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Nov 28th
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State Auditor's Office finds $2.7 billion in 'ghost money' held in special districts, Marshall County ranks third highest in the state

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altMARSHALL COUNTY - Last week State Auditor Adam Edelen released a report unveiling a public database and accompanying report that shines a new light on special districts, a $2.7 billion layer of government in the Commonwealth that Edelen says "has operated in the shadows for decades."
The auditor’s office identified more than 1,200 special districts – unelected entities such as libraries, sanitation districts and public health departments that have the ability to fee and tax but operate with little oversight and accountability. “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.

Of the 120 counties in Kentucky, Marshall County ranks third in the number of special districts (22) with a population of 31,000, following only behind Jefferson County which has 33 special districts (population 741,000) and Floyd County, having 24 special districts and a population of 39,000.
Of Marshall County’s 22 special districts, 15 of those are taxing districts including the Hospital, Health Department, Extension Cooperative, Solid Waste (refuse), Library and nine fire departments, collectively taking in nearly $9 million annually.
The three largest taxing districts, the Library, Solid Waste and Health Department account for nearly $6 million with the Library taking in just over $2 million annually, the Refuse collecting a total of $2.1 million ($1.9 million in tax collection plus $200 Fiscal Court subsidy) and the Health Department taking in just over $1.7 million.
Edelen's report notes that “In the 236 years since Jefferson wrote in our founding document that governments derive ‘their just powers from the consent of the governed’ there has existed a natural and constant tension over the power of government to tax the public.
“This tension has been balanced by a bedrock belief that those who have the ability to take from the taxpayers ought to be accountable to them. The challenge of Kentucky’s Byzantine system of special districts is that the current system undermines that bedrock principle."
The effort found that special districts state-wide collect $1.5 billion in taxes and fees and another $1 billion in grants, corporate sponsorships and fundraising.
In all but three counties, taxpayers pay more to special districts in property taxes than to their county governments.
Special districts spend $2.7 billion a year, which is about $5 less per capita than the state spends on primary and secondary education and they are holding another $1.3 billion in reserves – twice the contingency funds of all 174 school districts.
“To be sure, there is a difference between the districts themselves and the scandalous lack of system-wide oversight of them,” Edelen said. “Their work is critical to the communities they serve, many board members put in considerable hours on a voluntary basis and the vast majority are honest stewards of the tax dollars they spend.”

 

The effort found that the current system treats special districts that comply with state laws the same way as those operating outside of it. The status quo is a muddled morass of statutes, bizarre classifications, uncertain responsibilities, confusing mandates and the absence of meaningful tools to compel compliance.

Forty percent of the special districts that should’ve submitted budgets to their fiscal courts did not; 15 percent that should’ve submitted Uniform Financial Information Reports (UFIRs) did not.
In addition, half the special districts with revenues greater than $750,000 a year failed to have required audits conducted on their financial statements. That represents $461 million in revenue that had no oversight.
“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.”

Policy makers can use this report and online database at www.citizenauditor.ky.gov to inform their decision making about reforming the system. Watchdogs in the public now have a powerful new tool for sharpening their surveillance.
“This is the first time that information on the state's taxing districts has been made available in an online, sortable format,” said Logan Morford, vice president of transparency of the Bluegrass Institute. “As a result, citizens will be able to easily find critical information about how their hard-earned tax dollars are spent.”
The report includes legislative recommendations aimed at cleaning up the statutes that govern special districts, adding teeth to compel compliance with reporting requirements, creating an online centralized registry for special districts to report their financials and establishing education and ethics for special district board members and staff.

“This is really a significant service to the public interest,” said Richard Beliles, executive director of Common Cause of Kentucky. “This is a major, major improvement in government for the people.”

The auditor’s office has worked with the Department for Local Government, members of a legislative task force studying special districts and more than a dozen organizations that offered their support of this effort.
“Setting big audacious goals, attacking old problems with energy and technology and setting aside petty differences for the sake of collective progress are the hallmarks of transformative reform,” Edelen said. “We can set a new standard here, today.”
For more on the initiative, see the auditor’s website at www.auditor.ky.gov.
The full report on special districts can be found at: http://apps.auditor.ky.gov/public/theregistry/cai.html

 
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