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Local governments have passed their budgets, but who actually spends the money? Spoiler: it's complicated

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Governing boards like city councils and boards of commissioners are the only ones who can approve a budget — but when it comes to actually spending the money, who's in charge? Is it the elected officials, the government manager, or the budget officer? The answer can sometimes be complex.

WHQR's Ben Schachtman talks with reporter Rachel Keith.

In general, elected officials are the ones who have the authority to approve actions concerning the government’s overall budget — and changes or amendments to it. That’s according to Kara Millonzi, the Robert W. Bradshaw Jr. Distinguished Professor of Public Law and Government at the University of North Carolina Chapel Hill.

According to Millonzi, counties and municipalities operate under a similar set of laws when it comes to delegating responsibilities between the governing body and the county/city manager. School boards also have a set of statutes that dictate this delegation — to a superintendent — which differ slightly from city/county government. But Millonzi said, for larger movements of money, the governing board cannot delegate authority to appropriate the general fund balance, recognize new revenue, or move money in between funds. Most of these stipulations come from the Local Government Budget and Fiscal Control Act for counties and cities. For school boards, it’s Chapter 115C.

But there is a dance that occurs between these elected officials, managers, and budget officers when it comes to signing off on the government’s business. In particular, county government, Millonzi said, “can get very confusing because there’s a lot of statutes assigning various responsibilities.”

After the governing board adopts the budget each year, money is then appropriated to each department within the county, city, or school district. Issues arise, Millonzi said, when the manager or budget officer translates that into actual services and enters into contractual agreements.

”So questions often arise, well, who has the power to enter into contracts on behalf of the government? And is that something the manager or the superintendent has powers of authority to do? Or is that something only the board can do? Or does it have to be delegated? And the answer is a mix of all three, unfortunately,” she said.

But the laws, Millonzi said, do allow for governing boards to delegate to the manager or the finance officer to enter into contracts. And sometimes she said, these delegations are “all over the map,” but it usually depends on whether it’s under a certain dollar threshold or falls within a certain category. For example, in terms of categories, the New Hanover County Commissioners cannot delegate decisions to the county manager if it deals with funding for economic development. And another example is the funding from the American Rescue Plan Act — most of that money has to be approved by governing boards, not government staff, said Millonzi.

As for a certain dollar threshold, generally, the governing body steps in to approve the action when consultant or construction costs reach a specific ceiling.

Below: A general breakdown of how much local governing managers and the superintendent can spend without this stamp of approval by the governing board.

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Rachel Keith
Local government public information officers sent the following ceiling amounts.

Technically, the governing boards approved the general budget allocation of these construction or consultant costs. The New Hanover County and City of Wilmington managers, along with the New Hanover County Schools superintendent, can direct where the money goes from these approved funding allocations. This means the manager or superintendent can go with, for example, a particular consultant to make repairs to buildings without going through the commission, council, or school board for approval. Sometimes this can be referred to as ‘discretionary spending' on the part of the managers.

According to UNC School of Government’s Kim Nelson, who is a professor of Public Administration and Government, New Hanover County and the City of Wilmington match spending limits with that of the City of Charlotte at half a million dollars for construction costs. For smaller North Carolina cities, Nelson said, the limit can be as low as $10,000. But the overall trend is that these limits vary among governing boards.

For school boards, the Board of Chapel Hill-Carrboro City Schools has to approve any contracts valued over $90,000, which is much less than New Hanover County’s $300,000 ceiling. For Wake County Schools, the board approves any contract over $100,000.

Controversies Around School District’s ‘Discretionary Spending’

Back in February 2021, Dr. Charles Foust, superintendent of New Hanover County Schools, chose a consultant, Sophic Solutions, LLC, a company out of Kansas City, Missouri — Foust was superintendent of Kansas City Schools from 2018 to 2020 — for the district’s equity and diversity audit. According to Sophics Solutions' contract with NHCS, the school system will pay the consultant $17,000 to complete the work.

The owners of the company, who are conducting the audit, are Stephenie Smith and Dr. Rodney Smith. During a March 2, 2021 board meeting, when they were first introduced to the board, they said they would be writing an equity plan that will be “leveraged as a tool so that school administrators can determine what steps to take,” in terms of assessing diversity, equity, inclusion, and belonging. The equity consultants will also be assessing NHCS in terms of an ‘equity scorecard.’

Board Members Judy Justice and Stephanie Kraybill asked questions of the team at this March meeting. Justice, in particular, wanted to know if they knew Dr. Foust while he was Superintendent of Kansas City Public Schools, to which he replied, “Yes.” The Smiths also explained to Justice that they’ve worked with three school districts and one private school on previous equity audits.

In New Hanover County Schools’ contract with Sophic Solutions, there is no mention of the team working with any school districts or educational organizations in North Carolina. Also listed in the contract is an anti-nepotism clause that forbids family members of the New Hanover County Board of Education or any principal or central office staff administrator from working with NHCS.

Board Member Stephanie Kraybill asked if this ordering of the equity audit went through the Equity, Diversity and Inclusion Committee and NHCS Deputy Superintendent LaChawn Smith replied that they didn’t “explicitly talk about this audit, but it aligns with [the] work of the Committee.” Smith added, “Dr. Foust connected us with the right people for this work.” According to Board Policy 3610, last updated in 2018, the superintendent or purchasing director “may require either formal or informal bids, at their discretion, in situations where neither law, NCGS 143-129 or NCGS 115C-522,” applies. This means that this bidding process is usually reserved for construction projects, not for consultants like Sophic Solutions.

In essence, Dr. Foust chose Sophic Solutions without getting approval from the board. The problem might be, according to Millonzi, that the governing board “does sign off on the justification for the total allotment. So during budget workshops or budget meetings around the adoption of the budget, usually department heads will justify their total requests based on where they plan to spend the money.” For example, it will outline a certain amount for personnel, programs, supplies, and capital programs. Millonzi said if a consultant is approved without the board’s knowledge, they can “certainly be unhappy about that, and there may be disciplinary action that the board or the manager might take if they've directed the staff members to follow to the letter what the plan was, but legally, they're within their rights once that appropriation is made to spend money within that budget appropriation.”

The NHCS equity audit has come under fire for a different reason recently. Some community members present at the board’s ‘Call to the Audience’ period at both the May and June meetings, as well as the New Hanover County GOP, equates “equity, diversity, and inclusion” with that of Critical Race Theory (CRT), an academic tool to study racism inherent within laws and government (as opposed to the racism or bigotry of individuals). These groups actively protested the merits of the audit because, they said, it teaches children to feel shame or guilt about America’s past. At the board’s June 8 meeting, Board Chair Stefanie Adams said, “Sophic Solutions support organizations that are committed to navigating change through an equity lens. They have facilitated a series of interviews with NHCS community members.”

According to the contract with NHCS, the Sophic Solutions, LLC, equity audit was launched in March 2021, the work was supposed to be completed last month, in May 2021. However, according to a spokesperson for NHCS, the audit hasn’t been completed yet.

Elsewhere in the state, this type of audit has also run into trouble. According to reporting from the Raleigh News and Observer, the former Chapel Hill-Carrboro City Schools Superintendent, Pam Baldwin, who was a former principal of John T. Hoggard High School, essentially resigned in April 2020 because of issues with discretionary spending on an equity consulting firm called, Education Elements.

The N&O reported that the payments to this consultant had been structured to avoid the board’s approval. One Chapel Hill-Carrboro Board Member Amy Fowler told the paper that they were caught off guard that Baldwin had even hired the firm: “[...] with most things that we do is a really long process of trying to get stakeholder input from the community and parents and teachers and students before embarking on transformational changes like this.”

According to Millonzi, this illustrates the issue of trust between the governing board and the manager or chief financial officer. It also unveils how much the board wants to be involved in the government’s day-to-day operations. “There are some minimum standards of oversight that are required, but there’s a lot of wiggle room within that. [...] Where issues arise, they might rein it in and clarify the policy. And then maybe over time, they allow more [flexibility] in the future. There’s a lot of reasons for variations.” The Chapel Hill-Carrboro City Schools did update their policy in November 2020 about seven months after Baldwin’s resignation.

But Millonzi said, the board at any time can change these types of policies: “[...] because they feel that the authority they have been delegated has either been extended too far by the superintendent or manager, or they feel uncomfortable in the way that they're supposed to carry their oversight role [...]. So I think it might help to start with the fact that no matter what, no matter what delegation has taken place, ultimately, the board has the fiduciary responsibility.” But Millonzi added, “there are a lot of smaller governing boards in which everything comes through them, but that’s not practical for mid to large size units.”

As for New Hanover County Schools, Board Member Justice said, "I think it's our role as a board to provide oversight for the superintendent that we do need to go ahead and discuss this superintendent's current ability to spend that much money.” She’s referring to the current board policy that allows the superintendent to spend up to $300,000 without the board’s ‘official’ approval, keeping in mind that they signed off on the general budget appropriations.

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NHCS
NHCS Board Policy 3410 dictates when the board has to sign off on contracts.

Justice said she would like to revisit the policy, but said that “Dr. Foust has the right to pick people professionally that he feels will do the best job possible. That is one of the reasons we hired him. But on the other hand, we also have the position that we're supposed to provide oversight and understand why he does the things he does professionally. So when it comes to the budget process, it's in the hands of the superintendent. And it's the board's approval. And so if we approve of what he puts in front of us, then it's on us.”

NHCS Board Chair Stefanie Adams did not respond to a request to discuss the policy.

Public Records Requests for ‘Discretionary Spending’

WHQR requested public records from New Hanover County, the City of Wilmington, and New Hanover County Schools on their ‘discretionary spending’ over the past 12-months, from May 2020 until April 2021.

New Hanover County Schools sent five contracts that the Superintendent approved. For example, they paid for a communications consultant, John L. White Communications LLC, about $15,000 from November 2020 to April 2021. According to an invoice for the work, the consultant is conducting a “communications audit, reporting on current strengths, and making recommendations for improvement.” John White also supported the new Chief of Communications, Michelle Fiscus, and advised the superintendent and the communications office on “staff responses to media inquiries.” However, Michelle Fiscus resigned in June 2021, working less than two months for NHCS.

The school system also paid close to $30,000 for the North Carolina School Boards Association (NCSBA) membership, which includes funds towards their legal assistance fund, and close to $16,000 for membership enrollment in the North Carolina Association of School Administrators (NCASA). NHCS also paid $9,000 to the Research Triangle Institute (RTI) for the state’s ‘Large District Consortium’ membership.

New Hanover County sent spreadsheets with all their purchase orders over the past 12-months. For example, the county paid $35,000 to a consultant to provide pre- and post-psychological and medical evaluations for the Sheriff’s Office. They paid $80,000 to another contractor to conduct maintenance services for the New Hanover County Landfill.

The City of Wilmington also sent spreadsheets of their purchase orders during this time. Examples include the city paying for their first phase of tree planting efforts worth close to $63,000. And the Wilmington Police Department received 25 in car cameras in May 2021 costing about $70,000.

Below: NHCS's contract with Sophic Solutions and the manager purchasing ordinances for the City of Wilmington and New Hanover County.