Paying the Bills: The Importance of the End of the Fiscal Year

July 7, 2017

The end of the fiscal year, June 30, brings with it, due to the Constitutional Debt Limitation, special legal requirements and concerns for municipalities as they close out one fiscal year and enter another. Last week we discussed the details of the required public notice that must be published during the month of July due to 62 O.S. Section 310.4. This week we will cover, from the 5,000 foot level, general legal principles of this complicated constitutional provision. Next week we will explore the legal concept of an appropriation.

The Constitutional Debt Limitation at Article 10, Section 26 means that a municipality must actually fund all of its expenditures for a fiscal year out of the income and revenues of that fiscal year. Meder v. City of Oklahoma City, 1960 OK 87, 350 P.2d 916. "Debt" is a failure to fund a contract or claim at the time the municipality incurs the obligation by the use of revenues from the contemporaneous fiscal year. City of Del City v. Fraternal Order of Police, Lodge No. 114, 1993 OK 169, 869 P.2d 309.

A debt is "funded" only if the budget contains an appropriation for the purposes of the debt. Wyatt-Doyle & Butler Engineering v. City of Eufaula, 2000 OK 74, 13 P.3d 47. Because all claims must be paid out of the "income and revenue provided," "there can be no conception of what amount represents the income and revenue provided, except by reference to the appropriation. . . ." City of Sand Springs v. Kraus, 1937 OK 517, 72 P.2d 726, 727.

As can be readily understood, which indebtedness can be paid and in what manner can be a complicated legal determination. If you are unsure about a specific indebtedness, you should obtain the opinion of your legal counsel. This can help protect city and town officials from potential legal liability.

June 30 *
1. On this date, the fiscal year ends and so does the power of the municipal governing body to appropriate funds or incur new obligations. Zachary v. City of Wagoner, 1930 OK 440, 292 P. 345. Even the people have no power to approve and fund a new debt for the prior fiscal year. Such an election yields an unconstitutional result. In re Town of Afton, 1914 OK 537, 144 P. 184.

2. If there are unencumbered funds remaining at the end of the fiscal year, claimants have until September 30 to submit their claims for unpaid obligations incurred by a municipality on or before June 30. This 90-day window is for the sole purpose of actually paying an obligation that was validly appropriated during the fiscal year. See, 62 O.S. § 310.4.

3. After the end of the fiscal year, the only payments that a municipality can make from revenues of that fiscal year are those for which funds were encumbered for the purpose of the claim or those for claims validly presented for payment on or before September 30. See, 62 O.S. § 310.1 et seq.

4. Payment of an expense in the absence of an appropriation is subject to criminal penalties. See 62 O.S. §§ 478, 479. Additionally, any officer who causes the municipality to incur debt in excess of the appropriation available shall forfeit and be removed from office. 62 O.S. § 310.3.

*[Note: A few municipalities have changed their fiscal year from July 1 to either a calendar year or some other beginning date. Therefore, they will have to substitute the date ending their fiscal year for the June 30 date.]


Please Note: This summary is not a substitute for legal advice. You should consult your city or town attorney prior to taking any action based on this document.

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