Island County vindicated in fund interest dispute

After more than a decade of fighting between officials from Island County and the state Auditor’s Office over an accounting issue, the state Attorney General’s Office finally weighed in with an official opinion.

The state’s top lawyer sided with the county, which means Island County Chief Civil Deputy Dave Jamieson has been right all along. It also means that the county won’t have to transfer $1.3 million from the current expense fund back into other funds and can continue transferring more than $100,000 in interest earnings each year from restricted funds into the woeful current expense.

“It certainly was a ruling in our favor and it will help us,” Island County Chief Deputy Auditor Anne LaCour said.

Island County Budget Director Elaine Marlow explained that the debate between the county and state auditor officials goes back to the late 1990s. At issue is the county’s use of interest revenues from restricted funds. These funds, such as capital facilities and conservation futures, are dedicated and cannot be used for other purposes beyond what they’re earmarked for.

But county officials felt that state laws allowed them to transfer the interest earned off the funds as they sat in the bank to the current expense fund, which pays for things like law and justice and general governmental work. Officials in Whatcom County interpreted the law likewise, according to LaCour.

The state auditor disagreed, arguing that the interest earned must stay in the funds.

As a result, the state auditor has recorded a “finding” on the county’s audit report over the issue a number of times. The county responded that they felt the state officials were wrong.

Then last year, Marlow said the state auditor started “playing hard ball” and threatened to give the county a “qualified audit opinion” unless county officials recorded all of the interest transferred over five years as a liability on the county’s books. In other words, the state officials concluded that the county would eventually have to pay back the $1.3 million from the current expense fund back to the various other funds, so they wanted the giant liability noted in the county’s financial statements.

A qualified audit opinion, Marlow explained, could have affected the county’s bond rating and put grant funding in jeopardy. Island County Prosecutor Greg Banks said exchanges between county officials and state auditor officials got “a little heated last summer,” but in the end the county went along with the state’s demand.

But to clear up the issue, the state auditor’s office asked the state attorney general’s office to render an opinion on the sticky issue. The opinion, published Dec. 21, concludes “the legislature has generally authorized counties, which are municipal corporations, to allocate interest earned on the investment of county funds into the current expense fund.”

The ruling, Marlow said, validates the trust the county commissioners have placed in Jamieson over the years.

“It shows that Dave Jamieson gave the board sound legal advice,” she said.

Monday morning, Marlow presented Jamieson with an award during a commissioners’ meeting for interpreting the law correctly and sticking to his guns all those years.

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