Pickering: No doubt escrow is the way to go

By Eloria Newell James, community@leadercall.com

August 08, 2008 09:43 am

— State Auditor Stacey Pickering has issued the City of Laurel a written opinion concerning the money collected for an anticipated bond to construct the Laurel Sportsplex.
City Clerk Mary Ann Hess said the city received the written opinion from the state auditor about a week ago.
Pickering appeared before the Laurel City Council in April where he recommended the council put the money collected for an anticipated bond in escrow.
His written letter, dated July 29, 2008, officially documents that recommendation.
“The purpose of this letter is to document our position with regard to the funds collected from the taxes levied to pay for a recent proposed bond issue,” Pickering writes. “It is our position that, for the reasons cited below, the city should hold these collections in escrow for the current year, and then reduce the next year’s tax levy by the amount collected.”
The Laurel City Council in January voted to approve the sale of $6.4 million in bonds to finance the construction of eight potential softball fields at the Laurel Sportsplex. Because of this, four mills were assessed to taxpayers in anticipation of the issuance of the bonds.
However, before the City Council vote was taken in January, residents were levied a four mill tax increase in anticipation of this project.
Then, residents signed a petition calling for a vote on the bond. City officials then decided to abandon the project.
In April, city officials announced during a budget committee meeting that they were exploring the possibilities of spending the approximate half a million dollars collected for the proposed bond project that was being abandoned on an existing general obligation debt.
Pickering told the council that was not a wise decision and recommended that the funds be placed in escrow.
The state auditor said while the city’s process for issuing bonds was not unusual, the City of Laurel’s case is the first of its kind where a governmental entity has collected money for bonds that are not being issued.
When the city council levied the taxes for the 2008 fiscal year during its first meeting in September, the four mill increase was included in anticipation of the bond issue.
Following Pickering’s recommendation in April, the City Council passed a resolution that it was the intent of the mayor and city council to reduce the tax levy for fiscal year 2009 in the debt service fund by four mills and the money collected in fiscal year 2008 would be held in an escrow account.
Some residents have questioned whether the city is handling the matter properly.
However, Pickering in his letter states that, “we feel that the appropriate procedure for handling the monies in question is the one authorized in Mississippi Code Section 27-105-367, specifically paragraph (3)(b).”
The specific statute states “Surplus monies in a bond and interest fund may be transferred to the general fund in accordance with subsection (1) of this section ...”
“These monies would all be considered surplus for these purposes because there is no bond principle or interest to be repaid,” Pickering wrote.
Paragraph (1) of Section 27-105-367 states “The ... municipal governing authorities, by order spread on their minutes, may transfer any balance remaining in a special fund in the treasury of the ... municipality ... to the general fund to be used for general purposes for the succeeding fiscal year if the purpose for which the special fund was created has been fully carried out. Taxes imposed for the succeeding fiscal year for ... municipal government purposes shall be reduced by the amount of such balance transferred from the special fund to the general fund.
“This language makes it mandatory for the city to escrow these current year collections and reduce the next year’s tax levy by the amount collected,” Pickering wrote.
Pickering’s letter also addresses some residents’ question as to whether the city could provide refunds for everyone who paid the specific taxes.
“It has been suggested that some Mississippi Code Statutes under Title 27, Chapter 23 (Tax Refunds) allow for refunds to individual taxpayers in this situation. The situations described in these laws relate to taxes being levied or charged improperly,” Pickering wrote. “In the case of the Laurel bond issue, the taxes levied appear to have been properly levied, based upon an anticipated need. The proceeds of the levy became surplus when the bond issue was subsequently rejected.”
Hess said the city has begun efforts to reduce citizens’ taxes as a result of the anticipated approximately $534,000 that will be collected for this purpose by the end of the city’s 2008 fiscal year.
During the Laurel City Council meeting this week, Councilman Johnny Magee questioned whether the money was in an interest-bearing account.
Hess told the council that the money was placed in an interest-bearing account and that the taxpayers will be credited with the interest from the account.
“Residents should see a reduction in the city taxes for one year, at least in this area,” Hess explained. “We do know that the money collected for the projected bond will be included in the budget.”
The city’s budget for the 2009 Fiscal Year has to be approved by the City Council’s first meeting in September.

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