Q: My treasurer has told the fiscal court that we must be extra careful between now and Dec. 31 to not spend more than 65% of any budget fund except the road fund, but even that had some quirk to it. Can you provide some clarification as to spending restrictions between now and the end of the calendar year?
A: Great question and one that is mainly asked every four years!
The 65-35 rule may be one of the longest-standing county fiscal requirements on the books today.
This rule went into effect before “The Greatest Generation” won World War II.
Why did that 1940s-era Kentucky General Assembly determine this requirement was needed? Beyond that, what does this rule that can bring misplaced trepidation to some county governments as fiscal courts should have little issue with compliance, require?
What exactly is the 65-35 rule and why does it still exist today?
The 65-35 rule mandates, with three exceptions, that:
The 65-35 rule exists to keep an outgoing fiscal court from fiscally hamstringing an incoming fiscal court. This is achieved by restricting expenditures and encumbrances from July 1 to Dec. 31 during the fourth year of the term of office.
This rule is applicable regardless of whether the judge/executive and fiscal court members will continue in office or will be stepping down at the end of the term.
While research for this article has not turned up anything definitive as to why this law was originally adopted, it’s safe to assume that an outgoing fiscal court left the incoming fiscal court with meager coffers and little budgetary room to operate county government.
While this rule may feel like unnecessary oversight as fiscal courts operate in a professional and cost-effective manner today, having 65% of budget funds available for expense, while only having to cover 50% of the year, should still allow fiscal courts to take advantage of opportunities available to the county without fear of exceeding the 65% restriction.
What does the 65-35 rule mean when translated from legalese to English?
- For this fiscal year, the 65% rule is applicable from July 1, 2026, to Dec. 31, 2026.
- “Encumber” essentially means a fund restriction.
- Unpaid purchase orders are an example of encumbered funds.
- “Expend” means to spend funds.
- Subject to the exceptions cited below, the maximum combined budgetary expenditures and encumbrances are 65% of each budget fund within the overall budget. This amount is determined by multiplying each budget fund by 0.65. Examples of budget funds include general, jail and road funds.
- Note that this rule does not apply to the sheriff or county clerk as their fiscal year ends Dec. 31 and does not carry over to the next term of office.
What happens in case of an emergency?
As noted above, there are three exceptions to the 65-35 rule. Kentucky’s General Assembly has made certain that county governments can face catastrophes without worrying about a violation. If a Kentucky county is faced with an emergency between now and Dec. 31, like those seen from tornadoes and floods, Kentucky counties can exceed the 65% cap upon the written agreement of the judge/executive, fiscal court and the state local finance officer.
What are the two other exceptions to the 65-35 rule?
Counties can exceed 65% in combined expenditures and encumbrances in the road fund if they have an equal match for the overage in the general fund. For example, if a county faces heavy snow and ice in November and December resulting in the county using $100,000 more than 65% of the road fund, the county can remain in compliance with the 65-35 rule if the county has at least $100,000 more than 35% of its general fund budget available Jan. 1.
Bonded indebtedness provides the final exception to the 65-35 rule. KRS 68.310 states in part that “…any budgetary allotments for or payments of principal and interest of bonded indebtedness” are exempt from this rule. Note that this exemption only applies to bonded indebtedness, not any other type of debt that the county may have incurred.
While the 65-35 rule is a restriction on a county’s spending ability during the fourth year of the term of office, it’s a wise restriction that can be easily complied with while assuring that the next fiscal court has the essential funding needed to start its term of office.
Legally Yours,
Rich Ornstein
If you have questions regarding the 65-35 rule or any other matter, email me at rich.ornstein@kaco.org, and if you have suggestions for other items you’d like me to cover in County Line, let me know.
