specific meaning implies an actual transfer of money. 

What type of report is required of the public officer?

In general, "[A]n itemized, sworn statement of the funds collected, received, held, or disbursed by him during the fiscal year just closed, unless he has complied with KRS 424.230."

The Financial Statement required by KRS 424.220 is divided into three parts:
  1. Receipts;
  2. Holdings, and;
  3. Expenditures.






--------------
Tom Fox, J. D.
Southern Specialty Law Publishing Company
Louisville, Kentucky

A division of Accountable Kentucky Incorporated
a Kentucky Non-profit corporation
AccountableKY.org

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Monday, May 2, 2016

Parsing KRS 424.220 - Financial Statements 0.01

 Now, for a deep dive into an extremely obscure corner of Kentucky law, I report upon my most recent legal obsession. It is one of those esoteric tidbits of great practical importance to a very limited group of lawyers and public officials, which is otherwise totally boring to normal people. KRS 424.220 is a substantive statutory provision that imposes critically important responsibilities upon a large number of local government officials, and it has been codified in the Kentucky Revised Statutes chapter on Legal Notices.

KRS 424.220(1) begins this section with the exceptions, as follows:

"Excepting officers of a city of the first class or a consolidated local government, a county containing such a city or consolidated local government, a public agency of such a city, consolidated local government, or county, or a joint agency of such a city, consolidated local government, and county, or of a school district of such a city, consolidated local government, or county, and excepting officers of a city with a population equal to or greater than twenty thousand (20,000) based upon the most recent federal decennial census or an urban-county government, every public officer of any school district, city, consolidated local government, county, or subdivision, or district less than a county, whose duty it is to collect, receive, have the custody, control, or disbursement of public funds, * * * *"

KRS 424.220 does not apply to officers of:
  • A city of the first class (Louisville *);
  • A consolidated local government (Louisville **);
  • A county containing such a city or consolidated local government (Jefferson County); 
  • A public agency of such a city, consolidated local government, or county (Louisville / Jefferson County);
  • A joint agency of such a city, consolidated local government, and county;
  • A school district of such a city, consolidated local government, or county;
  • An urban-county government (Lexington *), or;
  • A city with a population equal to or greater than twenty thousand (20,000).

* NOTE According to an analysis by the Kentucky League of Cities, Lexington/Fayette Urban County Government and Louisville/Jefferson County Metro Government are categorized together.

KRS 424.220 does apply to every public officer whose duty it is to collect, receive, have the custody, control, or disbursement of public funds, of the following government units which are not excluded above:
  1. Any school district;
  2. City (less than 20,000 population);
  3. Consolidated local government (**);
  4. County or subdivision, or;
  5. District less than a county
** NOTE There is need for clarification of this statute or of my mind. Stripping away the verbiage, section (1) reads, "Excepting officers of a...consolidated local government...every public officer of any...consolidated local government...whose duty it is to collect...shall.... " Officers of consolidated local governments are both specifically excluded and then expressly included.

Also, " . . . . every officer of any board or commission of [such] a city, consolidated local government [**], county, or district whose duty it is to collect, receive, have the custody, control, or disbursement of funds collected from the public in the form of rates, charges, or assessments for services or benefits . . . ." [parentheticals added]. KRS 424.220(1)

Briefly, KRS 424.220 does not apply to public officers of Louisville, Lexington and the sixteen Kentucky cities with a population of 20,000, or more, but it does apply to all other officers who have the responsibility to account for public funds. .

Special rules apply to cities with less than 1,000 population.

Next part:  Parsing KRS 424.220 - Financial Statements 0.02

--------------
Tom Fox, J. D.
Southern Specialty Law Publishing Company
Louisville, Kentucky

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