For years, special purpose governmental entities in Kentucky operated with little to no oversight. In June 2012, the Auditor of Public Accounts undertook a study of the problem presented by those entities. On November 14, 2012, the Auditor issued the results of the study in “Ghost Government – A Report on Special Districts in Kentucky.” The study found Kentucky has over 1,200 special purpose governmental entities, and they collect in taxes and spend nearly $3B annually. The General Assembly enacted 2013 HB 1 (the “Bill”) to address the serious concerns relating to public accountability and transparency.

To effectuate its purpose, the Bill creates Chapter 65A of the Kentucky Revised Statutes and makes conforming changes to other statutes governing special governmental entities. Special governmental entities (“SGEs”) are those entities with less than statewide jurisdiction and meeting three requirements; exist to provide one or a limited number of services or functions; are governed by a board, council commission, committee, authority or corporation with policy-making authority separate from the state and governing body of the county or city in which it operates; and either has the independent authority to generate public funds or may receive and expend public funds, grants, awards or appropriations from the state, county, city or other SGE.

The bill governs the life of SGEs, provides for their dissolution and subjects SGEs to more oversight by the local governments that organized them. Officers, directors and board members of SGEs will be subject to the code of ethics adopted by the local government. Also, SGEs will be required to submit a report on any new or adjusted tax or fee to the most populous city or to the county in their service area.

The Bill mandates a central registry of SGEs be created and maintained by the Department of Local Governments. Each SGE must make an annual submission to the registry providing specified administrative and financial data. Information to be submitted includes the source of the SGE’s operating authority, boundaries, taxes and other levies collected and the most recent budget. Failure to submit the requisite information will result in the imposition of penalties. Each SGE will be required to prepare an annual financial statement, and SGEs with annual expenditures between $100,000 and $500,000 must undergo an audit every four years. SGEs with annual expenditures equal to or greater than $500,000 must undergo an annual audit. The annual financial statements and the results of the audits must be provided to the central registry.