Hood: Legislature can't legally take some special funds

Attorney General Jim Hood says in newly issued opinions that the Legislature cannot legally "sweep" some special funds collected by state agencies — including his own — into the state's main account to plug holes in next year's budget.

But Lt. Gov. Tate Reeves' office says Hood is just trying to protect his office's "off-budget" spending and that the elimination of many agencies' special funds collections and accounts will provide more transparency and accountability for taxpayers.

State agency directors, some still working to determine exactly how badly their budgets will be cut for the fiscal year that begins July 1, may have to choose whether they'll follow the advice of Hood or legislative leaders. Hood's advice doesn't carry weight of law, but it provides legal cover for agencies that follow it. But lawmakers set the state budget. 

If the special fund sweep doesn't net the $188 million lawmakers banked on when setting fiscal 2017 spending, a budget hole of at least $56 million — from a legislative accounting error — could grow. The current year budget isn't out of the woods yet, either. Recurring revenue for this fiscal year is nearly $206 million below the estimate used to set the budget, and Gov. Phil Bryant may be forced to call a special session before the end of June to tap into rainy day reserves for the third time for fiscal 2016.

The Legislature this year passed Senate Bill 2362, the Budget Transparency and Simplification Act. It prohibits state agencies charging each other for rent, information technology and other services. Proponents of the change said such inter-agency billing had created an "underground economy" that obfuscated the true cost of running government agencies. The act also converted 16 agencies or accounts from special funds — where agencies bill people or businesses directly and keep the money in their own accounts — to general fund, with the money now going directly into the main state kitty. Lawmakers swept balances in many accounts into the general fund, but didn't otherwise budget for the services the agencies provide with the special funds.

Critics — even those who support the concepts of the bill — said it was poorly vetted and planned and has caused chaos with many agencies unsure how to budget for or cut services they provide. Democratic Hood, along with Republicans Secretary of State Delbert Hosemann and Insurance Commissioner Mike Chaney, have criticized the measure. Chaney has opined, "It will take a decade to fix this." Hood said the bill would effectively slash his already tight budget by 18 percent and that it could result in the loss of millions of dollars of federal matching funds statewide.

Agency heads have asked legislative leaders for direction, and Hood's office has received requests for legal opinions from state agencies on what special funds they can keep and spend. Hood has rendered opinions for the secretary of state, tort claims board and to the Department of Finance and Administration about his own AG's budget.

Hood's opinions say that while the budget act seeks to eliminate many special funds, legislators left the laws creating the fees and accounts on the books — which could prevent sweeping them into the general fund.

Hood said his interpretation of the act is that it would sweep only  "fees, assessments or other revenues" that are used to support the state agencies, but that such collections that aren't used to run the agencies would be exempt. He opined that trust funds — such as the secretary of state's Tidelands Trust — would be exempt from the general fund takeover. Hood said that his agency has 16 special funds, 13 of which were established by the Legislature with laws that are still on the books. Five of the 13 are trust funds by statute and all are "not subject to transfer to the State General Fund," Hood's opinion said.

Hood also said — citing precedent cases and the state constitution — that once the legislature sets the budget, its control ends and the executive branch is in charge. The Legislature "is prohibited from imposing new limitations, restrictions or conditions on the expenditure of such funds, short of full legislative approval," Hood's opinion said. 

Reeves' office said it had only received Hood's opinions on Wednesday and was sill reviewing them, but that at first brush it appeared his advice to the secretary of state and Tort Claims Board "appear to use sound logic consistent with legislative intent."

"Attorney General Hood then completely contradicts himself in a letter to DFA to protect himself and his off-budget funds in the office of the attorney general," said Reeves spokeswoman Laura Hipp. "Tapxayers expect accountability and transparency for how their hard-earned dollars are spent by bureaucrats no matter what government account those funds are in."

A spokesman for Gov. Phil Bryant declined comment on Hood's opinions and a spokesman for House Speaker Philip Gunn was unavailable.

Contact Geoff Pender at 601-961-7266 or gpender@jackson.gannett.com. Follow @GeoffPender on Twitter.