Wednesday, August 21, 2013

List of 5 Misconceptions on Local Government Funding

1.  Funds the Local Governments receive can be used for anything.

  • Funds that are collected for restricted accounts must be used in those accounts only.  For instance, money paid for water service must go to the water department.  The department must take that money and pay salaries, benefits, maintenance, capital projects, rainy day funds, normal operating expenses.  Any money that was collected to pay a bond must go to that bond until it is retired.  You get the drift.
    • One interesting fact with Utilities, if the Utility makes a profit after paying ALL the above expenses, the profit may go into the General Fund.  Idaho State Law allows up to a 15% profit in Utilities, although I've never heard of anyone actually claiming that.

2.  Property Tax Levies can only go up 3%.
  • Recently during one of the City of Chubbuck Budget Meetings, Councilman Keven England stated that levy rates can only go up 3%.  This is incorrect.  Levy rates can go up as much as needed but anything above 3% requires voter approval.  A recent example of this is the Bannock County Ambulance Fund that needed more than 3% to continue operating properly.  The voters of course approved it because they saw the value.  Many elected officials will stay with the 3% because they don't want to justify what the money is for.  Interesting isn't it?
3.  Committed Funds are Restricted Funds.
  • Councils and Commissions can commit funds to different departments and projects, however, these funds are not restricted.  A current Council or Commission cannot force a new Council or Commission to keep the same committed funds.  The only funds that are restricted are those for utilities or those paying back loans or contracted payments.
4.  The General Fund has to pay funds where they are budgeted to go.
  • If a department that is paid with General Fund Money falls short, the funds may be taken from other departments to cover the shortfall.  This is one reason street department funds often get raided.
5.  Tax Increment Funds are free.
  • That's just silly.  Every year every citizen is impacted by these districts.  If the growth in a community is tied up in TIF it cannot be used in the General Fund.  Due to the restricted nature of TIF it causes levy rates to increase which means EVERY citizen and business pays higher tax rates because of it.  It can be a great tool if used correctly or it can suffocate a community if used as a piggy bank.

Very Simplified Example of how TIF impacts taxes