Audit Report Shows State Agencies Hoarding Tens of Millions in Special Funds, Tourism Department Fund Has 30 Years Worth of Reserves

A new report out from North Dakota Auditor Josh Gallion indicates that state agencies are keeping tens of millions of dollars in reserve funds even as they take in new general fund appropriations from the legislature.

“A performance audit issued today by the North Dakota Office of the State Auditor shows that approximately $97 million in general fund resources were expended in the fiscal year 2018 when state agencies had special funds available to spend,” a press release from Gallion’s office announcing the report states. “The State of North Dakota lacks laws or fiscal policies preventing state agencies from using general funds before special funds.”

“The report noted that certain agencies and occupational and professional boards continue to grow their special fund reserves while state laws and fiscal policies provide little to no guidance on appropriate reserve levels,” the release continues.

You can read the full report below, but to give you a flavor of what’s being revealed, here’s a quote from the report indicating that the Department of Tourism has 30 years worth of reserves squirreled away:

The Department of Tourism Fund is an example of a special fund with a growing fund balance level that also had resources available when general fund resources were expended. We estimated the Department of Tourism Fund’s reserve level to be 30 years based on the fund’s fiscal year 2018 average monthly expenditures.

UPDATE: There’s some confusion over how this 30 years worth of reserve is calculated, so I contacted Gallion directly about it. He told me the calculated the monthly expenditure from that reserve fund and compared it to the fund’s balance. So what they’re saying is, based on how much the Tourism Department spends per month on average out of this fund, they have 30 years worth of reserves.

The $97 million figure referenced above is the total amount identified by the auditor as sitting in special funds even as the agencies in charge of those funds got new general fund appropriations.

On one hand, it may make sense for some of these agencies to have reserve funds on hand. We live in a state with a commodity-driven economy. There are ups and downs. Plus, we have a two-year legislative cycle. Budgeting in that sort of an environment is not an exact science.

Still, does any agency need 30 years worth of reserves? Remember, these are taxpayer dollars being locked up in government.

The audit report only indicates one area where the law is actually being broken. The North Dakota Century Code says the State Electrical Board “may charge the master electrician responsible for the installation a fee to cover the cost of inspection,” yet the audit found the board had over $10.6 million sitting in its fund as of June 30, 2017. That’s enough to operate the board for roughly 31 months, or nearly three years.

But there is legislation proposed in Bismarck – SB2056 – to address the excess reserve funds, and the the board is going to adjust fees going forward.

Something else the Legislature should consider is more guidelines for these funds. While I agree with Governor Doug Burgum’s philosophy when it comes to giving executive branch agencies more flexibility in how they handle their resources, there needs to be a cap on how much money the agencies can accumulate in excess of their operating budgets.

Good on Gallion for getting this information out.

Here’s the full report, including a full list of state agencies, their reserve fund totals, and their monthly expenditures starting on page 20:

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