Can a Mississippi city pay incentive bonuses to municipal employees with ARPA funds?
Plain-English summary
The Columbus City Council passed a resolution recommending future incentive payments to municipal employees, funded with American Rescue Plan Act money. The mayor wanted the AG to bless the resolution before payments went out.
The AG declined to interpret the specific resolution (the AG's office does not interpret municipal ordinances or resolutions, nor federal law) but laid out the general state-law rule for municipal incentive pay.
Under Mississippi Constitution Art. 4 §§ 66 and 96, a public entity cannot pay employees extra compensation for past services because that would be an unlawful donation or a retroactive gratuity. But "[e]mployee incentive payments . . . that are implemented prospectively and for which payment is made pursuant to conditions met in the future do not run afoul of [the] constitutional provisions." That language is from the 2010 Campbell opinion. The 2020 Chiles opinion crystallized the three conditions for valid incentive pay:
- Contracted for between the parties (or with the employee) before services are performed.
- Determined according to objective standards of measurement.
- Earned by personal services performed by the employees.
If those three conditions are met, the city may pay. Whether a particular resolution actually meets the conditions is for the city council to determine; the AG cannot make that factual call. The AG also notes that the State Auditor's office can speak to whether ARPA money is a permissible source.
One important compensation-management note. Even when properly structured, performance-based incentive pay is excluded from "earned compensation" under § 25-11-103(k) of the Mississippi Code. That means it is not PERS-reportable. Employees who earn an incentive payment do not see that money roll into their retirement-benefit calculation.
What this means for you
If you are a Mississippi mayor or city council member designing an incentive program
Three structural questions will determine whether the program is lawful. (1) Is the resolution adopted before the work that earns the pay? Adopt the program prospectively, with a clear effective date. (2) Are the conditions for payment objective and measurable? Tie pay to specific outputs (calls answered, projects completed, certifications earned, attendance milestones), not subjective evaluations. (3) Is the pay earned by personal services? It must be linked to the employee's own work, not to time-served or to a class of people generally.
Document the three findings on the council minutes when adopting the program. If your existing draft resolution does not include each piece, revise before payment. The AG opinion is permissive on the legal mechanism, but ARPA-funded retroactive bonuses (the kind of program many cities tried in 2021-2022) are not what this opinion endorses.
If you are a city attorney
Pull out the Holcomb (Sept. 2022) opinion alongside the Gaskin opinion. The Holcomb decision said no to retroactive ARPA bonuses for past pandemic service. Gaskin says yes to prospective performance-based incentives. The two opinions together draw a clear line. Advise the council to walk well to the prospective side of that line.
If you are a municipal employee
If your city adopts an incentive program after this opinion, the structure matters. Read the resolution. If it pays for a defined upcoming performance period with measurable conditions, it is the kind of program the AG endorses. Just remember the PERS exclusion: incentive pay does not boost your retirement.
If you are a state auditor or compliance officer
Two parallel checks: (a) does the program meet the prospective-and-objective test under §§ 66 and 96? (b) is the funding source proper for the use? ARPA's federal eligibility is one question; whether the city has authority to spend the money on this category is another. The Gaskin opinion is the state-law half of that two-step.
If you are advising on PERS reportability
§ 25-11-103(k) excludes incentive pay from "earned compensation." That has practical consequences: payments do not flow through the PERS calculation, employer contributions on incentive amounts are not required, and employees should understand that incentive money does not increase final-average compensation.
Common questions
Q: What is the difference between this opinion and the Holcomb (ARPA bonus) opinion?
A: Timing. Holcomb addressed a $1,000 retroactive bonus for past pandemic service: that is unlawful under §§ 66 and 96. Gaskin addresses prospective incentive pay tied to future performance: that is allowed if structured per the three Chiles conditions.
Q: How should "objective standards of measurement" look in practice?
A: Specific, quantifiable, and verifiable. Examples: "five percent of base salary if 95% attendance during quarter," "$500 if completing certification by date," "$250 per closed case above quota." Unworkable: "outstanding performance," "team spirit," "morale boost." If the standard cannot be reduced to a measurable result, it is not objective.
Q: Can the city use this for a "thank you" bonus to all employees who showed up during the pandemic?
A: No. That is a retroactive bonus for past service, which is what Holcomb forbids. The Gaskin opinion does not endorse retroactive bonuses, even if dressed up in incentive-pay language.
Q: Does the program have to apply uniformly across all employees?
A: The opinion does not address uniformity. As a practical matter, programs that target specific roles (police officers, sanitation workers, dispatchers) with specific objective standards are common. The constitutional concern is donation, not uniformity. Equal-protection concerns might apply if the targeting is arbitrary.
Q: Can the program use ARPA funds?
A: The AG declined to address federal funding rules, but the AG suggested consulting the State Auditor on ARPA eligibility. Federal Treasury rules permit certain premium-pay uses for "essential workers." State-law authority to spend the money on the program is a separate analysis, addressed by Gaskin.
Q: Does the PERS exclusion in § 25-11-103(k) apply to all incentive pay or just to ARPA-funded?
A: The Chiles opinion (which Gaskin cites) treats the exclusion as general. Performance-based incentive pay is excluded from earned compensation regardless of funding source.
Q: What about elected officials? Can they receive incentive pay?
A: The opinion does not specifically address elected officials. As a general matter, elected officials' compensation is set by statute or charter, and supplementing it through an executive incentive program runs into separate constitutional and statutory problems. Stick to non-elected employees.
Background and statutory framework
The constitutional baseline is Article 4 §§ 66 and 96 of the Mississippi Constitution. § 66 forbids legislative donations. § 96 forbids retroactive extra compensation. The AG and Mississippi courts apply both provisions to all public employers, including municipalities.
The doctrinal evolution that produced the Gaskin opinion runs through several earlier opinions:
- Eleuteris (2013): retroactive bonuses are unlawful donations.
- Campbell (2010): prospective incentive pay structured around future conditions is permissible.
- Chiles (2020): three-prong test (contracted before services, objective measurement, earned by personal services).
§ 25-11-103(k) is the PERS-reportable-compensation provision. It excludes performance-based incentive pay from "earned compensation," reinforcing the structural distinction between regular wages and incentive bonuses.
The Gaskin opinion was issued shortly after the Holcomb opinion (Sept. 2022) on retroactive ARPA bonuses. Reading the two together gives the working rule for Mississippi municipalities considering ARPA-related employee compensation.
Citations
- Miss. Const. Art. 4, § 66 (prohibition on donations)
- Miss. Const. Art. 4, § 96 (prohibition on extra compensation after service rendered)
- Miss. Code Ann. § 25-11-103(k) (incentive pay excluded from PERS-reportable compensation)
- MS AG Op., Banks (May 11, 2018) (AG does not interpret municipal ordinances)
- MS AG Op., Tullos (Aug. 27, 2018) (AG does not interpret proposed municipal ordinances)
- MS AG Op., Turnage (July 1, 2011) (AG does not interpret bond resolution)
- MS AG Op., Eleuteris (Nov. 1, 2013) (retroactive bonuses are unlawful donations)
- MS AG Op., Campbell (Apr. 12, 2010) (prospective incentive payments lawful)
- MS AG Op., Chiles (Nov. 10, 2020) (three-prong incentive-pay test; PERS exclusion)
Source
- Landing page: https://attorneygenerallynnfitch.com/divisions/opinions-and-policy/recent-opinions/
- Original PDF: https://attorneygenerallynnfitch.com/wp-content/uploads/2022/10/K.Gaskin-October-11-2022-Incentive-Pay-for-Municipal-Employees.pdf
Original opinion text
October 11, 2022
The Honorable Keith Gaskin
Mayor, City of Columbus
Post Office Box 1408
Columbus, Mississippi 39703-1408
Re:
Incentive Pay for Municipal Employees
Dear Mayor Gaskin:
The Office of the Attorney General has received your request for an official opinion.
Background
According to your request, the Columbus City Council (the "Council") has passed a resolution
recommending incentive payments for future performance to municipal employees under the
American Rescue Plan Act's State and Local Fiscal Recovery Funds. The payments have not yet
been made but are scheduled to be made in the future. You ask our office to review the resolution
passed by the Council.
Question Presented
Are incentive payments to municipal employees using American Rescue Plan Act's State and
Local Fiscal Recovery Funds legal?
Brief Response
When incentive pay for future performance is contracted for prior to the date when services are to
be performed, determined in accordance with objective standards of measurement, and earned by
personal services performed by the employees, then the city is authorized to make such payments.
Applicable Law and Discussion
Opinions of this office may not interpret ordinances or resolutions of a municipality. Therefore, to
the extent your request asks this office to review and interpret the resolution regarding incentive
pay, we must decline to respond with an official opinion. See MS AG Op., Banks at 1 (May 11,
2018); MS AG Op., Tullos at 1 (Aug. 27, 2018) ("[O]ur office cannot interpret municipal
ordinances by official opinion, and this is especially true with regard to proposed ordinances.");
MS AG Op., Turnage at 2 (July 1, 2011) (declining to interpret and opine on the wording of the
city's bond resolution). Further, this office is not authorized to interpret or opine on federal laws
or regulations by official opinion. Therefore, we decline to respond by way of an official opinion
regarding the legality of using federal funds in a specific manner and limit this opinion to the
authority of a municipality to grant incentive pay in general.
Regarding incentive pay, Sections 66 and 96 of Article IV of the Mississippi Constitution prohibit
a public entity from paying employees extra compensation for past services because it would
constitute an unlawful donation. MS AG Op., Eleuteris at 1 (Nov. 1, 2013). Payments in the form
of bonuses are prohibited for this reason. Id. Employee incentive payments, however, that "are
implemented prospectively and for which payment is made pursuant to conditions met in the future
do not run afoul of [the] constitutional provisions." MS AG Op., Campbell at 1 (Apr. 12, 2010).
Therefore, in order for the city to implement employee incentive pay, it must be "(1) contracted
for between the parties or with the employee prior to the date when services are to be performed;
(2) determined in accordance with objective standards of measurement; and (3) earned by personal
services performed by the employees." MS AG Op., Chiles at 1 (Nov. 10, 2020). Whether the
proposed ordinance meets these requirements is a determination that must be made by the Council.
You may also wish to consult with the Mississippi Office of the State Auditor to determine whether
American Rescue Plan Act's State and Local Fiscal Recovery Funds may be used for the proposed
incentive payments.
Additionally, while performance-based incentive pay for municipal employees may be authorized
when the above-cited conditions are met, such payments are excluded from "earned compensation"
as defined by Section 25-11-103(k) of the Mississippi Code and may not be reported to the state's
Public Employees' Retirement System (PERS) for purposes of retirement. Chiles at *2.
If this office may be of any further assistance to you, please do not hesitate to contact us.
Sincerely,
LYNN FITCH, ATTORNEY GENERAL
By:
/s/ Misty Monroe
Misty Monroe
Assistant Attorney General