budget law - arkansasbudget law mark r. hayes director of legal services arkansas municipal league...
TRANSCRIPT
BUDGET LAW
Mark R. Hayes
Director of Legal Services
Arkansas Municipal League
501-978-6102
September 14th, 2016
THE SHALLS…
THY MAYOR SHALL SUBMIT…
Ark. Code Ann. § 14-58-201. Annual submission.
On or before December 1 of each year, the mayor
of all cities and incorporated towns having the
mayor-council form of government shall submit to the
governing body of the city or town, for its approval
or disapproval, a proposed budget for operation
of the city or town from January 1 to December 31
of the forthcoming year.
THINE GOVERNING BODY SHALL
PASS…
Ark. Code Ann. § 14-58-202. Adoption.
Under this subchapter, the governing body of
the municipality shall, on or before February 1
of each year, adopt a budget by ordinance or
resolution for operation of the city or town.
SPEND
ONLY WHAT’S IN THE BUDGET
Ark. Code Ann. § 14-58-203. Appropriations and changes.
(a) The approval by the municipal governing body of the budget under this subchapter shall, for the purposes of the budget from time to time amount to an appropriation of funds which are lawfully applicable to the items therein contained.
THE MAYS…
Ark. Code Ann. § 14-58-203. Appropriations and changes.
(b) The governing body may alter or revise the budget and unpledged funds appropriated by the governing body for any purpose may be subsequently, by action of the governing body, appropriated to another purpose, subject to the following exceptions:
(SEE NEXT SLIDE…ALSO, PURPOSE MEANS PUBLIC PURPOSE!)
THE BE CAREFULS…
Ark. Code Ann. § 14-58-203. Appropriations and changes.
(1) Funds resulting from taxes levied under statutes or ordinances for specific purposes may not be diverted to another purpose;
(ILLEGAL EXACTIONS!!!)
(2) Appropriated funds may not be diverted to another purpose where any creditor of the municipality would be prejudiced thereby.
(CONTRACT LAWSUITS!!!)
THE A.G.
Opinion 2002-268:
“It is my opinion that municipalities may not formulate their budgets to end on January 31 of each year rather than December 31”
Citing one of our shall statutes Ark. Code Ann. §14-58-201
“…the mayor …shall submit to the governing body of the city or town…a proposed budget for operation of the city or town from January 1 to December 31 of the forthcoming year.”
THE A.G. CONTINUED
Opinion 2002-268:
Question 3 - Is there a conflict between A.C.A. § 14-58-201, which requires a budget period from January 1 to December 31, and A.C.A. § 14-58-202, which allows until February 1 for the annual budget to be adopted?
“It is my opinion that rather than conflicting, these two provisions simply permit a situation in which the city would be required to operate without a permanent budget for a limited time.”
A.G. CONTINUED
This conclusion, of course, raises the question of how the city is to operate during the time period between December 31 and February 1. During that time period, the city must operate by way of specific city council action for expenditures. Such specific city council action can take the form of simply adopting the previous year's budget on a temporary basis, or can be applied to individual expenditures.
A.G. CONTINUED
In my opinion, the city council's general authority over
the city's fiscal affairs, see A.C.A. § 14-43-502, and
the council's general power of appropriation, see
A.C.A. § 14-58-203, provide a sufficient basis for its
authority to operate the city by way of specific action
for expenditures during that limited period
(JANUARY!). (AND…see next slide)
A.G. CONTINUED
Although this issue has not been addressed by the
Arkansas Supreme Court, at least one court of
another jurisdiction that has addressed the issue has
adopted this approach. See Wilson v. Dawson, 590
So.2d 263 (Ala. 1991) (city council's statutory
authority to control city's finances gave it authority to
approve expenditures in absence of valid budget).
THE SHALLS CONTINUED
14-43-313. City clerks and attorneys generally.
“The city clerks and the city attorneys in cities of the first class shall…receive such salary as is prescribed by ordinance in each of these cities.”
14-43-316. City clerk, treasurer, or clerk-treasurer in mayor-council cities of fewer than 50,000. (first class only per (a))
(c) The city clerk and city treasurer, or city clerk-treasurer…shall receive a salary as is prescribed by ordinance in each of these cities.
Cities of the second class and incorporated towns…lucky you!
THE ROLE OF THE MAYOR…
MAYOR: Report, report, report!
Within the first 90 days of the year A.C.A. §§14-43-504 and 14-58-302.
I suggest monthly financial reports.
What do you do?
Monthly, weekly…
The better informed the council is, the better the budget.
(and don’t forget the shalls: submit, submit, submit)
THE ROLE OF THE COUNCIL…
PASS THE BUDGET! SHALL, SHALL, SHALL!!
Be well informed: read the financial statements early
and often.
Ask the mayor for specific department needs.
Look at long term plans and needs.
Meet and study long before the date of passage.
First Class City “Maximum Amount”
Statute: SHALL…
In a city of the first class, the mayor or his duly-authorized representative may approve for payment out of funds previously appropriated for that purpose, or disapprove, any bills, debts, or liabilities asserted as claims against the city.
The municipal governing body shall, by ordinance, establish in that connection a maximum amount, and the payment or disapproval of such bills, debts, or liabilities exceeding that amount shall require the confirmation of the governing body.
Ark. Code Ann. § 14-58-305. (Home Rule: likely all cities and towns can do this)
Limits on Mayor’s Spending Authority
§ 14-55-204 – appropriations require a majority
vote of the council.
§ 14-58-203 – the budget is an appropriation.
So if it hasn’t been appropriated…
… Then it shouldn’t be spent.
AGAIN: NO APPROPRIATION; NO SPENDING
If it got spent anyway, amend the budget before
the End of Year.
If you don’t do it by the EOY, do it ASAP!
So basically…
… The budget (or possibly some other form of
appropriation) sets the parameters for what
the Mayor may spend.
THE ROLE OF THE
CLERK/RECORDER/TREASURER
THE ROLE OF THE
CLERK/RECORDER/TREASURER
SUPPORT, RECORD-KEEPING AND CHECKS AND
BALANCES!
The Clerk/Recorder/Treasurer Handbook
The AML Handbook.
Others:
https://static.ark.org/eeuploads/arml/MayorCounci
l_Guidebook_2015_WEB.pdf
https://static.ark.org/eeuploads/arml/Guidebook_
City_Managers_2015_WEB.pdf
ORDINANCE OR RESOLUTION?
THE RESOLUTION
THE AUDITORS
14-58-101. Audit by independent accountant. (every muni!)
(a) The audit or agreed-upon procedures engagement of every municipality shall be made by the Division of Legislative Audit or other independent persons licensed and in good standing to practice accounting by the Arkansas State Board of Public Accountancy, to be selected by the governing body of the municipality.
14-58-307. Annual audit. (First Class)
In cities of the first class, the municipal governing body shall have the financial affairs of the city audited annually by an independent certified public accountant, who is not otherwise in the service of the city, or by the Division of Legislative Audit of the State of Arkansas.
AUDITORS
A.C.A. § 14-58-101(b):
Compliance with:
(1) Arkansas Municipal Accounting Law of 1973, 14-59-101 et seq.;
(2) Arkansas District Courts and City Courts Accounting Law, 16-10-201 et seq.;
(3) Improvement contracts, 22-9-202–22-9-204;
(4) Budgets, purchases, and payments of claims, etc., 14-58-201 et seq. and 14-58-301 et seq;
(5) Investment of public funds, 19-1-501 et seq.; and
(6) Deposit of public funds, 19-8-101–19-8-107.
AUDITORS
(c) (2) (A) The financial statements of municipalities shall be presented on a fund basis with, as a minimum:
(i) The general fund and the street fund presented separately; and
(ii) All other funds included in the audit presented in the aggregate.
(B) The financial statements shall consist of the following:
(i) A balance sheet;
(ii) A statement of revenues (receipts), expenditures (disbursements), and changes in fund equity (balances);
(iii) A comparison of the final adopted budget to the actual expenditures for the general fund and street fund of the entity; and
(iv) Notes to financial statements.
AUDITORS
A.C.A. § 14-58-101
(C) The report shall include as supplemental information a schedule of general fixed assets, including land, buildings, and equipment.
(3) In the alternative to subdivision (c)(2) of this section, the governing body of the municipality may adopt an annual resolution requiring their audit to be performed in accordance with the guidelines and format prescribed by the Governmental Accounting Standards Board, the American Institute of Certified Public Accountants, and the United States Government Accountability Office, if applicable.
Personal Interest
(b)(1) No alderman, council member, official, or municipal employee shall be interested, directly or indirectly, in the profits of any contract for furnishing supplies, equipment, or services to the municipality unless the governing body of the city has enacted an ordinance specifically permitting aldermen, council members, officials, or municipal employees to conduct business with the city and prescribing the extent of this authority.
Ark. Code Ann. § 14-42-107
ACT 582 OF ‘15, 14-59-115
Authorizes electronic distribution of funds by private
person/entity (payroll)
Requires ordinance dictating a method accounting
control, documentation etc.
Requires city to ensure the private person/entity is
insured, bonded and uses best practices
Treasurer must still approve disbursement before funds
are dispersed
FLSA – Basics – Minimum Wage
Federal minimum wage is $7.25 per hour. 29 U.S.C.
§ 206(a).
Arkansas Minimum Wage is:
$8.00 January 1, 2016 to December 31, 2016.
$8.50 after January 1, 2017.
Since the Arkansas rate is higher, it is applicable to
municipal employees in place of the federal rate.
FLSA – Basics – Overtime
Overtime or compensatory time is paid at 1.5x the
employee’s regularly hourly rate. 29 U.S.C.A. §
207(a)(1) .
Employers cannot avoid paying overtime or
compensatory time by averaging hours over several
workweeks.
The FLSA requires that each workweek stand alone.
Can be different for uniformed employees.
FLSA – On-call time
“On-call” time only has to be paid if employees’
activities are “overly restricted.”
On-call time is not compensable unless the
employee must remain at or near the employer’s
premises or cannot use his or her time freely.
29 C.F.R. § 785.17.
FLSA – Important Exemptions
Elected municipal officials,
their personal staffs,
persons appointed by elected officials to serve on a
policy making level,
and legal advisors.
All considered exempt employees and are excluded
from coverage under the Fair Labor Standards Act.
29 C.F.R. § 553.11
FLSA – Other exemptions
Volunteers are not employees and an employee cannot volunteer to do the same work for which he is being paid. 29 C.F.R. §§ 553.100, 553.102.
Prisoners are generally not treated as employees under FLSA. See United States Department of Labor Field Operations Handbook 10b27.
Trainees and students are not employees within the meaning of the Fair Labor Standards Act if they meet certain requirements. See 5 C.F.R. § 551.104.
FLSA – The Big Exemptions
Executive, administrative, and professional
employees are exempt from both minimum wage
and overtime provisions:
if they meet all the requirements specified for their job
category.
These are not the only exemptions, but are the most
typical in Arkansas cities and towns.
Executive Exemption
This exemption requires:
The employee make at least $913 a week ($47,476 per year); (90% can be salary with 10% being nondiscretionary bonuses);
The employee’s “primary duty” must be:
1) managing the enterprise or a recognized department thereof,
2) customarily and regularly directing the work of 2+ full time employees, and
3) authority to hire/fire or suggestion to hire/fire is given particular weight.
29 C.F.R. § 541.100(a)
Administrative Exemption
This exemption requires:
The employee make at least $913 a week ($47,476 per
year); (90% can be salary with 10% being nondiscretionary
bonuses);
The employee’s “primary duty” must be:
1) office or non-manual work directly related to
management or general operations of the employer or its
customers; and
2) include the exercise of discretion and independent
judgment with respect to matters of significance.
29 C.F.R. § 541.200(a)
Professional Exemption
This exemption requires:
The employee make at least $913 a week ($47,476 per year);
(90% can be salary with 10% being nondiscretionary bonuses);
The employee’s “primary duty” must require:
1) knowledge of an advanced type in a field of science
or learning customarily acquired by a prolonged course
of specialized intellectual instruction; OR
2) invention, imagination, originality or talent in a
recognized field of artistic or creative endeavor.”
29 C.F.R. § 541.300(a)
Uniformed Employees-Police
Law enforcement officers in cities and towns with fewer
than five (5) law enforcement officers, including the
chief or marshal, are exempt from the overtime
provisions.
Volunteers are not considered “employees” for this
purpose however. No distinction is made between part-
time and full-time employees.
You must be sure your officers receive a minimum wage
for all hours worked in a work period.
29 U.S.C. §213(b)(20); 29 C.F.R. §§ 553.200, 553.211.
Uniformed Employees- Fire
Same as police, see above.
“Employee in fire protection activities” means an employee: including a firefighter, paramedic, emergency medical technician, rescue worker, ambulance personnel, or hazardous materials worker, who--
(1) is trained in fire suppression, has the legal authority and responsibility to engage in fire suppression, and is employed by a fire department of a municipality, county, fire district, or State; and
(2) is engaged in the prevention, control, and extinguishment of fires or response to emergency situations where life, property, or the environment is at risk.
29 U.S.C.A. § 203(y)
Uniformed Officers’ Workweek
The FLSA provides a partial overtime exemption for uniformed employees who work a “work period” established by the city of no fewer than:
seven days and no more than twenty-eight days.
The city can establish separate work periods for the police department and the fire department.
If the city fails to establish a work period, 207(k) does not apply and a fire or police employee working over forty hours will accrue overtime compensation.
See handout for chart.
29 C.F.R. § 553.230.
Final Thoughts
The city as employer has the option of paying overtime or of giving comp time off.
The employee must understand that the city has a policy of compensatory time off.
Compensatory time is accrued at 1 ½ hours for each hour worked.
Police and fire employees can accrue a maximum of 480 hours of comp time or 320 hours worked.
After an employee has accrued maximum compensatory time, the employee must be paid in cash for overtime worked.
29 C.F.R. § 552.230
Final Thoughts Part Deux
There is no FLSA limit on the number of hours per day worked (other than child labor). 29 C.F.R. § 778.102.
A work week under the FLSA is defined as seven consecutive 24-hour periods (although this may be altered for police and firefighters as discussed above). Note that this may not be the same as the city’s “pay period.”
Only hours worked count in calculating overtime. Pay for holidays, vacations, sick time, jury duty, etc., do not count as hours worked.
29 C.F.R. § 778.102.
Questions/Comments?
Mark R. Hayes
Director of Legal Services
Arkansas Municipal League
501-978-6102
Arkansas Municipal League
Volunteer Certification Program
Municipal Finance and Budgeting Workshop
September 14, 2016
1
Major Sources of Revenue
available to Arkansas Cities
Presented by Don Zimmerman
Executive Director
Ad Valorem Property Tax
for General Purposes
2
Ad Valorem tax is a tax levied/based on the value of real estate
or personal property located within your city (annual real or
property tax).
Tax is levied at a fixed rate on the assessed value of real or
personal property;
Millage rate is set by City Council; and
State law mandates, tax may not exceed 5 mills for general
operations (Art. 12. Sec 4 AR Constitution).
State General Fund Turnback
3
State Turnback is the apportionment to
Municipalities of monies appropriated by
the General Assembly annually to the
Municipal Aid Fund from State General
Revenues.
State General Fund Turnbacks
4
The revenue is distributed on the basis of
population with the amount apportioned to each
municipality in the proportion that its population
bears to the total population of all municipalities,
according to the most recent decennial or
special census.
State General Fund Turnback
5
The Arkansas Municipal League publishes
the estimated per capita General turnback
annually.
2016 estimated turnback is $15.60 per
capita
2017 estimated turnback is $15.50 per
capita
Franchise Fees
6
Investor owned utilities pay franchise fees yearly for the
use of public right-of-ways and streets for the delivery of
their services.
Whatever fee is levied is then passed onto the utility user.
Let’s look at some of those utility companies, within our
cities statewide, that utilize franchise fees.
Utilities that collect franchise fees:
7
Cable TV (maximum 5%) – A.C.A § 23-19-206(e)
Electric (maximum 4.25%)
Phone (maximum 4.25%)
Gas (maximum 4.25%)
• 4.25% is maximum unless agreed to by the affected utility or
approved by voters of the municipality.
A.C.A § 14-200-101(b)(1)(A)(iii)
Utility Services
8
Typical utilities offered by most cities to their residents or
surrounding area residents are:
Water
Wastewater
Electric
Gas
Cable
* Water & Wastewater are the most common
*A.C.A. Title 14, Chapters 234 and 235
Solid Waste Utility Fees
9
Cities may charge a fee for the pick up and disposal
of the following kinds of solid waste:
Residential
Commercial
Industrial
* A.C.A. 14-232-110
Fines & Forfeitures
10
Municipalities receive sums collected from the
following:
Misdemeanors or violations of state or city
ordinances; and
Traffic offenses committed within city limits.
*A.C.A. 16-17-707
Permit & Inspection Fees
11
Municipalities have the duty/power to prevent injury or
annoyances from dangerous, offensive or unhealthy
conditions within their city.
Consequently, the City has the authority to require
building permits and exercise safety inspections.
Charging individuals or organizations accordingly.
* A.C.A 14-56-201-203
Parks Department Revenue
12
Cities may charge fees to citizens for their
participation in city run recreational programs
such as softball, basketball, football, volleyball,
etc.
Additional revenue may also come from municipal
run golf courses, swimming pools and concession
stands.
Occupational
Taxes/Privilege License
13
Cities may charge and collect for the
privilege of doing business or carrying on
any trade, profession or vocation for a
license fee of tax.
* A.C.A. 26-77-102 et seq.
Other sources of
miscellaneous revenue
14
Outside fire protection
Sale of Equipment
Animal licenses
Hotel, Motel and Restaurant Tax
(Advertising and Promotion – up to 3¢)
*A.C.A. 26-75-602
More sources of misc. revenue
15
Vehicle Tax (maximum of $5)
Interest earned from Special accounts
Development Impact Fees (A.C.A 14-56-
103)
Sales and Use Tax
16
Cities and towns may levy a local sales tax on all gross sales not
exempted by state law within their city or town.
Sales and use taxes may not be enacted without a vote of the
people.
State legislation grants broad powers and options to
municipalities that should assist cities and towns in passing
local option sales taxes.
Citizens in cities or towns can vote on:
17
Sales taxes of 1¢, 3/4¢, 1/2¢, 1/4¢ or 1/8¢
(or combinations) for operating or capital
improvement purposes.
Additional 1¢ for Bond Issues or Capital
Improvement for 24 months with Bond Issue.
Another 1¢ for park projects for two (2) years.
Another 1¢ for economic development projects.
Countywide Sales Taxes
18
Share of countywide Sales Tax per person based
on city or town population in relation to total
population of county.
* A.C.A. 26-74-214 & 313
Home Rule Authority
19
In addition to all other authority of local government to levy
taxes provided by law, any municipality acting through it
governing body and upon approval of qualified electors of the
city may levy any tax not otherwise prohibited by law.
A.C.A. 14-43-601 et seq. A municipality may legislate upon the
state affairs described in subdivision (a)(1) of Section 14-43-
601 if not in conflict with state law.
A.C.A § 26-73-103(a)(2) The general rule is that a city may not
levy a tax without approval by the voters.
* A.C.A § 14-43-601 & 602 (Act 1187 of 2011)
20
Ark. Code Ann. § 26-73-103. On the other hand, a city may
impose a fee without an election. Telling the difference
between a tax and a fee is not always easy. The Arkansas
Supreme Court has stated that “a ‘tax’ is imposed to raise
general revenue, while a ‘fee’ is imposed in the exercise of
the city’s police power.” City of Marion v. Baioni, 312 Ark. 423,
850 S.W.2d 1 (1993). This means that a charge for a specific
service or benefit is likely to be considered a fee rather than a
tax.
*See Holt vs. City of Maumelle, 302 ARK. 51, 786 S.W. 2d 581
(1990)
Street Funds
21
State Turnback monies are apportioned to cities from
highway revenues. These fees are primarily received from:
-Vehicle Licensing fees, Gasoline tax, Severance tax, and ½¢ Sales
Tax enacted in 2012.
Revenue is distributed on a basis of population, according to
the latest census.
The amount is paid to each municipality in proportion that
its population bears to the total population of all
municipalities.
*A.C.A. 27-70-206,207
Street Funds
22
The Arkansas Municipal League publishes the
estimated per capita Street turnback annually.
Estimated 2016 turnback is $65.00 per capita
Estimated 2017 turnback is $65.50 per capita
• State Aid Streets Law-A.C.A § § 27-72-401 – 419
Road Taxes
23
City residents pay a countywide millage rate
for the upkeep of all roads in the county.
One-half (1/2) of the revenue raised in the
city is returned to the city except where a
greater amount is allowed.
*A.C.A. 26-79-104
Other revenues
24
Cities may charge a fee to utility or
construction companies for street repairs
(i.e. street breaking permits).
Building Your Budget
Presented by Ken Wasson
September 14th, 20161
Determine Your Goals and Directions for 2017
2
Involve Your Department Heads in the Process
3
Analyzing Your Requests
4
SampleBudget Request
Number from Chart of Accounts
____________________
2017 Request Amount
___________________
Department
__________________________
EXPLANATION
5
SampleBudget Request with Detail
Number from Chart of Accounts
6026 Culvert and Pipe
2017 Request
$ 5,500.00
DEPARTMENTStreet Department
As a result of spring and summer rains we have had numerous drainage problems dueto inadequate sized drainage culverts. The street department has identified strategiclocations in which culvert needs to be replaced. This will require the purchase andinstallation of the new and additional culverts.
2 - 16’ long 20” wide sections of culvert $1,500.004 - 10’ long 16” wide sections of culvert $2,500.006 - 8’ long 12” wide sections of culvert $1,500.00
TOTAL EXPENDITURES $5,500.00
6
SampleBudget Request with Detail
Number from Chart of Accounts
7060 Utilities - Electricity
2017 Request
$ 4,500.00
DEPARTMENTParks
With the completion of our new water park. In late September we should see anincrease in electricity use. Also the addition of lights to one or more multiuse field willincrease our cost of electricity.
Water Park $2,000.00Ball fields $1,500.00Tennis and Basket ball courts & Offices $1,000.00
TOTAL EXPENDITURES $4,500.00
7
Local Sales Tax $750,000
Franchise Fees $300,000
State Turn Back $190,000
Solid Waste Fees $125,000
Property Tax $75,000
Fines and Forfeits $60,000
TOTAL GENERAL FUND ESTIMATE $1,500,000
____________________________________________________________________
STREET FUND REVENUE ESTIMATE
State Turn Back $450,000
Road Tax $50,000
TOTAL $500,000
____________________________________________________________________
GRAND TOTAL $2,000,000
DOES IT BALANCE?
8
Estimated Revenue’s
General Fund
Police Department $470,000
Sanitation Department $280,000
Fire Department $265,000
Parks Department $125,000
Code Enforcement $60,000
Animal Control $55,000
Legal/City Attorney $50,000
Administration $95,000
GENERAL FUND TOTAL $1,400,000
STREET FUND TOTAL REQUEST $475,000
GRAND TOTAL 2017 BUDGET REQUEST $1,875,000
List of Expenditure Requests
9
TOTAL ESTIMATED REVENUES $2,000,000
TOTAL ESTIMATED EXPENDITURES $1,875,000
Yes! It balances – we have a cushion of $125,000
DOES IT BALANCE?
10
Suggested Budget Calendar
11
Suggested Budget Calendar
12
SEPTEMBER
Prepare revenue estimates
Meet with department heads
Have department heads prepare expenditure requests
OCTOBER
Meet with City Council or Budget Committee to set out spending priorities
Meet with Department heads to review expenditure requests
Budget Calendar continued
13
NOVEMBER
Preliminary budget or budget outline should
be presented and reviewed by the City Council
City holds budget hearing on proposed budget
DECEMBER
City Council approves and adopts budget
JANUARY
New Budget goes into effect
2017 Budget Summary
14
“ And in Conclusion…”
15
Does our 2017 Budget match the “goals and directions” that the governing body of our city set for 2017?
“Don’t tell me what you value, show me your budget, and I’ll tell you what you value.”
-Joe Biden
Ask Yourself,
16
As much as we would like to believe it, government can’t be all things to all people.
Remember:
17
In other words, what core services and facilities are most important for us to provide? What can we afford?
Be Selective:
18
Give yourself plenty of time to prepare your budget.(See sample budget request calendar.)
You must pass a balanced budget.
Remember:
19
Inflate Revenue Estimates
Underestimate Expenditure
Eliminate Training. Poorly trained employees will cost you money.
Start a program/build a facility that cannot be maintained.
TemptingBut Do Not:
20
“Budgeting has only one rule: Do not got over budget.”
-Leslie Tayne, Life & Debt: A Fresh Approach to Achieving Financial Wellness
Even during hard times it is important to keep a positive outlook. Be forthcoming and open with the public. Keep them informed.
“Remember”
21
Municipal Purchasing, Bidding, and Professional
Services in Arkansas
David Schoen
Arkansas Municipal League
September 2016
Who does the purchasing for an Arkansas city or town?
• Short Answer:
• The mayor or the mayor’s duly appointed representative (§ 14-58-303 mayor-council form of government).
• City manager (§ 14-47-120 city manager form of government).• City administrator (§ 14-48-117 city administrator form of
government).
Who does the purchasing for an Arkansas city or town?
• Long answer:
In a city of the first class, city of the second class, or incorporated town, the mayor or the mayor’s duly-authorized representative shall have exclusive power and responsibility to make purchases of all supplies, apparatus, equipment, materials, and other things requisite for public purposes in and for the city and to make all necessary contracts for work or labor to be done or material or other necessary things to be furnished for the benefit of the city, or in carrying out any work or undertaking of a public nature in the city.
• Ark. Code Ann. § 14-58-303(a) (mayor-council).
• See also § 14-47-120 (purchasing powers for city managers) and § 14-48-117 (purchasing powers for city administrators).
Limits on Mayor’s Spending Authority
• Not the $20,000.00 in 14-58-303!
• That’s simply a bidding requirement– and only in first class cities
-- or cities in the second class/incorporated towns that have passed an ordinance authorizing bidding.
Limits on Mayor’s Spending Authority
• § 14-55-204 – appropriations require a majority vote of the council.
• § 14-58-203 – the budget is an appropriation.
So if it hasn’t been appropriated…
• … Then it shouldn’t be spent.
• If it got spent anyway, amend the budget before the End of Year.
• If you don’t do it by the EOY, do it ASAP!
Personal Interest
• (b)(1) No alderman, council member, official, or municipal employee shall be interested, directly or indirectly, in the profits of any contract for furnishing supplies, equipment, or services to the municipality unless the governing body of the city has enacted an ordinance specifically permitting aldermen, council members, officials, or municipal employees to conduct business with the city and prescribing the extent of this authority.
Ark. Code Ann. § 14-42-107
First Class City “Maximum Amount” Statute
• In a city of the first class, the mayor or his duly-authorized representative may approve for payment out of funds previously appropriated for that purpose, or disapprove, any bills, debts, or liabilities asserted as claims against the city.
• The municipal governing body shall, by ordinance, establish in that connection a maximum amount, and the payment or disapproval of such bills, debts, or liabilities exceeding that amount shall require the confirmation of the governing body.
• Ark. Code Ann. § 14-58-305. (Home Rule: likely all cities and towns can do this)
Buying (or selling, leasing, renting, etc.) Real or Personal Property
• What is Real Property?
• What is Personal Property?
• That covers every kind of property there is.
• So what kind of property are we talking about?
• All kinds.
What does the law say?
•Municipal corporations are empowered and authorized to buy/sell/lease/rent any real estate or personal property. Ark. Code Ann. §14-54-302(a).
• (But remember: must be for a public purpose)
Exchanging Property
• “Municipalities are authorized to exchange properties, real or personal, with other municipalities or with counties. Provided, any such exchange shall be approved by ordinance of the governing body of the municipality and shall be accomplished in accordance with procedures prescribed by the governing body.”
Ark. Code Ann. § 14-54-304
The “How” of Municipal Property Purchase and Sale
• The procedure set forth in the statute requires that the mayor and the city clerk or recorder enter into a contract for the sale of real or personal property.
• The contract or lease must be approved by a majority of the city council “present and participating,” in the form of a written resolution. A.C.A. § 14-54-302(c).
“Present and Participating?”
• That’s different. Usually we need a majority of the whole. See § 14-55-203.
• Most likely, however, the courts would still require a quorum.
Does this apply to ALL property?
• Do these rules apply to all contracts for property, or only those in writing?
• Every purchase or service involves a “contract” in the legal sense, whether written or not. Even small, low-cost items such as paper clips or a box of nails are “personal property.” However, the legislature in all likelihood did not intend to require a council resolution whenever a city makes such purchases.
• Suggestion: Apply to any written contracts, lease agreements, deeds, etc.
• Note: A.C.A. § 14-58-305 may still apply in a first class city.
IMPORTANT NOTE
• “[T]he city, after accepting performance and enjoying benefits under a contract executed by its agent, could not avoid liability on the ground the contract was not authorized by resolution in writing approved by majority vote of the city council.”
City of Benton v. Powers, 269 Ark. 853, 860, 601 S.W.2d 260, 264 (Ct. App. 1980) (citing holding in L.C. Eddy, Inc. v. City of Arkadelphia, 303 F.2d 473 (8th Cir. 1962)).
Bidding Requirements
• When must a city take bids in order to purchase goods or services?
• It depends on the class of the city and what ordinances the city has in effect regarding bids for purchasing.
It’s Not Quite Everyone
•With the exception of public improvements, state law in Arkansas requires only that bids be taken for purchases in cities of the first class.
• § A.C.A. § 14-58-303
What about other cities and towns?
• Although the statute only requires all cities of the first class to follow bidding requirements for purchases exceeding a certain amount, all other cities and towns, regardless of class, are free to enact local ordinances that establish a bidding requirement.
• And many have….check your ordinances carefully!
• The amount may be much lower than the $20,000 imposed by the state statute.
Ark. Code Ann. § 14-58-303
• In cities of the first class, bids must be taken for purchases that exceed the sum of twenty thousand dollars ($20,000.00).
• This amount could be lower, depending on the local ordinances for cities or towns of any class.
Bidding Procedures of § 14-58-303
• Mayor or mayor’s authorized representative [AR] invites competitive bidding
• By legal advertisement in any local newspaper
• Bids opened on specified date in the presence of mayor or mayor’s AR.
More Bidding Procedures § 14-58-303
• Mayor or AR has exclusive power to award the bid
• To lowest responsible bidder
• Or to reject any and all bids received.
• Council may waive bidding
• in exceptional circumstances
• when deemed not feasible or practical
• by ordinance
Specifications• The absence of good specifications can spell disaster.
• Detailed specifications insure that you acquire the product/equipment that you need to perform the service that you require.
• “An explicit set of requirements to be satisfied by a product, equipment or service.”
• “General specifications” were not sufficient, but it was essential that such definite and detailed specifications accompany the offering as would disclose the thing to be undertaken with circumstantial fullness and precision. ….and every bidder should know, not only the general plan, but every particular of detail and circumstances which could affect the cost of the work or the advantage of the contract. This is necessary, not only to active and intelligent competition among bidders, but also to a certain and proper comparison of bids. (Fones Bros. Hardware Co. v. Erb, 54 Ark. 645 (1891) (emphasis added)).
Helpful Spec Hints
• Understand the job or equipment requirements before you begin the bidding process. • This is essential, because if you don’t know what you want, you
can’t tell them what you want.
• Be as specific as you can—up front, so you wont be disappointed later.
• You be the design engineer. Don’t assume that the dealer will know exactly what you want and will be able to sell you something off the lot.
• Don’t specify brand names or specific vendors—think about the feature you want and specify those.
• Look at prior specs.
“Responsible” Bidder
• “Where public officials have the right to reject any and all bids for a public contract, the view is generally taken that they may consider the differences or variations in the character or quality of the materials, articles, or work proposed to be furnished by the various bidders, in determining whether to accept any of the bids, or which bid to accept.”
• Of course the rejection of the lowest bid must be, as it was here, for good cause and in good faith.
• Worth James Const. Co. v. Jacksonville Water Comm'n, 267 Ark. 214, 217, 590 S.W.2d 256, 258 (1979).
Awarding the Bid
• Things to consider before awarding the bid:
• Cost• Conformance to Bid Specifications• Field Testing or Demonstration• Previous experience with the bidder
Keep in Mind
• All bids should be opened publicly at precisely the time designated in the bid public bid notice.
• No late bids!
• No Substitutions!
• Announce the bid results. Do not officially award the bids until you have reviewed the bids carefully and are satisfied that they meet specifications.
So what constitutes bad faith?
• Bad faith consists of dishonest, malicious or oppressive conduct with a state of mind characterized by hatred, ill will or a spirit of revenge.
• Conway Corp. v. Constr. Engineers, Inc., 300 Ark. 225, 231-32, 782 S.W.2d 36, 39 (1989) (citing Stevenson v. Union Standard Ins. Co., 294 Ark. 651, 654, 746 S.W.2d 39, 41 (1988)).
Exceptions - A.C.A. § 14-58-104
• Bids are not required for motor fuels, oil, asphalt, asphalt oil, natural gas, and in certain cases, new motor vehicles.
• An existing contract may be renewed or extended without bidding.
• On different terms? For different work? New specs? Prior court opinions are unfavorable and the court may well consider it a new contract rather than an existing one.
Dangers of Messing up the Bidding Process• “Arkansas statutes create a property interest in a competitively bid public
contract for the lowest bidder that complied with the bidding specifications and procedures.” (Harris v. Hays, 452 F.3d 714, 719 (8th Cir. 2006) (citing L & H Sanitation, Inc. v. Lake City Sanitation, Inc., 769 F.2d 517, 524 (8th Cir. 1985)).
• This means that this property interest can be taken away unconstitutionally if a responsible lowest bidder is not given the contract. • And that means LAWSUIT!
• Not following bidding procedure does not excuse performance of the contract by the municipality
• Restitution based on unjust enrichment has been permitted even when the associated contract was “void.” City of Damascus v. Bivens, 291 Ark. 600, 602-03, 726 S.W.2d 677, 679 (1987) (citing City of Little Rock v. The White Co., 193 Ark. 837, 103 S.W.2d 58 (1937)); Int’l Harvester Co. v. Searcy Cnty., 136 Ark. 209, 206 S.W. 312 (1919)).
Internet Purchasing/Bidding
• A municipality has the option to make purchases by participating in a Reverse Internet Auction. § 14-58-303(c)(1)
• Exception: Purchasing and contracts for construction projects and other materials shall be undertaken pursuant to § 22-9-203(a) and (b), which is the Public Improvements statute.
More Internet Language
• “Reverse Internet auction” means an Internet-based process in which bidders• Are given specifications for items and services being sought for purchase by a
municipality; and
• Bid against one another in order to lower the price of the item or service to the lowest possible level.
There are a bunch of specialized requirements in § 14-58-303(c)(2)-(5) that should be read and followed before conducting a Reverse Internet auction.
Special Bidding Requirements For Public Improvements
• A.C.A. § 22-9-203
Applies to Contracts over $20,000.00, that are for
• Major repair or alteration
• The construction or erection of buildings or other structures
• Or other permanent improvements
• And it applies to all cities and towns
What all does this encompass?
• “Construction” means any of the following services, functions, or combination of the following services or functions to construct a building, building site, or structure, or to construct a permanent improvement to a building, building site, or structure, including site work:
• (A) Alteration; (B) Design; (C) Erection; (D) Reconditioning;(E) Renovation; (F) Repair; or (G) Replacement;
• Pretty much everything
• Ark. Code Ann. § 22-9-214(a)(1)(A)-(G).
Public Improvement Procedures
Publication of intent to receive bids
• For two consecutive weeks (at least)
• 1 week gap between publication and receipt of bids
• The newspaper notice must contain seven (7) different things
• For contracts over $75,000.00, a statement encouraging participation of small, minority, and women’s business enterprises.
A.C.A. § 22-9-203
Seven Notice RequirementsNotice contains brief description of work
Approximate location of work
Where to obtain specifications and plans
Date, time place where sealed bids will be received
Amount of bid bond required (may state as percentage)
A statement of city’s right to reject any or all bids
“Other pertinent facts or information”
A.C.A. § 22-9-203(c)(1)(A)-(G).
What if the bids exceed the budget?
• Local governments may negotiate an award of a public improvement contract with the apparent responsible low bidder if all bids exceed the amount appropriated for the contract if:
• Bidding on alternates was not required AND
• The low bid is within 25% of the appropriated amount.
A.C.A. § 22-9-203(f)
Alternates in Public Improvement Contracts
• § 22-9-203(f) permits plans and specifications to require bids on alternates, but it imposes a limit of three alternates, requires that they be deductive and requires that they be set forth in the plans and specifications in specific order.
• The apparent low bidder may be determined by deducting the alternates in numerical order, and after the deductions are made the cost must be less than 25% of the amount appropriated.
What if we don’t pay them?
• If the contract for a public improvement calls for payment to the contractor from the city at completion of the project, then the municipality has 90 days to pay after completion before they begin to owe the contractor 10% interest on the amount owed per annum.
• § 22-9-205
Purchase of Insurance
• A first class city’s purchase of all types of insurance is governed by Ark. Code Ann. § 14-58-303. (§ 14-58-304).
• This requirement does not apply to cities participating in Municipal League programs. Ark. Op. Atty. Gen. No. 83-198. The reason is that, through the League, cities are supplying their own needs rather than going out on the open market. Additionally, League programs are not insurance.
Statues/Memorials
• Any state agency, department, board, commission, or other body having the authority to construct or purchase, or negotiate for the construction or purchase of, any memorial, statue, bust, monument, or other similar article which is to be paid for from public funds shall establish specifications for the object, take competitive bids on the cost of constructing or furnishing the object, and award the contract to furnish or construct the object to the lowest responsible bidder meeting the established specifications.
• Ark. Code Ann. § 22-9-207
Trenches/Excavations
• Whenever a municipality enters into a contract for a public improvement (building or repairing buildings, the construction or improvement of highways, roads, streets, sidewalks, curbs, gutters, drainage or sewer projects) that involve trenches or excavations exceeding 5 ft. in depth, the municipality must:
• Incorporate OSHA standards into specs AND
• Include a separate pay item on the contract bid forms for trench/excavation safety systems to be included.A.C.A. § 22-9-212
Professional Services
• Competitive bidding may not be used in procuring legal, financial advisory, architectural, engineering, construction management and land surveying services. See Ark. Code Ann. § 19-11-801 and following.
• Cities and towns may make other professional services subject to this statute by a two-thirds (2/3) vote of the governing body. See Ark. Code Ann. § 19-11-801(c).
Professional Services: Encouragement
• Ark. Code Ann. § 19-11-802 states that a city “may encourage” firms engaged in the relevant professions to provide annual statements of qualifications.
• Or may request “as needed.”
• Perhaps “encourage” means “advertise.”
Prof. Services:Evaluating Firms
• Ark. Code Ann. § 19-11-803 explains how the qualifications of each firm shall be evaluated, using criteria such as experience and technical competence; the capacity of the firm to perform the work; past record of performance; and the firm’s proximity to and familiarity with the area in which the project is located.
Prof. Services: Pick 3 & Start Negotiating
• Ark. Code Ann. § 19-11-804 requires the city to select three firms.
• Then select the best-qualified and negotiate a contract.
• If unable to negotiate a contract, select another qualified firm from the three and undertake negotiations.
• If unable to negotiate a contract with any of the three, compile a new list of qualified firms and start over.
An Example of a Prof. Serv. Mishap
• A municipality advertised price in a “bidding” style advertisement for an engineer’s services:
• “Presumably, the legislature wanted professional services to be procured on the basis of qualifications above all else without consideration of price until the firms were ranked and negotiations had begun. The interjection of price at any time prior to selecting the most qualified firms would seriously undermine this goal.”
• Graham v. Forrest City Hous. Auth., 304 Ark. 632, 636, 803 S.W.2d 923, 925 (1991).
Design-Build Construction: • Authorized by Ark. Code Ann. § 19-11-807.
Buying Local for Utility Projects
• If one or more Arkansas firms have submitted bids for a public utility project*, and those bids are competing against non-Arkansas firms, then the public agencies “shall accept the lowest qualified bid from a firm resident in Arkansas.”
• A.C.A. § 19-11-259(b)(1)(A).
• *Includes pipeline installation, sanitary, waterline, sewage, waterworks and similar projects. 19-11-259(c).
How the “Buying Local” Statute Works
• Essentially, a public agency must accept an Arkansas firm’s bid over the lowest qualified bid (which is from a non-resident) if the Arkansas firm’s bid is less than 5% higher than the non-resident bid.
• So you subtract 5% of the total bid from the Arkansas bid and if that 5% reduction drops it below the non-resident lowest qualified bid, then the public agency must choose the Arkansas bid.
• A.C.A. §19-11-259
Preference to Local Bidders
• When a municipality is purchasing commodities or services by competitive bidding, it may enact an ordinance granting a preference of up to five percent (5%) to the lowest qualified bid from a resident firm in the municipality. A.C.A. § 14-58- 105 (b)(1)(A)
• A municipality may also place a specific dollar cap on the total amount of preference granted, regardless of the percentage designated in the ordinance. A.C.A. § 14-58-105 (b)(1)(B)
What is a Resident Firm ?
• A “resident firm” is “any individual, partnership, association, or corporation,” that:
• 1) maintains at least one staffed place of business within the corporate limits of the municipality; and
• 2) has paid taxes, for at least two successive years before submitting a bid, to the county that benefit the municipality on property either used or intended to be used in connection with the firm’s business. A.C.A. § 14-58-105 (a)(2)
How to Calculate the Preference
• Municipality’s procurement officials must take the total amount of each bid from a resident firm claiming the preference and deduct the percentage mandated by the ordinance from the total amount. A.C.A. §14-58-105 (b)(1)(D)(i)
• After the deductions have been calculated, if the bid of a resident firm is lower than a bid from a nonresident, then the municipality must award the bid to the resident firm who submitted the lowest bid, regardless of whether or not that particular resident firm claimed the preference. A.C.A. § 14-58-105 (b)(1)(D)(ii)
When Preference Applies• The preference only applies when a municipality is comparing bids
between one or more resident firms and other bids by nonresidents. A.C.A. § 14-58-105 (b)(2)(A)
• It does not apply when all the bids are from resident firms. A.C.A. §14-58-105 (b)(2)(B)
• The preference will not apply when federal or state rules or regulations conflict. A.C.A. 14-58-105
More, more, more!• Read up on
• Debt• Donations• Fees• Investments• Street Turnback• Taxes and Fees, etc.
• Where? “Municipal Law in Arkansas: Questions and Answers (May 2016)• Hard copy or Electronic download from www.arml.org, then “Services” –
”Publications”
Cooperative Purchasing
• § 19-11-249 authorizes “cooperative procurement,” meaning that multiple procurement units may “pool” together to procure services or commodities for their respective governmental entities.
• It also authorizes a local or state procurement unit to conduct purchases with an external procurement activity (an out-of-state buying organization).
• Counties and municipalities can:
• Contract together, including with other public entities, even those out-of-state, to obtain commodities and services
• Get in on open-ended state procurement contracts
Why would we want to do that?
• The more you buy, the more you save.
• The more counties or municipalities pool their resources for a single order, the cheaper the commodity or service becomes for each of them.
Enforcement
• Local Fiscal Management Responsibility Act• ACA 14-77-101 through 111
• Duty of employee with supervision of finances to report unauthorized expenditures, misappropriation of funds, theft, to audit. • Five business days to report after learning of situation.
• ACA 25-1-124(b) (Act 1103 of 2015).
• Note: failure to report is a Class A Misdemeanor.
• Illegal exaction/citizen suits.
Questions/Comments?
David C. SchoenLegal Counsel
Arkansas Municipal League
501-978-6114
Questions/Comments?
Mark R. HayesGeneral Counsel
Arkansas Municipal League
501-978-6102
Internal Revenue Service
Federal, State, and Local Government September 14th, 2016
Reconciliations
Errors
Worker Classification
Fringe Benefits
Form 1099-MISC and 1099-S
Retirement Reporting
Section 218
Resources
(This is not an official IRS Powerpoint)
Publication 15 (Circular E) Employer's Tax Guide
Instructions for Form 941, Employer's Quarterly Federal Tax Return
Reconcile Form W-3 (summary) to Form 941
Reconcile your books to return (gross wages to Form 941 totals)
Mistake in wages?
1) Form 941
- already filed – file Form 941-X
(IMPORTANT – include date the error was found!)
- not yet filed – make the correction on the current
quarter’s Form 941
2) Form W-2
already filed – file Forms W-2C and W-3C
See instructions for these forms: 941; 941-X; W-2 & W-3
Publications
1779 - Independent Contractor or Employee
963 - Federal / State Reference Guide State / Local
Government Employers
(Chapter 4 – Determining Worker Status)
Behavioral control
Financial controlType of
relationship
An Elected Official is an employee
IRC 3401(c)
the public has the right to remove them
carrying out the duties of an office as defined by statute
oath of office
An Appointed Official is usually an employee:
Boards, commissions, committees, etc.
Volunteer Firefighters are employees
Employees – Form W-2 & Form 1099-MISC
City Council/Aldermen
Parks and Recreation Dept employees
Part-time/seasonal employees
Animal Control Officers
“Retired” employees
Paid through grants
Federal, State, etc.
Look at the position ---
If the position is that of an EMPLOYEE, it does
not matter the source of the funds.
Their payments are WAGES.
Publication 15-BEmployer’s Tax Guide to Fringe Benefits
Publication 5137
Fringe Benefit Guide
Elements of an “Accountable Plan”
Business connection
Substantiation
Return of excess amounts
All three elements must be present OR the payments are included as “wages” and subject
to employment tax withholding.
The City pays for coverage of $50,000 or less for employees
and
$2,000 coverage for dependents and spouses(Notice 89-110)
Problem Areas:
1) The coverage is above the thresholds.
2) The employee is paying for coverage w/ pre-tax dollars.
Required by employer,
and
Not suitable for everyday wear, or
Protective clothing
-Parks/Maintenance employee’s uniforms
Problem areas:
Uniforms are not required to be worn
Clothing Allowances are not paid under
an accountable plan
Overnight Rule:
Unreasonable to return home
Employee actually spent the night away from home
Not taxable if paid in accordance with an accountable plan
Problem areas: Meal Allowances or Reimbursements for Day Trips: Meetings, police department transporting prisoners…
Internal Revenue Code §274(d)(4)o Amounto Timeo Placeo Business purpose
Internal Revenue Code §280F(d)(4)Listed property...passenger cars
Personal use is a taxable fringe benefit
and
includes commuting to and from work.(not in connection with the City’s business)
Three Methods to determine value:
1. Cents-per-mile Rule. (TR 1.61-21(e))
2. Commuting Value Rule. (TR 1.61-21(f))
3. Lease Value Rule. (TR 1.61-21(d))
City owned vehicle:Cents-Per-Mile Rule
54 cents per mile - 2016
Requirements to be met:•Must have regular City business (at least 50%
City use).
•Fair market value is ≤ $15,900/$17,700*.*truck or van
•Actually driven at least 10,000 miles per year.
•Vehicle is driven primarily by employees.
City owned vehicle:Commuting Rule
$3.00 per day or $1.50 per one-way commute.
Requirements:
• City owned vehicle used for City’s business.
• City requires employee to commute in the vehicle.
• Written policy requires “no personal use” allowed
other than commuting. (Only deminimis personal use).
• The employee is NOT --
a. An elected official orb. Earns ≥ $150,200 annual salary for 2016
City owed vehicle:Lease Value Rule
• Determine the Fair Market Value of vehicle.
• Use annual values (ALV) from Pub. 15-B
(which is based on a four year term)
• You must add the value of fuel and may
use 5.5 cents per mile.
Not TAXABLE to the employee if they take the vehicle HOME.
Generally, the entire value of its use is excluded from wages as a working condition fringe benefit TR §1.132-5(h)
…by reason of its design, is not likely to be used more than a limited amount for personal purposes
Clearly Marked Police or
Fire Vehicles
Unmarked Police Cars *
Public Safety Officer Vehicles
Ambulances or Hearses
Large Trucks (>14k)
School Buses
Etc.
Police or Fire vehicles
Clearly marked
On call
Required by the City to use for commuting
Personal use is prohibited for travel outside the officer’s or firefighter’s jurisdiction
TR §1.274-5(k)
Used by law enforcement officers
Use is officially authorized
Personal use must be authorized
Incident to law-enforcement functions
…being able to report directly to a stakeout or emergency situation
Use for vacation or recreation trips cannotqualify as an authorized use
TR §1.274-5(k)
Law Enforcement Officer
Employed on a full-time basis
Responsible for the prevention or investigation of a crime involving injury to persons or property
Authorized by law to: carry firearms, execute search warrants, and regularly carries* firearms
Driven by a public safety officer (PSO)
(An individual serving in a public agency in an official capacity, with or without compensation as law enforcement officer, a firefighter, a chaplain, or as a member of a rescue squad* or ambulance crew*)
Clearly marked PSO vehicle
Treas. Regs. §1.274-5
Pickup trucks- Loaded gross weight ≤ 14,000 pounds
Clearly marked with permanently affixed decals or with special painting or other advertising associated with the employer’s trade, business,or function.
AND Specially MODIFIED
Revenue Ruling 86-97 and PLR 20023(X)6022
UNLESS...
Hydraulic lift gate
Permanently installed tanks or drums
Permanently installed side boards or panels materially raising the level of the sides of the bed of the pickup truck
Other heavy equipment: electric generator; welder; boom; or crane used to tow automobiles and other vehicles
…used primarily for transporting a particular type of load other than over the public highway
SPECIALLY MODIFIED! (Rev Rul 86-97)
Additional Resources:
Revenue Ruling 86-97
Private Letter Ruling-20023(X)6022
Internal Revenue Bulletin 2008-25
What is a 1099-MISC information return?Form required to report payments for: Services, or, A combination of services and
products Rents Other income
What payments must be reported?
Payments of $600 or more for the year
Paid in the course of your trade or business (City)
Certain payments to corporations - gross proceeds to attorneys (box 14)- attorneys’ fees (box 7)- payments for medical or healthcare
services (box 6)
General Exemptions to Filing Form 1099-MISC
Payments to a corporation
Exceptions:
• Payments to medical and health care
providers
• Payments to attorneys for legal services
Proceeds from Real Estate Transactions
Purchases: property purchases, easements, and right-of-ways.
Secure Form W-9Form 1099-S:
Rents ≤ 30 yearsPurchase > 30 years
City's Information
Property's
Description
Correctly file by March 30, $50/return($529,500 maximum)
Correctly file after March 30 but before August 1, $100/return($1,589,000 maximum)
Correctly file August 1 or later, $260/return (No maximum)
Same penalties under Failure to File
Correct Information Returns by the
Due Date (Section 6721)
Backup Withholding• Payee refuses to provide correct TIN
• During an examination of the City
28% Rate on the payment
Upon hiring independent contractors
Secure Form W-9*
Solicit TIN even for one time transactions
Problem: other departments hiring the I/C
TIN matching services are available 24 hours a
day, 7 days per week
Access IRS TIN matching by visiting e-services
at: www.irs.gov. Registration is required.
Contact E-Services customer service at:
1-866-255-0654, 7:30 AM to 7:00 PM EST,
Monday - Friday
Retirement System – Form W-2 – √ Box 13
(Contributory and Non-contributory)
APERS – Employee contributions – Form W-2 – Box 14
(Optional)
Deferred Compensation – Employee Contributions –Form W-2 – Box 12 (usually Code ‘G’)
General Fund Payments – Form 1099-R, Form W-4P, Form 945 (FITW), AR4P-Employee’s Withholding Certificate For Pensions and Annuity Payments (SITW)
Do you have a copy of the City’s AGREEMENT?
What are the city’s EXCLUDED positions?
Are these positions covered by a RETIREMENT SYSTEM?
Were these employees hired after March 31, 1986?
Madison Davis (501) 682-7800
Resources:
Health and Human Services: healthcare.gov
Small Business Administration: sba.gov/healthcare
Department of Labor: dol.gov/esba/healthreform
Center for Medicaid and Medicare Services (CMS) -
Health Insurance Marketplace: marketplace.cms.gov
CMS – Center for Consumer Information & Insurance Oversight: cciio.cms.gov
ACA Spanish website: cuidadodesalud.gov
IRS: irs.gov/uac/Affordable-Care-Act-Tax-Provisions-Home
https://www.irs.gov/government-entities/federal-state-local-governments
FSLG Compliance Self-Assessment Tool
Form 14581https://www.irs.gov/pub/irs-pdf/f14581.pdf
FSLG Specialist: Jan Germany
E-mail: [email protected]
Telephone: 501-396-5816
FAX: 501-396-5763
Electronic FAX: 1-855-243-4018
Arkansas Municipal League
Municipal Budgeting & Finance Seminar
September 14, 2016
Municipal Accounting Law
14-59-101 Title
14-59-102 Funds under budgetary control of the council except water and sewer
Municipal Accounting Law
14-59-103
Exemptions from Municipal Accounting Law
Municipal Accounting Law
14-59-104 Bank Accounts
1. Separate General and Street Accounts
2. Maintained in Name of City
Municipal Accounting Law
14-59-105 – Prenumbered checks –Electronic funds transfers.
• Disbursements by prenumbered checks
• Exceptions for payroll & payments to federal or state entities by EFT
• Other exceptions as approved by LJAC
Municipal Accounting Law
14-59-106 – Petty cash funds
1. Approved by City Council
2. Paid from General to “petty cash”
3. For small expenditures
4. Fund reimbursed to original amount
Municipal Accounting Law
14-59-107 - Fixed asset records
1. Policy (Amount & Useful Life)
2. Listing
3. Totaled
4. Categories (Land, Buildings, Vehicles,
Equipment, and Other)
5. Info (Description, S/N, Date, Cost)
Municipal Accounting Law
14-59-108 – Reconciliation of bank accounts
1. Monthly (CRJ and CDJ to bank)
2. Approval by other official/employee
3. Form as noted in law
Municipal Accounting Law
14-59-109 – Prenumbered receipts
• If electronic system used, shall comply with I/S Best Practices (LJAC)
Municipal Accounting Law
14-59-110 - Cash receipts journals or electronic receipts listing
1. Info (Rec #, Date, Payor, Amt, Class)
2. Totaled monthly and YTD
3. Reconciled to Bank
Municipal Accounting Law
14-59-111 - Cash disbursements journals or electronic check register
1. Info (Check #, Date, Payee, Amt, Class.)
2. Totaled monthly and YTD
3. Reconciled to Bank
Municipal Accounting Law
14-59-112 – Repealed
14-59-113 – Repealed
Municipal Accounting Law
14-59-114 - Maintenance and
destruction of accounting records
1. Support documents (> 4 years)
2. Semipermanent records (> 7 years)
3. Permanent records
Municipal Accounting Law
14-59-115 – Duties of municipal treasurer
1. Monthly financial report to council
2. Accounting records
3. Provision for reassigning duties
4. May not assign collecting duties to a non-employee/non-official
5. May assign/contract disbursing payroll, bonded debt, construction projects (bond)
Municipal Accounting Law
14-59-116 – Annual publication of financial statement (formerly semiannual)
1. By April 1 of following year
2. Where no newspaper, posted in 2 of most public places
Municipal Accounting Law
14-59-117 – Withholding of turnback for noncompliance
14-59-118 – Penalty
• $100 - $1,000
• Removal from office
14-58-101 – Audit Requirement &
Regulatory Basis Format
1. General, Street, Everything else combined
2. Balance Sheet
3. Stmt of Rev, Exp, and Chgs in Fund Bal
4. Budget to Actual for General and Street
5. Notes to Financial Statements
6. Supplemental Fixed Asset Schedule
• 14-58-104 – Specific purchases and contracts
1. Items exempt from bidding
2. Extension of an existing contract
14-58-201 – Mayor submits budget to council by December 1
14-58-202 – Council adopts budget by February 1 (by ordinance or resolution)
14-58-203 – Approval of budget is an appropriation & may be amended
Budgets
14-58-302 – Annual Report by Mayor of first class city
Report to governing body on finances & administrative activities within first 90 days of following year
14-58-303 – Purchases and contracts
1. Mayor has purchasing power
2. First class cities must bid expenditures > $20,000 (except as provided in 14-58-104)
3. Provision to waive bids
4. Reverse Internet auction purchases
14-58-305 – Payment of claims
• The Council of first class cities shall set a maximum amount that the Mayor may approve for payment. Payments above that amount require Council approval.
1. Sold by competitive bidding if over $20K or a lesser maximum set by ordinance
2. If obsolete or no longer used
Public auction
Marketing and Redistribution (DF&A)
Transfer to governmental entity
Landfill under certain provisions
14-58-306 – Disposal of municipal supplies, etc.
26-79-104 – County Road Tax
The city’s share of the 3 mill (property tax) county road tax received from the county shall be expended exclusively making and repairing streets and bridges.
27-70-207 – Highway Revenue Distribution
State turnback for highway funds is to be used for street expenditures.
14-42-107 – Interest in offices or
contracts prohibited (Ethics)
• No council member, official, or employee shall be interested directly or indirectly in the profits of supplying goods or services to the city unless the city has an ordinance specifically authorizing such and the extent of that authority.
21-8-304 – Prohibited activities
• No public official shall use or attempt to use his position to secure privileges that are not available to others except as provided by law.
19-8-107 – Depository agreements
• Municipal officials shall require security for the deposit of public funds in the form of a demand deposit, a savings deposit, or a time deposit for amounts not fully insured by the US (FDIC).
Article 12, Section 5 of the
Arkansas Constitution
A city or a town may not become a stockholder in or lend credit to private corporations or individuals
Article 12, Sec 5 of the Ark. Const.
• Examples of violations
• Nonprofits without a contract for services
• Purchase for a private business
• Employee Christmas party w/out a business purpose (AG 91-410)
Arkansas Constitution, Amend 78
For acquiring, constructing, installing or renting real or personal propertyhaving an expected useful life of more than one year, a city may incur short-term financing obligations (debt, note, lease purchase) that do not exceed 5 years.
Resources
1. Legislative Audit website (www.arklegaudit.gov)
• “Resources” tab (Compliance with ACA 14-58-101)
• “Our Reports” (Audit reports)
2. Municipal League website (www.arml.org)
a) Handbook for Arkansas Municipal Officials ($100)
b) Mun Acctg Handbook (Free)
3. State website (www.arkansas.gov)
Municipal Engagements
501 Municipalities
• ~461 use DLA
• ~40 hire private CPAs
Municipal Audit Work not performed by ALA
1. Water and Sewer (Utilities)
2. Federal Compliance
Requirements for Water and Sewer
ACA 14-234-119
1. < 100 service connections – None
2. > 100 < 750/1,000 service connections (sewer/water) – Audit or AUP
3. > 750/1,000 (sewer/water) service connections – Audit
Water and Sewer Provider Audit Guidelines is on the DLA website under “Resources.”
10-4-418 – Review of audit report by governing body
The audit report and findings shall be reviewed at the first regularly scheduled meeting following the receipt of the report if the report is received at least 10 days before the meeting. The council shall take appropriate action, and the minutes shall document the review and action.
Common Findings – Mayor
1. Review of prior audit report by council not documented in minutes
2. No bids for disbursements > $20,000
3. Expenditures exceeding budget
4. Ethics issues
5. Salary overpayments/lack of approval
Other Findings – Mayor
• Barter for services
• Paid health insurance for a non-employee in lieu of an employee
• Water & Sewer did not have an audit or AUP report
• Violation of city leave policies (pay outs)
Suggestions for Mayors
• If unusual or creative, you may want to seek legal advice
• Review bank statements
Common Findings – Treasurer
1. Misstatements in financial records
2. Ethics issues
3. Lack of proper documentation of expenditures
4. Deficient fixed asset records
Common Findings – Treasurer
5. I/S findings
6. Receipts/Disbursements journals/listings issues
7. Restricted funds improperly used (Street or
sales tax)
8. Payments by EFT vs. prenumbered check w/out
LJAC approval
Common Findings – Treasurer
9. Reporting & remittance to IRS/DFA of payroll
and related taxes
10. Bank reconciliations not approved by employee
other than preparer.
11. Uncollateralized deposits
• Findings disclosing misappropriation of assets or ethics issues are sent to the local Prosecuting Attorney
Officials with repeat findings are requested to attend the LJAC County/Municipality subcommittee meeting to explain what steps are being taken to resolve the findings.
