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:

1. Contracted for between the parties (or with the employee) before services are performed.
2. Determined according to objective standards of measurement.
3. 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

For mayors and city council members designing an incentive program

Under the opinion, the city may implement employee incentive pay only if it is "(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" (the Chiles test). Incentive payments that "are implemented prospectively and for which payment is made pursuant to conditions met in the future do not run afoul of" §§ 66 and 96 (Campbell), but extra compensation for past services is an unlawful donation. Whether a particular resolution meets the three conditions "is a determination that must be made by the Council."

For city attorneys

The opinion draws the line between prospective and retroactive: prospective incentive pay meeting the three Chiles conditions is allowed, while paying employees "extra compensation for past services" is an unlawful donation under §§ 66 and 96. The opinion declines to interpret the city's specific resolution or the federal ARPA rules, and suggests consulting the Mississippi Office of the State Auditor on whether ARPA funds may be used.

For municipal employees

Under the opinion, an incentive program is lawful only if it is set before the work, measured by objective standards, and earned by the employee's personal services. The opinion also notes that performance-based incentive pay "[is] excluded from 'earned compensation' as defined by Section 25-11-103(k)" and "may not be reported to the state's Public Employees' Retirement System (PERS) for purposes of retirement."

For the State Auditor's office

The opinion sets the state-law standard (the three-prong test under §§ 66 and 96) but expressly suggests consulting "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." The opinion does not opine on the federal funding question itself.

Common questions

Q: Can a Mississippi city pay incentive bonuses to municipal employees?
A: Yes, if structured prospectively. The opinion holds incentive pay is allowed when it is "(1) contracted for . . . 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." Extra compensation for past services is an unlawful donation.

Q: What does "objective standards of measurement" require?
A: The opinion requires that the incentive be "determined in accordance with objective standards of measurement" but does not give examples; whether a particular resolution meets that condition is for the city council to determine.

Q: Can the city pay a "thank you" bonus to all employees for past pandemic work?
A: No. The opinion states §§ 66 and 96 "prohibit a public entity from paying employees extra compensation for past services because it would constitute an unlawful donation," and that "[p]ayments in the form of bonuses are prohibited for this reason."

Q: Can the program use ARPA funds?
A: The opinion declines to address the federal funding rules and suggests consulting the Mississippi Office of the State Auditor on whether ARPA State and Local Fiscal Recovery Funds may be used. The state-law authority for prospective incentive pay is the part the opinion answers.

Q: Does incentive pay count toward PERS retirement?
A: No. The opinion states performance-based incentive pay "[is] excluded from 'earned compensation' as defined by Section 25-11-103(k)" and "may not be reported to the state's Public Employees' Retirement System (PERS) for purposes of retirement."

Background and statutory framework

The constitutional baseline is Article 4, Sections 66 and 96 of the Mississippi Constitution. The opinion states they "prohibit a public entity from paying employees extra compensation for past services because it would constitute an unlawful donation," and that bonuses for past service are prohibited for that reason (Eleuteris).

The opinion then sets out the path for lawful incentive pay. Citing Campbell (2010), it notes incentive payments "implemented prospectively and for which payment is made pursuant to conditions met in the future do not run afoul of" the constitutional provisions, and citing Chiles (2020) it states the three conditions: contracted before services, objective standards of measurement, and earned by personal services. The opinion also notes that such pay is excluded from "earned compensation" under § 25-11-103(k) and is not PERS-reportable.

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