If a North Carolina county cuts its mental health funding contribution, does it still get full state expansion funds, and what does the rule against using fee income to replace local tax revenue actually mean?

Plain-English summary

North Carolina's Division of Mental Health, Developmental Disabilities and Substance Abuse Services asked how county appropriations to an area authority affected State expansion funds. The AG answered that counties could reduce their budgeted contributions, but the Secretary could also reduce State expansion allocations. Neither contribution was fixed by a statutory formula. The opinion nonetheless said the legislature clearly intended counties to pay some portion of an area authority's costs.

The AG also said a county could amend its budget ordinance to reduce an area authority appropriation after adoption, if the amended ordinance still satisfied the Local Government Budget and Fiscal Control Act. The Secretary could take that reduction into account in future State allocations.

A separate statute, G.S. § 122C-146, said an area authority's fee collections could not justify reducing or replacing a "budgeted commitment of local tax revenue." The AG read that wording to protect amounts already budgeted. Rules cited in the opinion directed the area program to retain unspent client-earned income and authorized a reduction in later State funds if its fund balance exceeded 15 percent of annual operating budget. The AG said State rather than local funds would be reduced as a result of unexpended fees.

The opinion did not say a county could base a future-year cut on projected fee revenue. It identified fee collections as the only specific statutory restriction on the reason for reducing a county's area authority budget and said the county and Secretary otherwise determined allocations. It also rejected any implication that a county could contribute nothing: the legislature intended a county share, although it set no numerical formula.

Currency note

This opinion applied the 1994 area-authority funding and county budget statutes and related rules. Check current law and the relevant budget ordinance for a present allocation question.

Background and statutory framework

G.S. § 153A-101 gave county commissioners responsibility for fiscal policy, and G.S. § 159-13 allowed appropriations in sums they considered sufficient and proper. G.S. § 153A-149(c) authorized property taxation for the county's share of area-authority costs. The AG found no fixed formula for that share or for the relationship between county contributions and State expansion allocations.

G.S. § 159-15 allowed a budget amendment after adoption, subject to the continuing requirements of G.S. §§ 159-8 and 159-13. G.S. § 122C-146 separately barred using fee collections to justify reducing or replacing already budgeted local tax revenue. The cited administrative rules addressed retained client-earned income and reductions in later State funds when the area program's fund balance exceeded the stated threshold.

Common questions

May a county reduce an area authority appropriation?

The AG said yes, within the budget law's limits. The Secretary could consider the reduction in deciding future State allocations.

Did the AG say a county could contribute zero?

No. The opinion said the legislature intended some portion of area-authority costs to be paid by the county, although it gave no fixed dollar amount or formula.

May fee collections replace local tax revenue already in the budget?

No. The AG read G.S. § 122C-146 to prohibit using those collections to reduce or replace amounts already budgeted.

Did the opinion authorize a future budget cut because fees are expected to rise?

It did not decide that. It discussed the statutory bar on using fee collections to reduce budgeted local tax revenue and did not grant a future-year fee-based exception.

What did the opinion say about an area program's excess fund balance?

Under the rules it quoted, when unspent client-earned income left the fund balance over 15 percent of annual operating budget, the Division had authority and an obligation to reduce its allocation of State funds in the following year.

Citations

• G.S. § 122C-2 (declared policy of public MH/DD/SAS system; joint state-local funding)
• G.S. § 122C-146 (fee collections may not justify reduction of budgeted local tax revenue)
• G.S. § 153A-101 (board of commissioners' responsibility for fiscal policy)
• G.S. § 153A-149(c) (county property tax authority for area authority cost share)
• G.S. § 159-8 (annual balanced budget requirement)
• G.S. § 159-13 (budget adoption; specific limitations)
• G.S. § 159-13(a) (appropriations in sums the board considers sufficient and proper)
• G.S. § 159-15 (amendment of budget ordinance)
• 10 NCAC 14C.1014(a)(1)(C) (retention of client-earned income)
• 10 NCAC 14C.1125(a)(2) (state allocation reductions apply to multi- and single-county programs)
• 10 NCAC 14C.1125(a)(5) (state allocation reduction when fund balance exceeds 15%)
• Chapter 159 (Local Government Budget and Fiscal Control Act)

Source

• Landing page: https://ncdoj.gov/opinions/contributions-to-area-authority-and-state-allocations-of-expansion-funds/

Original opinion text

• (1)
• May an area program receive the full amount of State expansion funds if a county reduces the amount budgeted for the area program from the amount budgeted in the prior fiscal year?
• (2)
• May an area program receive the full amount of State expansion funds if a county retroactively reduces the amount budgeted in the preceding fiscal year?
• (3)
• Is the restriction on reducing a county's commitment of local budgeted tax revenue based on increased fee collections and/or increased State funding to be determined based on the amount a county budgets for the current year or on the amount budgeted for the previous fiscal year?

Your first question concerns whether a county can unilaterally reduce its allocation to an area authority. The General Assembly has given to the various boards of county commissioners the authority, subject to statutory constraints, to develop county fiscal policy. G.S. 153A-101 provides:

The board of commissioners has and shall exercise the responsibility of developing and directing the fiscal policy of the county government under the provisions and procedures of the Local Government Budget and Fiscal Control Act.

G.S. 159-13 specifically grants the board of commissioners the authority and responsibility to adopt a budget for the county and to make appropriations "in such sums as the board may consider sufficient and proper . . . ." G.S. 159-13(a). Notwithstanding this general budgetary authority, it is our opinion, as stated in our advisory opinion dated June 8, 1993, that the General Assembly intends for State and local governments to work together to develop and fund a public system for the delivery of services to persons with mental illness, developmental disabilities and substance abuse services. See G.S. 122C-2. In G.S. 153A-149(c), the General Assembly specifically authorizes the counties to levy property taxes to raise funds:

. . . to provide for the county's share of the cost of maintaining and administering services offered by or through the area mental health authority, developmental disabilities, and substance abuse authority.

Thus, while there is no statutory formula for determining "a county's share of the cost" of an area authority, it is clear that the General Assembly intended for some portion of the cost to be paid by the county. Specific allocations are left for the Division of MH/DD/SAS and the counties to determine. The General Assembly neither prohibits a county from reducing its budgeted contribution to an area authority nor the Secretary from reducing the amount of expansion funds allocated to the area authority.

Your second question concerns whether a county may retroactively reduce its prior fiscal year appropriations to an area authority when the amount budgeted in the new fiscal year is greater than the amount of county funds that the area authority actually expended during the prior fiscal year.

Chapter 159 of the North Carolina General Statutes gives the board of county commissioners the authority to amend the county budget ordinance after its enactment. However, any such amendment is subject to specific statutory limitations, including a requirement that the county continue to operate under an annual balanced budget. G.S. 159-8. Specifically, G.S. 159-15 provides, in pertinent part:

Except as otherwise restricted by law, the governing board may amend the budget ordinance at any time after the ordinance's adoption in any manner, so long as the ordinance, as amended, continues to satisfy the requirements of G.S. 159-8 and 159-13 . . . .

G.S. 159-13 contains a list of specific limitations which bind the board of commissioners in adopting or amending the budget. The list does not include a limitation regarding reductions to an area authority after the budget ordinance is adopted. Again, we note that the General Assembly has not precisely prescribed the relationship between a county's contributions and the State allocations to an area authority. Therefore, a county has the authority to retroactively reduce the level of appropriations to the area authority by amending the budget ordinance. Of course, the Secretary has the authority to consider this reduction in determining future allocations to the area authority.

Your final question has two parts, which we will address separately.

We first address whether the restriction against reducing a county's commitment of local budgeted tax revenue as a result of increased fee collections is to be determined based on the amount a county budgets for the current year or the amount budgeted in the previous fiscal year. The restriction to which you refer is set forth in G.S. 122C-146. Because the General Assembly has not directly addressed your specific question, we look for guidance at the wording of the statute and at the interpretation of the statute contained in rules adopted by the Commission of Mental Health, Developmental Disabilities and Substance Abuse Services.

G.S. 122C-146 provides in pertinent part:

The collection of fees by an area authority may not be used as justification for reduction or replacement of the budgeted commitment of local tax revenue.

Because the provision speaks in terms of "the budgeted commitment of local tax revenue," it is our opinion that it is intended to prohibit reduction or replacement of amounts already budgeted.

In addition, the rules adopted by the Commission for Mental Health, Developmental Disabilities and Substance Abuse Services provide as follows:

Client-earned income, such as payments received from patients or third parties (insurance, Medicare, Medicaid), which is received but not expended shall be retained by the area program or the contract program and be used to further the objectives of the legislation establishing the state categorical funding. 10 NCAC 14C.1014(a)(1)(C). (Copy attached.)

The rules further provide that when client-earned income results in an area program's fund balance being in excess of 15 percent of its annual operating budget, the Division has the authority and an obligation to "reduce its allocation of division funds in the year subsequent to the year in which the excess occurred." 10 NCAC 14C.1125(a)(5). (A copy of the rule is attached.) Thus, the rules provide that State funds rather than local funds are to be reduced as a result of unexpended fees. The authority of the Division to reduce State allocations applies to both multi-county and single county area programs. 10 NCAC 14C.1125(a)(2).

The second part of your question concerns a restriction on reducing a county's commitment of local budgeted tax revenue based on increased State funding. The only specific restriction against a county reducing the budget to the area authority is that the county may not use the collection of fees by the area authority as justification for the reduction. Beyond this, it is up to the county and the Secretary to determine specific budget allocations to the area authority. As is stated above, the only guidance given by the General Assembly is that the county is to pay "its share of the cost" of the area program.

Ann Reed Senior Deputy Attorney General

*Jane L. Oliver *

Assistant Attorney General