Financial Condition – NC Finance Connect

Chapter 18: Financial Condition

Last Revised on February 18, 2026

18.0 Introduction

The public expects much of its elected officials in local government, who in many cases assume their positions facing a steep learning curve on a wide range of complex issues. A critical part of this learning curve involves financial management, where elected officials possess the ultimate responsibility for the fiscal matters of their organizations. (See G.S. 153A-101 for counties and G.S. 160A-67 for municipalities). To carry out this responsibility, the law requires an annual independent audit of each local government unit’s financial statements and requires that an auditor be selected by and report directly to the unit’s governing board. [G.S. 159-34(a)]. One goal of this process is for the locality to receive an “unmodified audit opinion,” meaning that its financial statements were prepared in conformity with generally accepted accounting principles (GAAP) and present, in all material respects, the financial position of the organization. Another goal is to analyze and interpret the financial statements to determine the financial condition of the local government.

Administrators play an extremely important role in helping elected officials manage the fiscal matters of local governments. They ensure that professional management practices are used to budget and account for the financial resources of the organization, to prepare monthly financial reports for elected officials to review budget-to-actual variances, and to ensure that annual financial statements are prepared in conformity with GAAP. Administrators also play an extremely important role in helping elected officials understand the financial condition of the respective local government. The purpose of this policy is to present administrators with an approach for analyzing, interpreting, and communicating financial condition to elected officials. It begins by defining financial condition—responding to the lack of agreement on this concept in our profession—before presenting the criteria that were identified for creating the approach to evaluating financial condition. It then describes how the approach relates to the financial-reporting model, the dimensions and the indicators that were selected to measure financial condition, the ability to communicate financial condition to elected officials through trend analysis and benchmarking, and additional indicators used by the Local Government Commission (LGC).

18.1 Defining Financial Condition

The definitions of “financial condition” in the professional literature are either specific in nature or broad in scope. Therefore, in search of middle ground, we turned to the work of Robert Berne and Richard Schramm to guide our approach for evaluating financial condition. [See THE FINANCIAL ANALYSIS OF GOVERNMENTS (1986)]. These scholars maintain that there are two basic reasons for the way resources are presented in financial statements: to report on the flow of resources during a given period and to report on the stock of resources at a given point. Operating statements report on the inflow and outflow of financial resources during the fiscal year. Balance sheets report on the stock of assets, liabilities, and net position or fund balances at the end of the fiscal year. We concluded that a logical definition of financial condition would align with resource flow and stock as reported in the annual financial statements.

Berne offers a definition that is closely related to the concept of resource flow and stock: the probability that a government will meet, currently and in the future, (1) its financial obligations to creditors, consumers, employees, taxpayers, suppliers, constituents, and others as they become due and (2) its service obligations to constituents. [See Robert Berne, Measuring and Reporting Financial Condition, in HANDBOOK OF PUBLIC ADMINISTRATION 332, 333–35 (James L. Perry, ed., 2nd ed. 1996)]. The probability that a local government can meet these obligations, as interpreted from financial statements, increases with adequate resource flow to meet current obligations and with adequate resource stock to meet obligations over time.

An implied but missing element of Berne’s definition is provision of capital assets. In response to this and other considerations, we offer the following definition of financial condition: a local government’s ability to meet its ongoing financial, service, and capital obligations based on the status of resource flow and stock as interpreted from its annual financial statements. Although a local government’s ability to meet its ongoing financial, service, and capital obligations is broad in scope, the specific focus of our definition is how a local government’s ability to meet them aligns with resource flow and stock as interpreted from the annual financial statements.

18.2 Criteria for Analyzing Financial Condition

Parallel to the situation with defining financial condition, our profession does not have an agreed-on approach for analyzing, interpreting, and communicating financial condition in local government. Again, the approaches that exist are either specific in nature or broad in scope. Because of the broad continuum of current methods for evaluating financial condition in local government, the approach contained in this policy is based on the following criteria: systematic, comprehensive, flexible, comparable, and manageable.

Designing a systematic approach to evaluating a local government unit’s financial condition was paramount, given the expanded financial-reporting model created by GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments. More specifically, the approach had to (1) systematically evaluate the financial condition of the organization as reported in government-wide statements and (2) systematically evaluate the financial condition of each major fund. The approach also had to be comprehensive, providing a thorough analysis of resource flow and stock at the government-wide and fund levels of the organization. The focus on resource flow and stock supported our definition of financial condition.

The criterion of flexibility acknowledged that administrators might want to augment this approach with additional financial indicators or even replace a financial indicator with another. Comparability was one of the primary reasons for the passage of GASB Statement No. 34. Calculating a financial indicator like the quick ratio at one point would provide only limited information. Calculating it over time for trend analysis and benchmarking it against other local governments would provide the necessary context for interpreting the results. The reality is that evaluating financial condition is relative, requiring comparative information for analyzing, interpreting, and communicating it to elected officials.

Evaluating financial condition also had to be manageable. Local governments of all sizes had to be able to implement this approach accurately from financial data taken from their annual financial statements—consistent with our definition of financial condition—and had to have the organizational resources to manage it over time. Another important aspect of this criterion was the ability to use our approach successfully to communicate financial condition to elected officials. Doing so would require a careful balance of financial indicators selected for the evaluation. If the approach relied on a limited number of financial indicators, then communicating a comprehensive analysis to elected officials would not be possible. If the approach relied on too many financial indicators, then communicating the analysis would be unwieldy.

18.3 Financial Reporting Model

Elected officials must have a basic understanding of three important aspects of the financial reporting model as shown in Figure 18.1 before they can be expected to use financial condition information effectively. First, financial statements in local government have two levels of reporting: the government-wide level and the fund level. Second, financial statements for government-wide activities and enterprise funds measure economic resources using the accrual basis of accounting, whereas financial statements for governmental funds measure financial resources using the modified accrual basis of accounting. Third, all North Carolina counties and municipalities are required to have a general fund, which is the main operating fund and one of several potential governmental funds. However, not all local governments have enterprise funds, which are used to account for the resource flow and stock of utilities (for example, water, wastewater, electricity, and natural gas).

Figure 18.1. Revised Financial-Reporting Model for Analysis of Financial Condition

Financial Statement Reporting Level	Activity Type (Resources Measured)
Government-Wide Level	Governmental Activities (Economic Resources)	Business-Type Activities (Economic Resources)
Fund Level	Governmental Funds (Financial Resources)	Enterprise Funds (Economic Resources)

Figure 18.1 does not contain fiduciary funds because the resources accounted for in pension trust, investment trust, private-purpose trust, and custodial funds are owned by parties other than the local government. Figure 18.1 also does not contain internal service funds, one of the two types of proprietary funds (the other type being enterprise funds), because they inherently create redundancy in financial reporting. To overcome this problem, the accumulated resources of these funds are disbursed back to either governmental activities or business-type activities at the end of the fiscal year based on which group of activities used them the most. The profits or losses of these funds are then divided between governmental activities and business-type activities based on actual use.

We acknowledge that local governments may want to use our approach to evaluate the financial condition of selected internal service funds on a case-by-case basis. Internal service funds that account for activities like fleet services may be appropriate for this form of analysis. An actuarial analysis may be more appropriate for internal service funds that account for activities like health benefits, given the known and unknown risks involved with them.

18.4 Evaluating Economic Resources

We selected four financial dimensions and four financial indicators for evaluating resource flow for government-wide activities and enterprise funds, as shown in Table 18.1. The first dimension, inter-period equity, addresses whether a government lived within its means during the fiscal year. The total margin ratio indicator is used to evaluate this dimension. It represents the total inflow of resources divided by the total outflow of resources for government-wide activities and for enterprise funds. A ratio of 1.0 or higher indicates that the government lived within its means for the respective activity or fund. For government-wide activities, resource inflow includes the net of transfers in and out between governmental activities and business-type activities. For the enterprise funds, transfers in from other funds are included as resource inflow and transfers out to other funds are included as resource outflow. These assumptions are consistent with the GAAP reporting format.

Whereas the total margin ratio analyzes the relationship between total resources available and total resources consumed, the financial indicator of percentage change in net position, used to evaluate our second financial dimension, financial performance, provides feedback on the extent to which a government’s net position improved or deteriorated because of resource flow. A positive percentage change indicates that the government’s financial position improved from the resource flow that occurred during the fiscal year. Periodic modest fluctuations are generally expected. Fluctuations that are significant in nature (in either direction) should be obvious and evaluated accordingly.

The financial dimension of self-sufficiency addresses the extent to which the government used service charges to cover total expenses. This dimension is especially important to business-type activities and to enterprise funds, for which the goal often is to cover total expenses on a charge-for-service basis. The charge-to-expense ratio indicator is used to analyze this dimension. A ratio of 1.0 or higher indicates that the activity or fund was self-sufficient. An argument could be made that this financial dimension is not applicable for governmental activities because governmental services with public-good characteristics are not designed to be self-supporting. However, elected officials and administrators often are interested in the mix between general taxation and user-fee revenue when preparing and adopting budgets for the forthcoming fiscal year. To this end, the financial indicator calculation does not include grants and contributions, which are an inherent part of program revenues in the government-wide financial statements.

Our final dimension for resource flow for government-wide activities and enterprise funds is financing obligation. This dimension is analyzed with the debt-service ratio indicator, which is calculated by dividing annual debt service of principal and interest payments by total expenses plus principal. Because of their measurement focus, both government-wide activities and enterprise funds do not report principal repayments on debt as an expense. To achieve a proper calculation of this debt-service ratio, the principal amounts must be included in both the numerator and the denominator. The purpose of this ratio is to provide feedback on service flexibility, which decreases as more resources are committed to annual debt service.

Table 18.1. Resource Flow for Governmental Activities and Enterprise Funds—Operating Statement (Economic Resources and Accrual Basis of Accounting)

Financial Dimension	Description	Financial Indicator	Governmental Activities		Enterprise Funds
Financial Dimension	Description	Financial Indicator	Calculation	Data Source	Calculation	Data Source
Inter-period Equity	Addresses whether or not a government lived within its financial means during the fiscal year .	Total margin ratio	Total resource inflow (program revenues plus total general revenues and net transfers) divided by total resource outflow (total expenses)	Statement of activities	Total resource inflow (operating and non-operating revenues plus transfers in) divided by total resource outflow (operating and non-operating expenses plus transfers out)	Statement of revenues, expenses, and changes in fund net position
Financial performance	Provides the magnitude of how a government’s financial position improved or deteriorated as a result of resource flow .	Percentage change in net position	Change in net position divided by net position, beginning	Statement of activities	Change in net position divided by net position, beginning	Statement of revenues, expenses, and changes in fund net position
Self-sufficiency	Addresses the extent to which service charge revenues covered total expenses .	Charge to expense ratio	Charges for services (fees, fines, and charges for services) divided by total expenses	Statement of activities	Charges for services divided by operating and non-operating expenses	Statement of revenues, expenses, and changes in fund net position
Financing obligation	Provides feedback on service flexibility with the amount of expenses committed to annual debt service .	Debt service ratio	Debt service (principal and interest payments on long-term debt) divided by total expenses plus principala	Statement of activities b	Debt service (principal and interest payments on long-term debt) divided by operating and nonoperating expenses plus principalc	Statement of revenues, expenses, and changes in fund net positiond

a . Principal is added to the denominator because it is not included in expenses .

b . Interest payments on long-term debt for governmental activities are located on the statement of activities . Principal payments on long- term debt for governmental activities are located in the notes of financial statements .

c . Principal is added to the denominator because it is not included in expenses .

d . Interest payments on long-term debt for enterprise funds are located on the statement of revenues, expenses, and changes in fund net position. Principal payments on long-term debt for enterprise funds are located on the statement of cash flows or in the notes of financial statements.

We selected four financial dimensions and four financial indicators for evaluating resource stock for government-wide activities and enterprise funds as shown in Table 18.2. An advantage of the stock indicators over the flow indicators is that they tend to be more recognizable in the profession because they are associated with the balance sheet, which more often is used to evaluate financial condition in the public and private sectors. In other words, balance sheets report on equity, or net position, at a given point.

Liquidity is the financial dimension used to analyze an organization’s ability to meet short-term obligations. It is calculated with the quick ratio indicator: cash and investments divided by current liabilities. A high ratio suggests that the government is more likely to meet its short-term obligations. Solvency, on the other hand, is the financial dimension used to analyze an organization’s ability to meet long-term obligations. It is calculated with the net position ratio indicator: unrestricted net position divided by total liabilities. As with the quick ratio, a high ratio suggests that the government is more likely to meet long-term obligations.

Some advocate using total assets as the denominator for the net position ratio calculation rather than total liabilities. We believe that standardizing unrestricted net position with total liabilities provides a stronger indication of an organization’s ability to meet long-term obligations. Furthermore, we believe that restricted net assets should not be a part of this equation because such assets are typically not directly related to an entity’s ability to meet current or long-term obligations.

Leverage is the financial dimension that addresses the extent to which total assets are financed with long-term debt. The financial indicator used to analyze this dimension is the debt-to-assets ratio: long-term debt divided by total assets. If a government becomes too reliant on debt financing to secure capital assets, it may compromise service flexibility as it commits more resource flow to annual debt-service obligations. An overreliance on debt also may have unfavorable implications for bond ratings.

This financial indicator may present challenges for North Carolina counties because school debt is included on their financial statements and the value of school infrastructure financed with that debt is not. One approach to getting around this problem is to use the flexibility criterion (see Section 18.2 above), eliminating or replacing the debt-to-assets ratio. The preferred approach is to calculate the indicator based on the data contained in the financial statements, footnoting the discrepancy for the reader. The reality is that counties are responsible for school debt but do not own the related infrastructure.

Capital, the final financial dimension of resource stock for government-wide activities and enterprise funds, is used to analyze the condition of capital assets as defined by their remaining useful life. The financial indicator to measure this dimension is the capital-assets-condition ratio. The data used for this calculation are in the capital assets section of the notes to financial statements. To calculate the indicator, accumulated depreciation is first divided by capital assets subject to depreciation. The resulting percentage is then subtracted from 1.0, which results in the remaining useful life of the total capital assets being depreciated. A high ratio suggests that a government is investing in its capital assets.

Table 18.2. Resource Stock for Governmental Activities and Enterprise Funds—Balance Sheet (Economic Resources and Accrual Basis of Accounting)

Financial Dimension	Description	Financial Indicator	Governmental Activities		Enterprise Funds
Financial Dimension	Description	Financial Indicator	Calculation	Data Source	Calculation	Data Source
Liquidity	Government’s ability to address short-term obligations	Quick ratio	Cash and investments divided by current liabilitiesa	Statement of net position	Cash and investments divided by current liabilities b	Statement of net position— proprietary funds
Solvency	Government’s ability to address long-term obligations	Net position ratio	Unrestricted net position divided by total liabilities c	Statement of net position	Unrestricted net position divided by total liabilities	Statement of net position— proprietary funds
Leverage	Extent to which total assets are financed with long-term debt	Debt to assets ratio	Long-term debt divided by total assets	Statement of net position	Long-term debt divided by total assets	Statement of net position— proprietary funds
Capital	Condition of capital assets as defined by remaining useful life	Capital assets condition ratio	1– .0 (accumulated depreciation divided by capital assets being depreciated)	Statement of net position or notes to financial statements	1– .0 (accumulated depreciation divided by capital assets being depreciated)	Statement of net position or notes to financial statements

a . Restricted cash is not part of cash and investments for this calculation . This ratio also excludes the current portion of compensated balances from current liabilities . Another potential exclusion is bond anticipation notes . The current portion of long-term debt is included .

b . Restricted cash is not part of cash and investments for this calculation . This ratio also excludes the current portion of compensated balances from current liabilities . Another potential exclusion is bond anticipation notes . The current portion of long-term debt is included . It should be noted that the Local Government Commission uses a different ratio for calculating the current ratio for enterprise funds— current assets (less inventory and prepaid expenses) are divided by current liabilities .

c . The value of unrestricted net position for governmental activities is often negative for North Carolina counties because the value of school assets financed with county debt is not included on the statement of net position . While the interpretation of the financial indicator remains the same, it should be footnoted for explanation .

18.5 Evaluating Financial Resources

We selected three financial dimensions and three financial indicators for evaluating resource flow for governmental funds as shown in Table 18.3. This evaluation applies primarily to the general fund. At times, a local government may want to analyze the financial condition of special revenue funds, debt service funds, capital project funds, or permanent funds. Our indicators may be used to evaluate the financial condition of these funds. However, we propose that they be captured as part of governmental activities unless a local government has a specific reason for disaggregating them. For example, a local government may have a major special revenue fund that it wants to disaggregate, given the amount of resources involved or the importance of services and activities being accounted for in the fund.

Table 18.3. Resource Flow for General Fund—Operating Statement (Financial Resources and Modified Accrual Basis of Accounting)

Financial Dimension	Description	Financial Indicator	Calculation	Data Source
Service obligation	Addresses whether a government’s annual revenues were sufficient to pay for annual operations .	Operations ratio	Total revenues divided by total expenditures (plus transfers to debt service fund and less proceeds from capital leases and installment purchases)		Statement of revenues, expenditures, and changes in fund balances
Dependency	Provides the extent to which a government relies on other governments for resources .	Intergovernmental ratio	Total intergovernmental revenue divided by total revenuea		Statement of revenues, expenditures, and changes in fund balances
Financing obligation	Provides feedback on service flexibility with the amount of expenditures committed to annual debt service .	Debt service ratio	Debt service (principal and interest payments on long- term debt, including transfers to the debt service fund) divided by total expenditures (plus transfers to debt service fund and less proceeds from capital leases and installment purchases)b		Statement of revenues, expenditures, and changes in fund balances

a . Intergovernmental revenue includes restricted and unrestricted .

b . Debt service may be part of expenditures, may be a transfer to the debt service fund, or may be both .

Service obligation is the first financial dimension for evaluating the resource flow for governmental funds. The operations ratio, representing total revenues divided by total expenditures, is used to analyze this dimension. The data for this calculation come directly from the statement of revenues, expenditures, and changes in fund balances, and a ratio of 1.0 or higher indicates that a government lived within its means.

Transfers out are not part of this calculation unless the transfer is to a debt-service fund. GAAP also require governmental funds to report the present value of the minimum payments on capital leases or installment purchases as an expenditure in the year of an agreement’s inception. If total expenditures do include this amount (as would be evidenced by another financing source of an equal amount), they should not be included for purposes of this calculation and should be subtracted from total expenditures.

The remaining two dimensions capture important aspects of revenues and expenditures. Dependency is used to determine the extent to which governments rely on other governments for resources, as measured by the intergovernmental ratio indicator: intergovernmental revenue divided by total revenue. Financing obligation is used to provide feedback on service flexibility by measuring, with the debt service ratio indicator, the amount of resources committed to annual debt obligations. If transfers to a debt-service fund have been made by the governmental fund, the transfer should be included in both the numerator and the denominator.

We selected three financial dimensions and three financial indicators for evaluating resource stock for governmental funds as shown in Table 18.4. The financial dimension of liquidity uses the quick ratio indicator, which follows the same philosophy and calculation as the liquidity dimension for government-wide activities and enterprise funds.

Table 18.4. Resource Stock for General Fund—Balance Sheet (Financial Resources and Modified Accrual Basis of Accounting)

Financial Dimension	Description	Financial Indicator	Calculation	Data Source
Liquidity	Government’s ability to address short-term obligations .	Quick ratio	Cash and investments divided by current liabilitiesa		Balance sheet
Solvency	Government’s ability to address long-term obligations .	Fund balance as a percentage of expenditures	Available fund balance divided by total expenditures (less proceeds from capital leases) plus transfers outb		Balance sheet
Leverage	Extent to which a government relies on tax-supported debt .	Debt as a percentage of assessed value	Tax-supported, long-term debt divided by assessed value c		Notes to financial statements d

a . Restricted cash is not part of cash and investments for this calculation .

b . G .S . 159-8 defines available fund balance for appropriation as the sum of cash and investments minus the sum of liabilities, encum- brances, and deferred revenues arising from cash receipts .

c . This calculation is the same calculation used by the Local Government Commission when issuing its annual report . Analysis of Debt of North Carolina Counties and Municipalities, where the sum of outstanding general obligation (GO) debt, authorized and unissued GO debt, and installment purchase debt is divided by the assessed property valuation as reported to the N .C . Department of Revenue (NCDOR) (this calculation excludes debt associated with enterprise funds) . This percentage is used as an approximation for the 8 percent of assessed valuation .

d . Tax-supported, long-term debt comes from notes to financial statements . Assessed value comes from NCDOR .

The financial dimension of solvency is evaluated with one of the most recognized financial indicators in local government: fund balance as a percentage of expenditures, as calculated with available fund balance, [see G.S. 159-8(a)], divided by total expenditures plus transfers out. Transfers out is included in the denominator because the Local Government Commission standardizes available fund balance for comparison purposes by dividing it by expenditures and transfers out less the present value of any capital leases or installment purchases entered into during the fiscal year. The calculation of fund balance as a percentage of expenditures presented in this policy follows the calculation of available fund balance as presented in G.S. 159-8; however, see Chapter 3: Fund Balance on the two ways to calculate available fund balance, which include the statutory approach and the GAAP approach.

The final financial dimension for evaluating resource stock for governmental funds is leverage, which is supported with the financial indicator of debt as a percentage of assessed value. The definition of “debt” is tax-supported, long-term debt, which is the amount prepared for a local government’s sworn statement of debt, (G.S. 159-55). The debt is standardized by dividing it by assessed value. State law prevents local governments from issuing debt that would result in net debt exceeding 8 percent of assessed value. [G.S. 159-55(c)]. This financial indicator also plays a major role with bond-rating agencies when they are conducting a general-obligation-rating assignment.

18.6 Leveraging Financial Context

The financial metrics that can assist local governments with the transition from financial position to financial condition must be presented in a financial context to be useful in interpreting results. In other words, one data point in time provides only minimal context when addressing fiscal strength or stress along a selected financial dimension. The first type of context is trend analysis, which requires calculating at least a five-year trend for each financial metric. Using this context, the consumer of the information can determine whether the metric is improving or deteriorating over time. Figure 18.2, for example, contains the debt service ratio for the general fund, showing that the local government is improving its service flexibility by decreasing the amount of resources dedicated to annual debt service as a percent of total expenditures.

Figure 18.2. Debt Service Ratio for the General Fund

The second type of context is benchmarking, which requires comparing the respective metric against an identified benchmark. There are various approaches to identify the most appropriate benchmark for each financial metric. Some metrics have a natural benchmark—1.0 or above, for example. Other metrics require a benchmark from an internal policy decision, the average from selected benchmark peers (other local governments), or a professional standard from an organization like the Government Finance Officers Association (GFOA). Therefore, the consumer of the information can compare the internal trend, improving or deteriorating, against a predetermined benchmark for additional financial context. Figure 18.2 shows that the debt service ratio remains above the selected benchmark of 10 percent, which is a recognized professional standard for comparative analysis. One possible policy decision that might result from the interpretation of this ratio would be to refrain from issuing additional debt until the debt service ratio is less than the selected benchmark.

18.7 LGC’s Additional Indicators

Returning to the criteria used to create our model for transitioning from financial position to financial condition in local government, the criterion of flexibility acknowledged that administrators might want to augment this approach with additional financial indicators or even replace a financial indicator with another. The LGC has responded to this criterion by revising one financial indicator presented herein and adding two additional financial indicators for analyzing the cash position of water & sewer funds, which is the second most common reason for being placed on the Unit Assistance List (UAL). The first reason is issues of internal control. (See Chapter 1: Introduction to the Local Government Budget and Fiscal Control Act has additional information on the UAL).

The LGC uses a different approach for calculating the quick ratio for enterprise funds by dividing unrestricted cash plus accounts receivables by the sum of accounts payable, accrued liabilities, and current portion of long-term debt. The major difference is that the LGC includes accounts receivables for calculating the numerator of the financial indicator. The LGC’s benchmark is equal to or greater than 1.0. The LGC then uses two additional financial indicators to analyze the cash position of water & sewer funds: operating net income and unrestricted cash ratio. The operating net income indicator is calculated by subtracting operating expenses (less depreciation plus principal and interest) from operating revenues. The LGC’s benchmark is greater than zero. The unrestricted cash ratio indicator is calculated by unrestricted cash divided by total expenses (less depreciation plus principal). The LGC’s benchmark is 16 percent or greater. See LOCAL GOVERNMENT COMMISSION, FPIC Sample Responses and Resources (detailing their quick ratio, operating net income, and unrestricted cash ration calculations and benchmarks).

18.8 Conclusion

Again, administrators may see the need to adjust this policy’s approach to analyzing the financial condition of their respective local governments. As stated earlier, there is no one professionally recognized approach for transitioning from financial position to financial condition in local government. However, the purpose of this policy is to give administrators a fundamental starting point for providing elected officials with criterial information on how a local government’s financial condition is changing over time. Based on interpreting the trends and benchmarks of financial indicators, policy decisions can be made during the annual budget process to strengthen the local government’s financial condition to meet its ongoing financial, service, and capital obligations based on the status of resource flow and stock as interpreted from its annual financial statements.

Table of Contents

18.0 Introduction
18.1 Defining Financial Condition
18.2 Criteria for Analyzing Financial Condition
18.3 Financial Reporting Model
- Figure 18.1. Revised Financial-Reporting Model for Analysis of Financial Condition
18.4 Evaluating Economic Resources
- Table 18.1. Resource Flow for Governmental Activities and Enterprise Funds—Operating Statement (Economic Resources and Accrual Basis of Accounting)
- Table 18.2. Resource Stock for Governmental Activities and Enterprise Funds—Balance Sheet (Economic Resources and Accrual Basis of Accounting)
18.5 Evaluating Financial Resources
- Table 18.3. Resource Flow for General Fund—Operating Statement (Financial Resources and Modified Accrual Basis of Accounting)
- Table 18.4. Resource Stock for General Fund—Balance Sheet (Financial Resources and Modified Accrual Basis of Accounting)
18.6 Leveraging Financial Context
- Figure 18.2. Debt Service Ratio for the General Fund
18.7 LGC’s Additional Indicators
18.8 Conclusion

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Publication Date: December 20, 2017 4:52 pm

Recent high-profile examples of alleged misappropriation and embezzlement of public funds, and other fraudulent activity, by local government officials across the state should prompt all local governments to examine their internal control systems. Internal controls are processes designed to safeguard the assets of the unit. Although the exact nature of internal controls will vary significantly from government to government, due to differences in size, resources, and organizational structure, all local government entities need to take steps to ensure the proper safeguard of public funds.

Legal and Business Reasons Why Downtown Development Programs Should Involve Secured Loans—Not Grants

Author: C. Tyler Mulligan

Publication Date: September 19, 2017 11:37 am

Dr. Blaine Beeper is a retired hospital administrator who was recently elected to council in the Town of Bushwood. Dr. Beeper thinks he has figured out how to jumpstart revitalization of Bushwood’s historic downtown. He proposes for the Town to offer annual cash grants to any owner who redevelops a commercial property within the downtown. Dr.

State and Local Government Financial Data Transparency Law

Author: Kara A. Millonzi

Publication Date: March 17, 2016 9:35 am

A provision in the state budget, Section 7.17 of S.L. 2015-241, set new transparency requirements related to certain financial data of state agencies, counties, municipalities, and local school administrative units. The law mandates full compliance by April 1, 2016. But what does it actually require?

New Law Modernizes Preaudit and Disbursement Processes

Author: Kara A. Millonzi

Publication Date: September 24, 2015 10:02 am

Effective October 1, 2015, local governments, public authorities, and school units are subject to new preaudit and disbursement processes (assuming the Governor does not veto H44).

Richmond County Board of Education v. Cowell: Clear Proceeds of Improper Equipment Offense Surcharge Belongs to Public Schools

Author: Kara A. Millonzi

Publication Date: September 17, 2015 5:36 pm

As part of the Justice Reinvestment Act of 2011, the legislature enacted G.S. 7A-304(a)(4b), which assesses a $50.00 surcharge on any individual convicted of an improper equipment offense. Improper equipment offenses are generally defined in G.S. Ch. 20, Art.

Transferring Money from an Enterprise Fund: Authority, Limitations, and Consequences

Author: Kara A. Millonzi

Publication Date: June 5, 2015 8:06 am

As local governments finalize their budgets, many governing boards are wrestling with difficult decisions over how to raise sufficient revenues to cover estimated expenses during the upcoming fiscal year. G.S. 159-8 requires a governing board to adopt a balanced budget ordinance, whereby estimated revenues plus appropriated fund balances equal appropriations.

Public School Funding Dispute Resolution Process Revisited

Author: Kara A. Millonzi

Publication Date: May 15, 2015 1:59 pm

In Union County Board of Education vs. Union County Board of Commissioners, ___ N.C. App. ___, No. COA14-633 (Apr.

Determining Local Board of Elections Director’s Salary

Author: Kara A. Millonzi

Publication Date: March 16, 2015 3:00 pm

A county’s board of commissioners is required to provide “reasonable and adequate funds necessary” to support the functions of the county board of elections, “including reasonable and just compensation of the director of elections.” G.S. 163-37.

Special Purpose Local Governments and Public Authorities

Author: Kara A. Millonzi

Publication Date: February 10, 2015 10:10 am

North Carolina is a non-home rule state, which means that its local government entities are created by, and derive all their authority from, the General Assembly. The General Assembly has created a relatively flat local government structure. Almost all governmental responsibilities have been vested in two general-purpose governments—counties and municipalities (cities, towns, villages).

Expending Funds After the End of the Fiscal Year

Author: Kara A. Millonzi

Publication Date: October 2, 2014 4:20 pm

It is May 2015 and several of Procrastination Village’s staff members are frantically ordering supplies and equipment to spend down remaining budget appropriations by the end of the 2014-15 fiscal year. As of May 1, the parks and recreation department has $1500 remaining in its budget for supplies. (The village board makes budget appropriations by function code within each department. The total appropriation for parks and recreation department supplies for the year was $10,000.) Department staff members place an order for t-shirts for upcoming soccer leagues totaling $1498.

Allocating Operating Monies Among Local School Unit Funds: Local Current Expense Fund vs. Fund 8

Author: Kara A. Millonzi

Publication Date: June 10, 2014 9:53 am

The majority of funding for North Carolina’s public schools comes from the State. Each county, however, is required to annually fund most capital expenses and at least some operating expenses of its local school administrative unit(s). Questions often arise as to whether, and how, a county can direct its appropriations to specific operating expenditures.

Disbursing Public Funds

Author: Kara A. Millonzi

Publication Date: May 23, 2014 1:35 pm

G.S. 159-28 is often referred to as the “preaudit statute,” but it actually prescribes two distinct legal processes—the preaudit process and the disbursement process. The statute envisions that most local government expenditures will be subject to both processes.

Budgeting Under “Tag & Tax Together”

Author: Christopher B. McLaughlin

Publication Date: February 27, 2014 11:35 am

It’s almost budget time again for local governments across North Carolina, and tax collectors need to be involved. Collectors have the responsibility of estimating the property tax collection rate for the current fiscal year (2013-2014), which is the maximum collection rate a local government may use when budgeting property tax revenues for the coming fiscal year (2014-2015). For more details, see this post.

When May NC Local Governments Pay an Economic Development Incentive?

Author: C. Tyler Mulligan

Publication Date: December 17, 2013 1:00 pm

News outlets regularly report about the latest company that was lured to North Carolina through the payment of a cash economic development incentive by a local government and the state.

Daily Deposit Requirement

Author: Kara A. Millonzi

Publication Date: January 14, 2013 10:47 am

It is summer camp registration time at Fun City’s parks and recreation department. Department staff members are processing hundreds of registrations each day. That also means that the department is receiving hundreds of dollars in daily cash, checks, and credit card payments. The parks and recreation department collects registration payments throughout the year, but the volume is exponentially greater during the two- to three-week period of summer camp registration.

Capital Reserve Funds Revisited

Author: Kara A. Millonzi

Publication Date: October 29, 2012 12:08 pm

In a recent post, I discussed two ways through which a local government may save money over time to fund capital projects. The first is through fund balance and the second is by establishing a capital reserve fund. I received several follow-up questions about capital reserve funds that may be of interest to local government officials, including the following:

Accountability Requirements for Certain Entities that Receive Appropriations from Local Governments

Author: Kara A. Millonzi

Publication Date: September 7, 2012 12:38 pm

As discussed in a previous post, local governments have broad authority to appropriate monies to private entities (including nonprofits, corporations, associations, and individuals). The monies, however, must be expended by the private entities only on projects, services, or activities that the local government could have supported directly.

Internal Controls: Who Is Authorized to Open a Bank Account and to Deposit and Disburse Public Funds?

Author: Kara A. Millonzi

Publication Date: July 26, 2012 4:17 pm

Sheriff Andy Taylor holds a fundraiser to raise money for, and promote awareness of, his office’s drug abuse resistance education (D.A.R.E.) program. The office raises approximately $5,000 in cash and checks from the fundraiser (selling Aunt Bee’s famous pies) and Sheriff Taylor promptly deposits these funds into a bank account that he has opened at the Bank of Mayberry. The bank account is in the name of the sheriff’s office, and the sheriff and his deputy, Barney Fife, are the only individuals authorized to deposit or withdraw funds from the account.

Local Government Authority to Loan Money

Author: Kara A. Millonzi

Publication Date: May 10, 2012 3:32 pm

It is quiz time again. Which of the following (if any) loan transactions are authorized under North Carolina general law? a. A group of citizens has formed a softball league. The local league plans to host a large softball tournament as a fundraiser to support its activities. It lacks the resources to front the costs of the tournament, though. The citizens approach the city council for a $5,000 loan. They intend to repay the city from proceeds generated by the tournament. b. A local ABC board wishes to make some capital improvements to one of its stores.

Finance Officer Fidelity Bonds: When Are Multiple Bonds Required?

Author: Kara A. Millonzi

Publication Date: January 12, 2012 12:52 pm

Prudence serves as a finance officer for a North Carolina county. As a condition of her initial (and continued) employment Prudence is required to obtain and maintain a “true accounting and faithful performance bond” with coverage of up to $50,000. (The county pays the annual premium on the bond.) Recently, the county agreed to handle the finances for the local tourism development authority (TDA). The TDA is a public authority that was created by resolution of the county’s governing board, as authorized by a local act of the General Assembly.

Amending a Newly Adopted Budget Ordinance Before July 1

Author: Kara A. Millonzi

Publication Date: June 13, 2011 9:32 pm

After a contentious and stressful budget season, Carolina County’s governing board adopts its annual budget ordinance on June 13, 2011. The budget reflects tough decisions by the board about how to allocate limited resources among competing priorities.

Altering Local Elected Officials’ Compensation During the Fiscal Year

Author: Kara A. Millonzi

Publication Date: December 9, 2010 10:19 am

Newly elected (or re-elected) local officials were sworn-in all over the state on Monday night. As the newly constituted boards settle in and prepare to govern, questions typically arise about the extent to which a board may alter its unit’s budget to reflect new priorities and policies (and, perhaps, new economic realities).

Levying the Property Tax: Earmarking Tax Revenue for Specific Purposes

Author: Kara A. Millonzi

Publication Date: January 21, 2010 10:38 pm

UPDATE August 2013: Note that if a local unit’s governing board adopts multiple tax rates to support its general fund activities, the board is not legally bound by those designations.

A Look at North Carolina’s Constitutional Public Purpose Requirement

Author: Kara A. Millonzi

Publication Date: January 7, 2010 11:28 am

In a post describing the recently enacted legislation that (potentially) authorizes North Carolina local governments to establish revolving loan funds or impose special assessments in order to finance energy efficiency improvements and distributed generation renewable energy sources permanently affixed to private property, I indicated that one (of many) complicating factors is determining whether or not such “energy financing” programs satisfy the public purpose clause of the North Carolina Constitution.

Local Governments, Public Authorities, and the Red Flags Rule: Does it Apply?

Author: Kara A. Millonzi

Publication Date: October 12, 2009 10:46 am

UPDATE August 2013: For more recent information on this topic click here. Jill Moore recently blogged about the applicability of the federal Red Flag Rules to local health departments and the appropriate responses by those departments to prevent or mitigate identity theft.

Amending the Budget Ordinance—

Author: Kara A. Millonzi

Publication Date: August 3, 2009 9:47 am

Anxieties are running high among many local government officials as they await the adoption of the State’s budget to learn the fate of local revenue sources.

American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Fund: Reimbursements

Author: Kara A. Millonzi

Publication Date: June 30, 2023 8:31 am

As detailed in previous posts, North Carolina counties and municipalities received funding from the American Rescue Plan Act of 2021 Coronavirus State and Local Fiscal Recovery Fund (ARP/CSLFRF). This federal grant funding has afforded local governments opportunities to make transformational investments in their communities.

American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Fund: Preparing for the Audit

Author: Kara A. Millonzi

Publication Date: June 21, 2023 12:30 pm

As detailed in previous posts, all NC counties and municipalities received federal grant funding from the American Rescue Plan Act of 2021 Coronavirus State and Local Fiscal Recover Fund (ARP/CSLFRF). There are detailed expenditure guidelines, and compliance and reporting requirements for these grant funds. A local government’s auditor plays an important role in monitoring compliance with these requirements and flagging any issues during the annual audit process.

American Rescue Plan Act of 2021: New (Fewer) Compliance Requirements for Revenue Replacement Expenditures

Author: Kara A. Millonzi

Publication Date: September 1, 2022 5:38 pm

As detailed in previous posts, the American Rescue Plan Act of 2021 Coronavirus State and Local Fiscal Recovery Funds (ARP/CSLFRF) allows local governments to spend their allocations on eligible projects within four major expenditure groupings:

Using American Rescue Plan Coronavirus State and Local Fiscal Recovery Funds to Contract with Other Governments, Nonprofits, or Other Private Entities: Subawards

Author: Kara A. Millonzi

Publication Date: July 26, 2022 5:43 pm

As detailed in previous posts, NC local governments are receiving significant funding from the federal American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Funds program (ARP/CSLFRF). The availability of these funds presents many opportunities but also poses challenges for local governments navigating the myriad compliance requirements.

American Rescue Plan Act of 2021: Spending Revenue Replacement Funds on Salaries and Benefits

Author: Kara A. Millonzi

Publication Date: June 3, 2022 11:53 am

UPDATED August 2022: On July 27, 2022, US Treasury amended its Final Rule FAQs to exempt expenditures in the Revenue Replacement category from some Uniform Guidance provisions. Those changes are reflected in the updated post below.

American Rescue Plan Act of 2021: Reporting “Program Income” (Including Sample Policy)

Author: Rebecca Badgett

Publication Date: March 2, 2022 1:20 pm

Update: We finally have sample UG policies and other implementation tools ready to share. Kara Millonzi’s blog post contains links to, and brief explanations of, the different policies and tools. We may update these policies or draft additional guidance as Treasury releases new information.

Expending ARP/CSLFRF Funds for Local Government Employee Salary, Benefit, and Other Payroll Costs OUTSIDE of Revenue Replacement (For Local Governments with OVER $10 Million Allocation Only)

Author: Kara A. Millonzi

Publication Date: February 22, 2023 8:32 am

The American Rescue Plan Act of 2021 Coronavirus State and Local Fiscal Recovery Fund (ARP/CSLFRF) program provides significant funding to all North Carolina counties and municipalities. As detailed in previous posts, this federal grant program groups allowable expenditures of these funds in four main categories:

American Rescue Plan Act of 2021 (ARP): State Law Authority To Expend ARP Funds

Author: Kara A. Millonzi

Publication Date: June 19, 2021 12:58 pm

Update: On January 6, 2022, the U.S. Department of the Treasury issued the Final Rule, which governs the eligible uses of Coronavirus State and Local Fiscal Recovery Funds (“SLFRF”) under the American Rescue Plan Act (“ARPA”). The Final Rule makes several key changes to the Interim Final Rule, including expanding the eligible uses of CSLFRF and easing the administrative burden for some program requirements.

2023 Updates to System Development Fee Law

Author: Kara A. Millonzi

Publication Date: October 25, 2023 2:10 pm

As discussed in previous posts, the system development fee (SDF) law, G.S. Ch. 162A, Art. 8, allows a local government utility provider to assess certain costs of developing and maintaining its water and/or wastewater systems on new development that benefits from those systems.

American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Fund: Preparing for the April 30, 2023 Project & Expenditure Report

Author: Kara A. Millonzi

Publication Date: April 11, 2023 4:04 pm

As discussed in previous posts, all NC counties and municipalities received funding from the American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Fund (ARP/CSLFRF). These are federal grant funds that come with eligibility restrictions, compliance requirements, and reporting obligations. The primary reporting vehicle is the Project & Expenditure Report.

Raising the Federal Micro-Purchase Threshold: Self-Certification for Units of Local Government in North Carolina

Author: Connor Crews

Publication Date: April 23, 2021 10:30 am

Procuring Single Audit Services under the Uniform Guidance (2 C.F.R. Part 200)

Author: Rebecca Badgett

Publication Date: January 12, 2022 2:40 pm

With the passage of the American Rescue Plan Act of 2021 (“ARPA”), almost all cities and counties in North Carolina received distributions of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) from the U.S. Department of the Treasury (“Treasury”) to assist with pandemic recovery efforts.

Design-Build Contracting in North Carolina Using Coronavirus State and Local Fiscal Recovery Funds

Author: Connor Crews

Publication Date: April 14, 2022 12:06 pm

The U.S.

Internal Control in Financial Management: Understanding the Basics

Author: Rebecca Badgett

Publication Date: November 1, 2023 3:58 pm

Headline: City finance employee embezzles public money. While the facts may differ, the story underlying this all-too-common headline is usually one in which a trusted employee slowly pockets money by writing checks or electronically transferring funds to a personal bank account until the fraud is eventually uncovered. How did this happen? Citizens want to know. They look to the governing board for answers—we elected you and entrusted you to protect us.

Amending the Budget Ordinance—

Author: Kara A. Millonzi

Publication Date: August 3, 2009 9:47 am

Anxieties are running high among many local government officials as they await the adoption of the State’s budget to learn the fate of local revenue sources.

Local Governments, Public Authorities, and the Red Flags Rule: Does it Apply?

Author: Kara A. Millonzi

Publication Date: October 12, 2009 10:46 am

A Look at North Carolina’s Constitutional Public Purpose Requirement

Author: Kara A. Millonzi

Publication Date: January 7, 2010 11:28 am

Levying the Property Tax: Earmarking Tax Revenue for Specific Purposes

Author: Kara A. Millonzi

Publication Date: January 21, 2010 10:38 pm

UPDATE August 2013: Note that if a local unit’s governing board adopts multiple tax rates to support its general fund activities, the board is not legally bound by those designations.

Altering Local Elected Officials’ Compensation During the Fiscal Year

Author: Kara A. Millonzi

Publication Date: December 9, 2010 10:19 am

Amending a Newly Adopted Budget Ordinance Before July 1

Author: Kara A. Millonzi

Publication Date: June 13, 2011 9:32 pm

Finance Officer Fidelity Bonds: When Are Multiple Bonds Required?

Author: Kara A. Millonzi

Publication Date: January 12, 2012 12:52 pm

Local Government Authority to Loan Money

Author: Kara A. Millonzi

Publication Date: May 10, 2012 3:32 pm

FAQs on Adopting the Budget Ordinance

Author: Kara A. Millonzi

Publication Date: June 14, 2012 11:47 am

Internal Controls: Who Is Authorized to Open a Bank Account and to Deposit and Disburse Public Funds?

Author: Kara A. Millonzi

Publication Date: July 26, 2012 4:17 pm

Accountability Requirements for Certain Entities that Receive Appropriations from Local Governments

Author: Kara A. Millonzi

Publication Date: September 7, 2012 12:38 pm

Capital Reserve Funds Revisited

Author: Kara A. Millonzi

Publication Date: October 29, 2012 12:08 pm

Daily Deposit Requirement

Author: Kara A. Millonzi

Publication Date: January 14, 2013 10:47 am

When May NC Local Governments Pay an Economic Development Incentive?

Author: C. Tyler Mulligan

Publication Date: December 17, 2013 1:00 pm

News outlets regularly report about the latest company that was lured to North Carolina through the payment of a cash economic development incentive by a local government and the state.

Budgeting Under “Tag & Tax Together”

Author: Christopher B. McLaughlin

Publication Date: February 27, 2014 11:35 am

Allocating Operating Monies Among Local School Unit Funds: Local Current Expense Fund vs. Fund 8

Author: Kara A. Millonzi

Publication Date: June 10, 2014 9:53 am

Disbursing Public Funds

Author: Kara A. Millonzi

Publication Date: May 23, 2014 1:35 pm

Expending Funds After the End of the Fiscal Year

Author: Kara A. Millonzi

Publication Date: October 2, 2014 4:20 pm

Special Purpose Local Governments and Public Authorities

Author: Kara A. Millonzi

Publication Date: February 10, 2015 10:10 am

Determining Local Board of Elections Director’s Salary

Author: Kara A. Millonzi

Publication Date: March 16, 2015 3:00 pm

Notices and Public Participation in the Budgeting Process

Author: Kara A. Millonzi

Publication Date: May 18, 2015 1:21 pm

Transferring Money from an Enterprise Fund: Authority, Limitations, and Consequences

Author: Kara A. Millonzi

Publication Date: June 5, 2015 8:06 am

Public School Funding Dispute Resolution Process Revisited

Author: Kara A. Millonzi

Publication Date: May 15, 2015 1:59 pm

In Union County Board of Education vs. Union County Board of Commissioners, ___ N.C. App. ___, No. COA14-633 (Apr.

Richmond County Board of Education v. Cowell: Clear Proceeds of Improper Equipment Offense Surcharge Belongs to Public Schools

Author: Kara A. Millonzi

Publication Date: September 17, 2015 5:36 pm

New Law Modernizes Preaudit and Disbursement Processes

Author: Kara A. Millonzi

Publication Date: September 24, 2015 10:02 am

Effective October 1, 2015, local governments, public authorities, and school units are subject to new preaudit and disbursement processes (assuming the Governor does not veto H44).

State and Local Government Financial Data Transparency Law

Author: Kara A. Millonzi

Publication Date: March 17, 2016 9:35 am

Statutory Internal Controls

Author: Kara A. Millonzi

Publication Date: December 20, 2017 4:52 pm

Legal and Business Reasons Why Downtown Development Programs Should Involve Secured Loans—Not Grants

Author: C. Tyler Mulligan

Publication Date: September 19, 2017 11:37 am

North Carolina Municipalities Authorized to Fund Schools

Author: Kara A. Millonzi

Publication Date: June 26, 2018 12:59 pm

How Interim Budgets Might Impact Tax Collections

Author: Christopher B. McLaughlin

Publication Date: May 14, 2020 11:29 am

Revenue-Neutral Rate Calculations for Multi-County Municipalities

Author: Christopher B. McLaughlin

Publication Date: April 1, 2021 11:27 am

Time for a North Carolina geography quiz! In which counties are these cities located: Chapel Hill, Durham, and Raleigh?

Budgeting for American Rescue Plan Act Funds

Author: Kara A. Millonzi

Publication Date: June 16, 2021 2:32 pm

As detailed here and here, the federal American Rescue Plan Act (ARP) provides si

Raising the Federal Micro-Purchase Threshold: Self-Certification for Units of Local Government in North Carolina

Author: Connor Crews

Publication Date: April 23, 2021 10:30 am

On August 13, 2020, the Office of Management and Budget (“OMB”) published revisions to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 C.F.R. Part 200) (the “Uniform Guidance”). Among other things, the revisions to the Uniform Guidance allow some non-Federal entities to raise, via annual self-certification, the generally applicable micro-purchase threshold of $10,000 to a “higher threshold consistent with State law.”

American Rescue Plan Act: Aid for Small Businesses and Nonprofits with ARP/CLFRF

Author: C. Tyler Mulligan

Publication Date: October 4, 2021 9:57 am

Local Government Support for Privately Owned Affordable Housing

Author: C. Tyler Mulligan

Publication Date: May 16, 2022 3:51 pm

Design-Build Contracting in North Carolina Using Coronavirus State and Local Fiscal Recovery Funds

Author: Connor Crews

Publication Date: April 14, 2022 12:06 pm

The U.S. Department of the Treasury has stated in its Interim Final Rule and Final Rule applicable to Coronavirus State and Local Fiscal Recovery Funds (“Fiscal Recovery Funds”) that, with few exceptions, the procurement standards contained in the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 C.F.R. Part 200) (the “Uniform Guidance” or “UG”) apply when a recipient or subrecipient of Fiscal Recovery Funds uses these monies to purchase goods or services. These procurement standards require a unit of local government receiving Fiscal Recovery Funds to abide by procurement procedures that are consistent with state law, locally adopted rules, and 2...

Impending Changes to Bonding Requirements for Finance Officers: Prepare Now For January 1, 2023 and Beyond

Author: Connor Crews

Publication Date: November 23, 2022 8:00 am

Local Government Budgeting for Specific Expenditures, Projects, or Contracts

Author: Kara A. Millonzi

Publication Date: May 26, 2023 3:11 pm

The Burial Property Exemption

Author: Christopher B. McLaughlin

Publication Date: August 8, 2024 10:00 am

As a child of the 80’s, questions about the Machinery Act’s treatment of burial grounds immediately bring to mind the classic horror movie Poltergeist. (TL;DR for younger readers: don’t buy a house built on an old cemetery.) I don’t have any great ideas about how to deal with malevolent ghosts. But I do have thoughts on how to apply the revised exemption for private burial property that took effect starting with the 2022 tax year.

Local Government Budgeting Options when Revenue Streams are Uncertain

Author: Kara Millonzi

Publication Date: June 15, 2013 12:00 am

Each local government and public authority is required to adopt an annual budget ordinance that recognizes estimated revenues, authorizes expenditures, and levies tax(es) for the forthcoming fiscal year. The Local Government Budget and Fiscal Control Act (LGBFCA), G.S. Ch. 159, Art. 3, requires, among other things, that the budget ordinance be balanced. A budget ordinance is balanced when “the sum of estimated net revenues and appropriated fund balances is equal to appropriations.” The law requires an exact balances; it permits neither a deficit nor a surplus. And G.S. 159-13 mandates that estimated revenues include “only those revenues reasonably expected to be realized in...

County Commissioners’ Control Over Local Board of Elections’ Employees

Author: Kara Millonzi

Publication Date: July 21, 2011 12:00 am

A county’s board of commissioners (BOC) has the power and responsibility to “develop() and direct() the fiscal policy of the county government.” G.S. 153A-101. The board adopts the annual county budget ordinance, as well as capital project ordinances, and has much discretion in allocating funds among the various county government activities. There are some limits to this authority, though. This is because county governments are highly decentralized. Although a BOC serves as a county’s general governing body, it shares authority over many governmental functions with other elected county officials and other semi-autonomous boards and agencies. This shared authority gives rise to tensions,...

County Tax Collection Obligations for Motor Vehicles Under the “Tag & Tax Together” Program

Author: Chris McLaughlin

Publication Date: August 19, 2013 12:00 am

On September 1, the state’s Tag & Tax Together program formally launches statewide. All N.C. vehicle owners will be required to pay property taxes owed on their vehicles at the same time they register those vehicles each year with the Division of Motor Vehicles. The joint payment system actually went live in July, meaning vehicle owners with September renewals can already pay their taxes and registration fees simultaneously via the DMV website.

Financing Capital Projects—Part I: “Saving” through Fund Balance and Capital Reserve Funds

Author: Kara Millonzi

Publication Date: October 7, 2012 12:00 am

UPDATE August 2013: For more information on capital reserve funds, click here. Blight City has fallen on hard times. Its population has declined significantly since the 1990s, due in large part to the shuttering of two large manufacturing plants. Emblematic of the city’s decline is its central downtown area. Once a vibrant community center, it is now comprised mainly of run-down, vacant buildings. Recently, however, a mid-sized micro-brewed root beer company purchased one of the old manufacturing plants (located just outside the city’s downtown) and began operations. It employs 200 people and plans to double its workforce over the next two...

S.L. 2020-3 (SB 704) Makes (Limited) Changes to Budget Process

Author: Kara Millonzi

Publication Date: May 7, 2020 12:00 am

In response to COVID-19, the legislature adopted two comprehensive bills that touch on a variety of areas, including a few local government finance-related issues. One of those issues is the annual budget ordinance adoption process. This post explains the normal process and details the recent (limited) legislative changes.

The N.C. Constitution’s Uniformity Clause

Author: Chris McLaughlin

Publication Date: June 9, 2011 12:00 am

Given the dire economic news of late, it’s no surprise that the General Assembly and local governments are trying to get creative with local property taxes. Consider the suggestion from one county to levy a more progressive property tax, with one rate for real property valued less than $1,000,000 and a much higher rate for more valuable properties. How about a property tax exclusion available only in larger counties that might more easily absorb the reduction in tax revenues?

If We Can’t Collect a Fee, Can We Just Say No? Use of Impact Fees and Adequate Public Facility Regulatory Requirements

Author: David Owens

Publication Date: October 12, 2010 12:00 am

UPDATE September 2013: The North Carolina supreme court subsequently ruled that counties do not have statutory authority to impose school impact fees. That 2012 case is discussed here. The population of Partition County has grown dramatically over the past several decades. The county has struggled to keep up with provision of public facilities to serve this growth. While the rate of growth has slowed in the past few years, the schools are still substantially overcrowded in the northern half of the county, where most of the growth has occurred. The schools there have modular temporary classrooms on site and most of these...

Should North Carolina Bet Big on Sports Gambling?

Author: Chris McLaughlin

Publication Date: November 11, 2021 12:00 am

[UPDATES: June 2023: H347 is signed into law by Governor Cooper, authorizing on-line sports gambling to begin within 1 year and levying an 18% tax on gambling revenue. March 2023: a sports gambling bill was filed in the NC House that would charge license fees of $1 million every five years and a 14% tax on gambling revenues. June 2022: A bill to legalize on-line sports gambling in North Carolina failed by a single vote. Sponsors of the bill promise to revisit the issue in the General Assembly’s next session.] Just three years ago, sports betting was legal in just three states. Today you...

Subdivision Performance Guarantees

Author: Adam Lovelady

Publication Date: February 7, 2014 12:00 am

So the county granted initial approval for a large residential subdivision. Now, after completing some (but not all) of the roads and infrastructure, the developer wants final plat approval so she can close on the first round of lot sales. This may be practical—the cash flow from early lots may support the subsequent infrastructure—but it relies upon a developer’s promise to follow through with adequate remaining improvements. What if the improvements are not built to standard? What if the economy tumbles and the developer goes bankrupt? What becomes of those expensive infrastructure needs?

A New Interpretation of the Preaudit Requirement

Author: Kara Millonzi

Publication Date: November 8, 2012 12:00 am

UPDATE August 2013: The Court of Appeals reaffirmed this new interpretation in May 2013. Click here for more details. In July 2008, the Jones County Department of Social Services (JCDSS) entered into an oral services contract with a medical transportation services company. The contract was for one year. It was renewed annually in July of 2009, 2010, and 2011. JCDSS terminated the contract in November 2011. The company sued for breach of contract. JCDSS subsequently filed motions to dismiss the case, arguing that no valid contract existed. The trial court denied the motions. On appeal, however, the North Carolina Court of Appeals reversed the...

Court of Appeals Reaffirms New Interpretation of Pre-audit Requirement

Author: Kara Millonzi

Publication Date: May 23, 2013 12:00 am

In Executive Medical Transportation, Inc. v Jones County Department of Social Services, 735 S.E.2d 352 (NC Ct. App. 2012), disc. rev. den’d, 737 S.E.2d 378 (N.C. 2013), the North Carolina Court of Appeals held that an oral agreement between a medical transport company and the county was void because the agreement did not include a written preaudit certificate. As I discussed here, the court interpreted G.S. 159-28(a) (commonly referred to as the preaudit requirement) to require that all contractual agreements that obligate a local government or public authority to pay money within the current fiscal year include a preaudit certificate. This holding effectively requires that...

New Law Modernizes Preaudit and Disbursement Processes–Part II

Author: Kara Millonzi

Publication Date: September 24, 2015 12:00 am

Effective October 1, 2015, local governments, public authorities, and school units are subject to new preaudit and disbursement processes. In S.L. 2015-246, the legislature modified G.S. 159-28 (applicable to local governments and public authorities) and G.S. 115C-441 (applicable to school units) to address common issues faced by local units in implementing the preaudit and disbursement requirements, particularly with respect to electronic transactions. (The changes do not apply to ABC Boards, which will continue to be subject to the existing preaudit and disbursement requirements under G.S. 18B-702.) This post summarizes the changes to the disbursement process. Click here for a discussion of the new preaudit provisions.

New Law Modernizes the Preaudit and Disbursement Processes — Part I

Author: Kara Millonzi

Publication Date: June 25, 2015 12:00 am

In recent years local governments and public authorities (collectively, local units) have struggled to comply with the statutory preaudit (G.S. 159-28(a)) and disbursement (G.S. 159-28(b) & (d)) processes, in particular when making web-based purchases, or when using credit cards, purchase cards, and fuel cards. In 2013 the North Carolina Court of Appeals made compliance even more difficult when it interpreted the provisions of G.S. 159-28(a) to require that all obligations subject to preaudit be in writing. See Howard v. County of Durham, 748 S.E.2d 1 (NC Ct. App. 2013), disc. rev. den’d, 367 N.C. 238 (N.C. 2013); Executive Medical Transportation, Inc. v Jones County Department...

The Perils of Preauditing P-Cards (and Other Electronic Payment Methods)

Author: Kara Millonzi

Publication Date: October 11, 2013 12:00 am

A county ambulance crew member calls Fiona, the county finance officer, at 9pm on Sunday night. The crew just responded to their third call of the night and he needs to refuel the ambulance. Fiona grabs a copy of the county’s budget ordinance and a printout of current expenditures and encumbrances and rushes out the door to meet the ambulance crew at a gas station several miles from her home. When Fiona arrives the crew member gives her an estimate of the amount of gas needed. Fiona notes the current per-gallon price and calculates the total cost to be $72.65. She quickly...

Five Criteria to Consider When Thinking About Taxes

Author: Whitney Afonso

Publication Date: April 17, 2023 12:00 am

Taxes are a necessary aspect of any modern society, as they provide the government with the resources needed to provide public goods and services such as infrastructure, healthcare, education, and security. However, not all taxes are created equal, and policymakers must take into account various criteria when designing and implementing tax policies. In this blog post, we will discuss five tax criteria: economic efficiency, equity, adequacy, feasibility, and transparency.

So, Your Jurisdiction is Thinking of Starting a Revenue Manual…

Author: Whitney Afonso

Publication Date: October 12, 2021 12:00 am

Consulting and updating your revenue manual is the first step of the administrative process for revenue forecasting. At least, that is what I say when I teach revenue forecasting. Of course, when I then turn to the course participants and ask how many of them have revenue manuals in their jurisdiction only one or two raise their hands. In fact, there are some years when no one raises their hand.

Mirror, Mirror on the wall, How much revenue will we generate this fall?

Author: Whitney Afonso

Publication Date: February 27, 2017 12:00 am

Yup, you guessed it, today’s blog post is on revenue forecasting! My current blog series is about some of the non-legal finance issues that are out there and revenue forecasting, while required by law, is a really important one! There are many people that are involved with revenue forecasting in local governments. While many outside of government may just assume that there is some accountant or budget wonk sitting in a back room who is somehow magically able (or has some very scientific formula) to predict how much money is going to be coming in next year, we know better.

The Bank Reconciliation: A Key Internal Control in Financial Management

Author: Rebecca Badgett

Publication Date: April 8, 2024 12:00 am

What if I said there’s a process that, when regularly performed, provides the following benefits: (1) increased accuracy in financial reporting, (2) early fraud detection, and (3) less time spent preparing for the annual financial audit—would you believe me? It probably sounds too good to be true. But, luckily, it’s not. Such a process exists—it is the bank reconciliation process.

2018 System Development Fee Law Changes

Author: Kara A. Millonzi

Publication Date: June 26, 2018 1:08 pm

In the 2017 legislative session, the General Assembly specifically authorized all local government utility providers to charge upfront fees for water and wastewater services. The legislation, however, limited the types of upfront charges that could be assessed on new development within the unit’s territorial boundaries. A prior post summarized the new law and detailed the new procedural requirements for adopting upfront water or wastewater charges. This post details changes the legislature made to the law during the 2018 legislative session.

Potential Changes to North Carolina’s Property Tax Relief Programs

Author: Christopher B. McLaughlin

Publication Date: March 26, 2025 3:14 pm

Every year bills are filed with the North Carolina General Assembly to expand the reach of our state’s three residential property tax relief programs, the elderly/disabled homestead exclusion (GS 105-277.1), the circuit breaker exclusion (GS 105-277.1B), and the disabled veteran’s … Read more

Executive Order 14173 Imposes New Contract Clauses and Certification Requirements for Local Governments

Author: Crista Cuccaro

Publication Date: February 21, 2025 4:13 pm

Note: Updates regarding ongoing litigation are included at the bottom of this blog post. Overview On January 21, 2025, President Trump issued Executive Order 14173, entitled Ending Illegal Discrimination and Restoring Merit-Based Opportunity (the “EO”). The EO states that practices … Read more

Allocating Property Taxes For Residential Sales

Author: Chris McLaughlin

Publication Date: February 17, 2025 12:00 am

Collecting Other Taxes & Fees

Author: Chris McLaughlin

Publication Date: November 20, 2024 12:00 am

System Development Fees: (An Imperfect) Tool for Growth Management

Author: Kara A. Millonzi

Publication Date: April 22, 2025 4:47 pm

Updated May 21, 2025 to reflect recent NC Court of Appeals decision in Adams Homes AEC, LLC v. Stanly County, COA24-924 (May 21, 2025). Water and wastewater services play a vital role in helping communities grow and thrive. When these … Read more

Budgeting for Sales and Use Tax Payments by Local Governments and Refunds to Local Governments

Author: Kara A. Millonzi

Publication Date: May 12, 2025 2:37 pm

North Carolina law authorizes an annual refund of state and local sales and use taxes paid by counties, municipalities, and certain other governmental entities on their direct purchases of tangible personal property and services. See G.S. 105-164.14; G.S. 105-467(b). Taxes paid by contractors on … Read more

Changes to the Law Enforcement Separation Allowance: What Finance and Budget Officers Need to Know

Author: Kara A. Millonzi

Publication Date: June 16, 2025 7:28 pm

Effective July 1, 2025, Session Law 2025-8 (HB 50) amends G.S. 143-166.42, which governs the Law Enforcement Special Separation Allowance (LESSA) for local law enforcement officers. While the core structure of the LESSA remains unchanged, the new law introduces an alternative benefit … Read more

State Now Covers Water and Sewer Relocation Costs for More Municipal Utilities

Author: Kara A. Millonzi

Publication Date: July 9, 2025 7:37 am

When a state transportation project requires the relocation of water or sewer lines, the cost of moving that infrastructure often falls on the local government that owns it. These expenses, known as nonbetterment costs, can be significant, especially for smaller … Read more

Budgeting for Disaster Recovery Cashflow Loans

Author: Kara A. Millonzi

Publication Date: April 10, 2025 1:06 pm

Many thanks to Greg Allison, Sharon Edmundson, and Lee Carter for their invaluable input on this post. In the aftermath of a disaster, local governments often struggle with the financial burden of paying for the recovery and continuing normal operations. … Read more

Emergency Home Repair Loans: Local Government as Financial Bridge

Author: C. Tyler Mulligan

Publication Date: November 26, 2024 3:11 pm

While the response to Hurricane Helene continues, local governments are looking ahead to the long road to recovery. In a report issued by the North Carolina Office of State Budget and Management (OSBM), Hurricane Helene Recovery Recommendations: Preliminary Damage and … Read more

Considering Veteran-Owned Businesses for Federally Funded Contracts

Author: Crista Cuccaro

Publication Date: November 11, 2024 1:55 pm

As part of the 2024 revisions to the Uniform Guidance, the Office of Management and Budget (OMB) expanded the list of targeted businesses for socioeconomic contracting consideration to include veteran-owned businesses. The revised language of 2 C.F.R.

Performing a Cost or Price Analysis under the Uniform Guidance

Author:

Publication Date: October 24, 2024 12:25 pm

Local Funding for Charter Schools (Including New County Funding Authority for Charter School Capital)

Author: Kara A. Millonzi

Publication Date: April 10, 2024 4:23 pm

2023 marked 27 years since the inception of charter schools in North Carolina. And it brought some big changes to charter school governance, growth, and funding. See S.L. 2023-107; S.L. 2023-110. Among these changes was the grant of authority to counties to fund certain charter school capital outlay. It presents an opportune time to review the local funding scheme for charter schools.

Local Government Commission Approval of Certain Public Enterprise Agreements

Author: Kara A. Millonzi

Publication Date: March 22, 2024 9:17 am

The Local Government Commission (LGC) is a nine-member state body situated in the Department of State Treasurer. G.S. Ch. 159, Art. 2. The commission monitors the fiscal management and financial condition of local governments and public authorities (providing assistance and … Read more

2023 Updates to System Development Fee Law

Author: Kara A. Millonzi

Publication Date: October 25, 2023 2:10 pm

How Often Do Local General Obligation Bond Referenda Succeed in North Carolina?

Author: Connor Crews

Publication Date: July 13, 2023 9:20 am

Data from the last ten years of county and municipal elections in North Carolina reveals that voters rarely reject proposals to issue general obligation (“GO”) bonds at the ballot box. From November 2012 through and including November 2022, North Carolina voters approved 202 of the 213 (94.8%) county and municipal GO bond referenda put before them. Out of a proposed issuance volume of approximately $14.592 billion, voters authorized counties and municipalities to issue up to $14.376 billion in GO debt (or 98.5% of all GO bond a

County Legal Authority to Fund Non-Mandated Social Services Programs

Author: Kristi Nickodem

Publication Date: June 6, 2023 10:10 am

State law requires North Carolina counties to administer and provide a number of social services and public assistance programs described in Chapter 108A of the North Carolina General Statutes, including (among others) Work First, Food and Nutrition Services, Medicaid, child … Read more

Buy American? Buy America? Build America? Domestic Procurement Preferences in Federal Financial Assistance

Author:

Publication Date: April 3, 2023 4:43 pm

North Carolina’s local governments have been inundated with federal funds since the onset of the COVID-19 pandemic in March 2020. But the complexity and quantity of the rules applicable to the expenditure of those monies have not decreased since the … Read more

What North Carolina’s Local Governments Should Know About Use Taxes

Author:

Publication Date: March 31, 2023 12:21 pm

Unlike the vast majority of states, North Carolina does not excuse a local government from paying sales or use taxes incident to its purchases solely because it is a governmental entity. Instead, unless state law exempts a particular type of … Read more

A Lesser-Known Local Government Revenue Source in North Carolina: “Meals” Taxes

Author:

Publication Date: March 27, 2023 12:50 pm

Find the last receipt you received when ordering food or drinks from a North Carolina restaurant. How much tax did you pay? What types of taxes did you pay? Even if the receipt did not break out each type of … Read more

North Carolina Sales and Use Taxes and Purchases of “Repair, Maintenance, and Installation Services” – What Local Governments Should Know

Author: Connor Crews

Publication Date: December 6, 2022 4:38 pm

My colleague Chris McLaughlin correctly noted in 2019 that “[s]ales taxes are, for the most part, a state government issue.” The North Carolina Department of Revenue (“NCDOR”)—not North Carolina’s local governments—administers and collects sales and use taxes. The North Carolina General Assembly—not North Carolina’s local governments—determines how NCDOR must distribute the proceeds of sales and use taxes.

Impending Changes to Bonding Requirements for Finance Officers: Prepare Now For January 1, 2023 and Beyond

Author:

Publication Date: November 23, 2022 8:00 am

N.C. Court of Appeals Addresses a Dispute Over Local Sales and Use Tax Distributions: Town of Boone v. Watauga County

Author:

Publication Date: November 22, 2022 1:17 pm

UPDATE (3/3/23): The North Carolina Supreme Court denied the Town of Boone’s Petition for Discretionary Review, filed on December 20, 2022. In an unpublished decision released on November 15 (Town of Boone v. Watauga County, 2022-NCCOA-778 (Nov. 15, 2022)), the … Read more

Local Government Commission (LGC) Approval of Bonds, Installment Financings, Leases, and Other Contracts Involving Capital Assets (Including Recent Changes Related to Local Governments on the Unit Assistance List)

Author: Kara A. Millonzi

Publication Date: October 28, 2022 11:44 am

Which of the following proposed transactions require that the local government or public authority first seek approval from the State’s Local Government Commission (LGC)? 1.

Design-Build Contracting in North Carolina Using Coronavirus State and Local Fiscal Recovery Funds

Author:

Publication Date: April 14, 2022 12:06 pm

Force Majeure Clauses and COVID-19

Author:

Publication Date: April 2, 2020 9:22 pm

COVID-19 has caused attorneys, units of government, and businesses across the country to review a common “boilerplate” provision in many contracts: the force majeure clause. For those of us who, like me, lack French fluency, force majeure means “superior force.” … Read more

New Law Modifies Construction Indemnification and Prohibits Duty-to-Defend in Design Professional Contracts

Author: Norma R. Houston

Publication Date: August 6, 2019 10:34 pm

For those not familiar with Chapter 22B of the North Carolina General Statutes, this Chapter prohibits certain contract provisions by making those provisions void and unenforceable as a matter of public policy. The restrictions in Chapter 22B apply to all contracts, including those with a governmental entity as well as those between private parties.

CRFs for SDFs (aka Capital Reserve Funds for System Development Fees)

Author: Kara A. Millonzi

Publication Date: May 24, 2018 2:49 pm

Local governments and public authorities (collectively, local units) that own or operate water and sewer systems must implement the new system development fee schedule by July 1, 2018, in order to begin charging (or continue charging) certain upfront fees for new development. Units are now looking to put policies in place to administer those fees according to state law directives.

Preauditing Electronic Transactions Just Got (A Little) Easier

Author: Kara A. Millonzi

Publication Date: March 23, 2018 10:11 am

The preaudit is a statutory internal control process to ensure that public funds are spent appropriately. If implemented properly the preaudit can be an effective tool in preventing and/or mitigating employee mistake, misappropriation, and even fraud. The problem with the … Read more

Companies that Boycott Israel – New Contracting Limitation But No Action Required Yet!

Author: Norma R. Houston

Publication Date: August 17, 2017 11:59 am

During the final week of the recently adjourned 2017 legislative session, the General Assembly enacted S.L.

Iran Divestment Act Changes – No Certification Required Anymore!

Author: Norma R. Houston

Publication Date: August 16, 2017 4:18 pm

In 2015, the General Assembly enacted the Iran Divestment Act (IDA) which prohibits state agencies and local governments from contracting with a company that the NC State Treasurer has determined invests more than $20 million dollars in the Iranian energy sector (for more information on the IDA, see this blog post

Excusing Board Members from Voting on the Budget

Author: Frayda S. Bluestein

Publication Date: June 19, 2017 3:00 pm

North Carolina city and county governing board members have a duty to vote. The general voting statutes, G.S. 153A-44 (counties) and G.S. 160A-75 (cities), allow members to be excused from voting on matters involving their “own financial interest.” What if … Read more

Refunding Other Taxes and Fees

Author: Christopher B. McLaughlin

Publication Date: December 7, 2016 2:11 pm

Time for a pop quiz: G.S. 105-381 governs refunds and releases (aka waivers) of which of these local government taxes and fees? A. Property taxes. B. Occupancy taxes. C. Solid waste fees. D. Water & sewer fees. E. All of the … Read more The post Refunding Other Taxes and Fees appeared first on Coates’ Canons NC Local Government Law.

Donations to Local Governments

Author: Kara A. Millonzi

Publication Date: November 30, 2016 4:25 pm

For many this is the season of giving. In that spirit, this post addresses frequently asked questions about donations to local governments. May a local government or public authority (collectively referred to as “local unit”) accept donations of real or … Read more

UPDATED: Municipalities (and Counties) Not Authorized to Charge Certain Impact (aka Capacity, System Development) Fees

Author: Kara A. Millonzi

Publication Date: September 14, 2016 2:41 pm

UPDATE: A draft version of this blog post was published by accident earlier today. Please disregard that post. It contains incomplete information. The following is the final version of the blog post.

2016 Changes to Municipal Service District (MSD) Authority

Author: Kara A. Millonzi

Publication Date: June 17, 2016 2:38 pm

In 2015, the legislature made a few significant changes to municipal service district (MSD) authority. (Those changes are summarized here.) The legislature made additional amendments to the MSD statutes this year.

Reimbursement Agreements

Author: Adam Lovelady

Publication Date: January 19, 2016 4:37 pm

A developer in town is seeking approval for a large new real estate project. The zoning and subdivision ordinances call for the developer to construct and dedicate public streets and parks and water infrastructure. But, the city has plans for some additional improvements adjacent to the development—a greenway on adjoining property and some intersection improvements nearby. The developer’s contractors will already be on site, grading land and constructing improvements. Could the city just pay the developer to build the city’s improvements, too?

May a Tourism Development Authority (TDA) Borrow Money?

Author: Kara A. Millonzi

Publication Date: December 21, 2015 3:56 pm

A Tourism Development Authority (TDA) is a local government entity that is typically created by a county or municipality to administer and expend local occupancy tax proceeds. Generally a TDA is a separate legal entity from the county or municipality that established it, although it may be reported as a component unit of the local government for financial reporting purposes.

Expanded Motor Vehicle License Tax Authority for Municipalities

Author: Kara A. Millonzi

Publication Date: November 9, 2015 4:04 pm

A municipality currently is authorized under general law to levy up to a $5.00 licensing tax on any motor vehicle resident in the municipality (motor vehicle license tax). See G.S. 20-97(b). A municipality’s governing board may levy the tax in … Read more

2015 Powell Bill Changes

Author: Kara A. Millonzi

Publication Date: November 2, 2015 3:57 pm

In addition to local funding sources, municipalities receive some financial assistance from the State to help pay for the construction, maintenance and repair of municipal streets. The legislation that first established this distribution is known as the Powell Bill (after … Read more

Local Sales and Use Tax Changes and New State Revenue Sharing Requirement

Author: Kara A. Millonzi

Publication Date: October 26, 2015 3:36 pm

There was a lot of buzz around sales tax reform during the past legislative session. Several different proposals were introduced, ranging from changing the allocation methods of existing local sales taxes to converting local sales taxes to state taxes. Many … Read more

Changes to Municipal Service District (MSD) Authority

Author: Kara A. Millonzi

Publication Date: October 19, 2015 4:22 pm

In the state budget bill, S.L. 2015-241, the legislature made a few changes to municipal service district (MSD) authority. An MSD is a defined area within a municipality in which the unit’s governing board levies an additional property tax in order to provide projects or extra services that benefit the properties in the district. (Counties have similar authority, referred to as county service districts.) A service district is not a separate government.

E-Verify Contracting Requirements

Author:

Publication Date: October 5, 2015 5:21 pm

In the waning days of the 2015 legislative session, the General Assembly enacted legislation that once again changes the E-Verify contracting prohibition for state and local government contracts. In some respects HB318 (Protect North Carolina Workers Act) limits the prohibition; in … Read more

Business Registration Programs: A Few Questions and Answers

Author: Trey Allen

Publication Date: August 28, 2015 9:37 am

My colleague Chris McLaughlin has blogged repeatedly about the legal impact of the General Assembly’s repeal last year of the statutory authority for most local privilege license taxes (“LPLTs”). (See his blog posts here, here, and here.) Local governments – primarily cities – have lost significant revenue as a result of the repeal.

NC Local Government Finance Officers: Who Can Serve and What is Their Role?

Author: Kara Millonzi

Publication Date: September 8, 2025 12:00 am

Legislative Commission Empowered to Examine, Evaluate, and Investigate Local Governments, Public Authorities, and Their Private Contracting Parties

Author: Kara A. Millonzi

Publication Date: October 16, 2023 8:32 am

North Carolina local governments and public authorities (collectively “local units”) are subject to oversight by the State in various ways. The Local Government Commission monitors the fiscal health of all local units, sets rules for financial management and audit compliance, and has the authority to impose additional interventions under certain circumstances. Other state agencies set rules and provide compliance and performance oversight of particular local units, often related to State grants or other funding.

The Religious Exemption from Property Taxes

Author: Christopher B. McLaughlin

Publication Date: October 18, 2023 4:13 pm

Total Posts: 158

Chapter 18: Financial Condition

18.0 Introduction

18.1 Defining Financial Condition

18.2 Criteria for Analyzing Financial Condition

18.3 Financial Reporting Model

Figure 18.1. Revised Financial-Reporting Model for Analysis of Financial Condition

18.4 Evaluating Economic Resources

Table 18.1. Resource Flow for Governmental Activities and Enterprise Funds—Operating Statement (Economic Resources and Accrual Basis of Accounting)

Table 18.2. Resource Stock for Governmental Activities and Enterprise Funds—Balance Sheet (Economic Resources and Accrual Basis of Accounting)

18.5 Evaluating Financial Resources

Table 18.3. Resource Flow for General Fund—Operating Statement (Financial Resources and Modified Accrual Basis of Accounting)

Table 18.4. Resource Stock for General Fund—Balance Sheet (Financial Resources and Modified Accrual Basis of Accounting)

18.6 Leveraging Financial Context

Figure 18.2. Debt Service Ratio for the General Fund

18.7 LGC’s Additional Indicators

18.8 Conclusion

18 Financial Condition

Sample Ordinances and Policies

18 Financial Condition

Implementation Tools

18 Financial Condition

LGC Memos

18 Financial Condition

Finance in Fives

18 Financial Condition

Blog Posts

The Religious Exemption from Property Taxes

Local Government Budgeting for Specific Expenditures, Projects, or Contracts

Notices and Public Participation in the Budgeting Process

Top Ten Questions about the Local Public School Budgeting Process

FAQs on Adopting the Budget Ordinance

Impending Changes to Bonding Requirements for Finance Officers: Prepare Now For January 1, 2023 and Beyond

Local Government Support for Privately Owned Affordable Housing

American Rescue Plan Act: Aid for Small Businesses and Nonprofits with ARP/CLFRF

Revenue-Neutral Rate Calculations for Multi-County Municipalities

How Interim Budgets Might Impact Tax Collections

Changes to County/School Dispute Resolution Process

North Carolina Municipalities Authorized to Fund Schools

Statutory Internal Controls

Legal and Business Reasons Why Downtown Development Programs Should Involve Secured Loans—Not Grants

State and Local Government Financial Data Transparency Law

New Law Modernizes Preaudit and Disbursement Processes

Richmond County Board of Education v. Cowell: Clear Proceeds of Improper Equipment Offense Surcharge Belongs to Public Schools

Transferring Money from an Enterprise Fund: Authority, Limitations, and Consequences

Public School Funding Dispute Resolution Process Revisited

Determining Local Board of Elections Director’s Salary

Special Purpose Local Governments and Public Authorities

Expending Funds After the End of the Fiscal Year

Allocating Operating Monies Among Local School Unit Funds: Local Current Expense Fund vs. Fund 8

Disbursing Public Funds

Budgeting Under “Tag & Tax Together”

When May NC Local Governments Pay an Economic Development Incentive?

Daily Deposit Requirement

Capital Reserve Funds Revisited

Accountability Requirements for Certain Entities that Receive Appropriations from Local Governments

Internal Controls: Who Is Authorized to Open a Bank Account and to Deposit and Disburse Public Funds?

Local Government Authority to Loan Money

Finance Officer Fidelity Bonds: When Are Multiple Bonds Required?

Amending a Newly Adopted Budget Ordinance Before July 1

Altering Local Elected Officials’ Compensation During the Fiscal Year

Levying the Property Tax: Earmarking Tax Revenue for Specific Purposes

A Look at North Carolina’s Constitutional Public Purpose Requirement

Local Governments, Public Authorities, and the Red Flags Rule: Does it Apply?

Amending the Budget Ordinance—

American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Fund: Reimbursements

American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Fund: Preparing for the Audit

American Rescue Plan Act of 2021: New (Fewer) Compliance Requirements for Revenue Replacement Expenditures

Using American Rescue Plan Coronavirus State and Local Fiscal Recovery Funds to Contract with Other Governments, Nonprofits, or Other Private Entities: Subawards

American Rescue Plan Act of 2021: Spending Revenue Replacement Funds on Salaries and Benefits

American Rescue Plan Act of 2021: Reporting “Program Income” (Including Sample Policy)

Expending ARP/CSLFRF Funds for Local Government Employee Salary, Benefit, and Other Payroll Costs OUTSIDE of Revenue Replacement (For Local Governments with OVER $10 Million Allocation Only)

American Rescue Plan Act of 2021 (ARP): State Law Authority To Expend ARP Funds

2023 Updates to System Development Fee Law

American Rescue Plan Act Coronavirus State and Local Fiscal Recovery Fund: Preparing for the April 30, 2023 Project & Expenditure Report

Raising the Federal Micro-Purchase Threshold: Self-Certification for Units of Local Government in North Carolina

Procuring Single Audit Services under the Uniform Guidance (2 C.F.R. Part 200)

Design-Build Contracting in North Carolina Using Coronavirus State and Local Fiscal Recovery Funds

Internal Control in Financial Management: Understanding the Basics

Amending the Budget Ordinance—

Local Governments, Public Authorities, and the Red Flags Rule: Does it Apply?