Big money, too little oversight; auditor reveals tax district mess, legislature must clean it up

State Auditor Adam Edelen
State Auditor Adam Edelen HERALD-LEADER

It's important to understand a question before formulating an answer.

State Auditor Adam Edelen made several questions very clear last week about Kentucky's special taxing districts after his office spent six months developing a report on what it calls ghost governments.

Among them: What is a special taxing district? How many exist in Kentucky? Who oversees them?

How does the public get information about how they spend public money?

What's the process for dissolving a district?

These are big questions about entities that control billions of public money and it's amazing they remain unanswered in Kentucky law.

That's why the General Assembly must provide answers in the upcoming session.

Special districts levy taxes and fees to provide essential services, like fire protection, airports, water, sewer, public health and ambulance services, tourist and industrial development activities.

No doubt many special districts do their work diligently and honestly. But where there's money, there's temptation, and money without oversight is temptation on overdrive.

Exhibit A is a recent audit that found 800 pornographic videos and $123,000 in questionable spending — on things like flat-screen TVs, alcohol, chewing tobacco and fireworks — at one of these special districts, the Garrett Area Volunteer Fire Department in Floyd County.

But that's small potatoes given the potential.

The auditor's study estimated that $2.7 billion flows through the districts each year — more than the state spends on Medicaid, over twice as much as the state road fund, and almost as much as state funding for local school districts. Yet there are no uniform ethics requirements for board members who oversee these districts.

Despite the public funds involved, 447 of the special districts, accounting for $460 million dollars in revenues, have never been audited. Some 501 are not in compliance with financial reporting requirements.

No surprise, really, as there is no effective enforcement mechanism to assure compliance.

Compliance itself is a challenge, even for well-managed districts. There are over 1,000 statutes, some dating back more than a century, that apply to the districts.

The report notes that people involved with special districts expressed, "confusion, frustration, and anger over special district laws and regulations and the inability to determine districts' legal and financial reporting obligations ... with complicated and arcane filing and reporting requirements."

The investigation also found a lack of training to help sort through these issues.

The only solution to this mess is a comprehensive overhaul of the laws governing special districts.

Edelen made a series of recommendations that should guide such an effort. They include establishing a single online registry for the districts with uniform reporting requirements; setting up a procedure to track and audit districts that don't comply; and applying state ethics laws to district board members.

The chairmen of the local government committees — Rep. Steve Riggs, D-Jeffersonville in the House, and Sen. Damon Thayer, R-Georgetown in the Senate — praised the report and said they are eager to address its questions.

Every taxpayer in Kentucky is waiting for their answers.