State oversight of city, county financials discussed
A discussion of state-level monitoring of county and city finances last week revealed that Kentucky county finances receive more state oversight than cities’, and that providing the same oversight for cities could be quite costly.
State Auditor Adam Edelen told the Interim Joint Committee on Local Government that state law requires his office to audit the finances of each county government in the state annually. The office currently performs or oversees around 600 statutorily-required county audits per year, he said.
It is not required to conduct annual audits of cities — a job that would add around 419 audits to his office’s annual workload, he said. When the State Auditor’s Office does get involved in city audits, it is usually because of “an allegation of waste, fraud, or abuse that is significant,” said Edelen.
Performing audits of all 419 cities on a regular basis would require “a significant addition of resources,” he said.
Committee Co-Chair Rep. Steve Riggs, D-Louisville, asked Edelen if his office could possibly alternate its audits of county finances with audits of city finances. Edelen replied no, adding he doesn’t want to “diminish” his office’s level of statutory oversight of county finances.
Still, most Kentucky cities — at least 300 — are subject to annual audits on their own, with those audits sent to the state Department for Local Government, state officials say. Some lawmakers seem comfortable with the current system of auditing and financial oversight of special districts and cities. Flagged city audits received by DLG, for example, can be sent to the State Auditor’s Office for further investigation, explained Senate Majority Floor Leader Damon Thayer, R-Georgetown.
“I felt … based on this discussion today, and my natural inclination against big, centralized, growthy government, that these points need to be made,” Thayer told the committee.
The DLG’s involvement with city finances involves receiving audits and uniform financial information reports, but the agency has no statutory obligation to review city audits, said the DLG’s Glenn Oldham. The agency acts only as a repository for the information which is passes on to “end users” like the Kentucky General Assembly, the Census Bureau, and the Kentucky League of Cities, he said.
DLG officials stressed that the state’s guidance is clearly much stronger with counties. According to DLG official Robert Brown, the DLG has the power to approve or disapprove all county budgets, with the exception of Lexington and Louisville Metro government. The DLG must also approve any county debt issue of $500,000 or more, and requires quarterly financial reports from all counties.
“The state role is much stronger with the counties than it has been with the cities,” DLG’s Russell Salsman told the committee.
That said, it is ultimately up to state lawmakers, said Riggs, to determine if more oversight is in the plans for Kentucky local governments.
“It’s really incumbent upon our committee to determine if the statutes in place are sufficient—whether you members, as lawmakers, think we ought to have some sort of early warning system in place, or leave it as it is.”
Riggs mentioned Detroit and the fact that city has filed for bankruptcy as a possible cautionary tale.
“If a bankruptcy happens… that means it’s too late, basically.”