As detailed here, as part of nationwide settlements (and bankruptcy resolutions) with major opioid manufacturers, distributors, and retailers, North Carolina local governments are expected to receive over a billion dollars in funding over an 18-year period to address the ongoing impacts of the opioid epidemic in their communities (collectively “opioid settlement funds”). All 100 counties and the following municipalities will receive the opioid settlement funds: Asheville, Canton, Cary, Charlotte, Concord, Durham, Fayetteville, Gastonia, Greensboro, Greenville, Henderson, Hickory, High Point, Jacksonville, Raleigh, Wilmington, and Winston-Salem.

Local governments executed a Memorandum of Agreement (NC MOA) with the State regarding the use of the funds and certain process, compliance, and reporting requirements. Additionally, the Local Government Budget and Fiscal Control Act and other related state law provisions govern the budgeting, contracting, accounting, disbursement, and management of these funds.

The previous blog post outlined the allowable expenditure framework and detailed the process requirements for approving and budgeting expenditures. This post discusses the budgeting options and processes for these funds, including a new alternative—a settlement project ordinance.

Budgeting Requirements

As discussed here, either before or after adopting/amending the Authorizing Resolution, the governing board must appropriate the opioid settlement funds in a budget ordinance, consistent with State law requirements. The funds must be budgeted before they can be obligated and expended. Currently, there are three budgeting options—(1) the annual budget ordinance; (2) for capital projects only, a capital project ordinance; and (3) a settlement project ordinance. A local government will receive distributions of opioid settlement funds over 18 years, through 2039. Regardless of the budget option it chooses, there is no requirement that a local government expend all the funds it receives in a fiscal year during that year, or even during the 18-year period. A local government may carry-forward balances from year-to-year. The monies remain subject to the expenditure restrictions.

1. Annual Budget Ordinance

Appropriations for eligible programmatic strategies, personnel costs, other operating expenses, and capital projects may be budgeted in a special revenue fund in the annual budget ordinance. The annual budget ordinance must be balanced as adopted and amended for the fiscal year. That occurs when appropriations equal estimated revenues + appropriated fund balance in the special revenue fund.

As detailed here, appropriations are made by department, function, or project. They are not broken down by strategy. Instead, multiple strategies may be aggregated in an appropriation to the department that will implement them. Estimated revenues should include the amount of opioid settlement funds the local government expects to receive and expend during the fiscal year. If a governing board wants to appropriate opioid settlement funds received in a prior fiscal year, it will do so as appropriated fund balance. Because the annual budget ordinance only spans a single fiscal year, a governing board may not appropriate opioid settlement funds it expects to receive in future fiscal years. (Note, though, a governing board may include strategies that will be funded with future opioid settlement fund disbursements in the Authorizing Resolution.) Further, if there are any appropriations that are obligated but not disbursed as of July 1, the governing board must re-appropriate the funds in the next year’s annual budget ordinance. And if there are any opioid settlement funds that are appropriated and not obligated during the fiscal year, they revert to restricted fund balance in the special revenue fund as of July 1.

Although there is significant variation in budget formats across local governments, the legal budget ordinance must include estimated revenues, appropriated fund balance (if needed), and appropriations by fund. To illustrate, assume a local government has identified two strategies so far—hire an opioid settlement fund coordinator in the general administration department ($92,000 salary / benefits) and implement naloxone distribution program in the Sheriff’s Office ($340,000). The local government intends to use $200,00 from the budget year’s opioid settlement fund disbursement and fund the remainder from fund balance from last year’s disbursement. Here is how it would be presented in the annual budget ordinance:

OPIOID SETTLEMENT SPECIAL REVENUE FUND
Estimated Revenue
Opioid Settlement Funds                                   $200,000
Appropriated Fund Balance
Opioid Settlement Fund Balance                       $232,000
Total Revenues                                                 $432,000
Appropriations
General Administration                                      $092,000
Sheriff’s Office                                                   $340,000
Total Appropriations                                        $432,000

The governing board also may appropriate other revenues in the general fund to these same departments to contribute to the costs of the strategies.

2. Capital Project Ordinance

If the governing board chooses an eligible capital project strategy, it may alternatively budget it in a capital project ordinance. See G.S. 159-13.2. A capital project ordinance may be used for any project involving the construction or acquisition of a capital asset. The advantage of this budgeting vehicle is that it spans for the life of the project, instead of a single fiscal year. The governing board may include as estimated revenues opioid settlement fund revenues it expects to receive in future fiscal years to balance the appropriations for the project. And, as with the annual budget ordinance, a governing board may appropriate opioid settlement fund balance to cover remaining project costs. The opioid settlement monies budgeted in a capital project ordinance are accounted for in a multi-year special revenue fund.

The process for adopting a capital project ordinance is simple. The board may adopt it at any regular or special meeting, by a simple majority vote of those present and voting, assuming a quorum of board members is present. The capital project ordinance must be balanced and must “clearly identify the project and authorize its undertaking, identify the estimated revenues that will finance the project, and make the appropriations necessary to complete the project.” Id.

The budget officer is required to submit information to the governing board each year during the annual budget ordinance process alerting the board to any capital project “(i) expected to be authorized by [a] project ordinance during the budget year [and/or] (ii) authorized by previously adopted project ordinances which will have appropriations available for expenditure during the budget year.” Id.

A local government may not begin a project until the budget has been adopted. Once adopted, though, a local government may incur obligations and make disbursements authorized by the budget appropriations before receiving estimated revenues. It uses available fund balance to front the cash.

Here is a capital project ordinance sample that local governments can use as a template.

3. Settlement Project Ordinance

There is new budgeting option authorized by G.S. 159-13.2, a settlement project ordinance. It is a multi-year budget in which the governing board can appropriate opioid settlement funds for both capital and programmatic (operating) expenses. It can be used as a budgeting vehicle for any authorized strategy under the Opioid Settlement MOA and state law. See Section 1 of S.L. 2024-1. As with a capital project ordinance, the governing board may estimate revenues and make appropriations for the entirety of the authorized strategy, which may span the entire 18 years (or what’s remaining of it). More than one strategy may be included in the same settlement project ordinance, but each is listed separately. The settlement project ordinance must be balanced and must “clearly identify the project and authorize its undertaking, identify the estimated revenues that will finance the project, and make the appropriations necessary to complete the project.” G.S. 159-13.2. The board may include as estimated revenues opioid settlement funds it has already received (fund balance) and/or that it expects to receive in future fiscal years to balance appropriations. And the board may appropriate other revenues to supplement opioid settlement funds.

The process for adopting or amending a settlement project ordinance is the same as for a capital project ordinance. The board may adopt it at any regular or special meeting, by a simple majority vote of those present and voting, assuming a quorum of board members is present.

The budget officer is required to submit information to the governing board each year during the annual budget ordinance process alerting the board to any settlement project “(i) expected to be authorized by [a] project ordinance during the budget year [and/or] (ii) authorized by previously adopted project ordinances which will have appropriations available for expenditure during the budget year.” Id.

A local government may not begin a program or project until the budget has been adopted. Once adopted, though, a local government may incur obligations and make disbursements authorized by the budget appropriations before receiving estimated revenues. It uses available fund balance to front the cash. The opioid settlement monies budgeted in a settlement project ordinance are accounted for in a multi-year special revenue fund.

Here is a sample settlement project ordinance that local governments can use as a template.

Changing from Another Budgeting Format to a Settlement Project Ordinance

Because of confusing statutory language, some local governments may have initially adopted a grant project ordinance for their opioid settlement funds. Of these units, several converted appropriations to the annual budget ordinance last year. Others left funds in the grant project ordinance, hoping for a legislative change to allow that budgeting vehicle. Either way, a local government may be looking to now switch to the new settlement project ordinance option. The following provides a guide to transition from a local government’s current budget format to a settlement project ordinance, based on various scenarios. It is worth emphasizing that if a local government wishes to continue to appropriate these funds through the annual budget ordinance, it may do so. It does not have to switch to a settlement project ordinance. The settlement project ordinance is the better vehicle for multi-year programmatic budgeting of these funds, though.

1. No Opioid Settlement Funds have been Budgeted. This is the easiest scenario. A local government may pick from any of the budgeting options above, including a combination of options. Just make sure funds are not budgeted twice!
2. Some Opioid Settlement Funds have been Budgeted in the FY 2023-24 Annual Budget Ordinance. Here is a sample settlement project ordinance templateWe are fast approaching the end of FY 2023-2024. If a local government already expended and disbursed the budgeted opioid settlement funds, there is nothing left to do. If a local government obligated (and thereby encumbered) the funds, but does not disburse them before July 1, 2024, the governing board will need to re-budget the encumbered amounts in the FY 2024-25 annual budget ordinance. (This will be done as a budget amendment early in the new fiscal year. The funds must be budgeted in the new annual budget ordinance before they can be disbursed.) If a local government did not yet obligate the funds, it can either re-budget the monies in the FY 2024-2025 annual budget ordinance or instead budget the funds in a settlement project ordinance.
3. Some or All Opioid Settlement Funds have been Budgeted in a Grant Project Ordinance. If a local government budgeted opioid settlement funds in a grant project ordinance, it must now convert it into a settlement project ordinance. Because the process for creating the two different budget ordinances is the same, the board can simply amend the grant project ordinance to convert it to a settlement project ordinance. That will validate all the existing appropriations as of the date of the conversion.
4. The Proposed FY 2024-2025 Annual Budget Ordinance Includes Appropriations of Some Opioid Settlement Funds. If the proposed FY 2024-2025 annual budget ordinance includes appropriations of opioid settlement funds, the local government can choose to leave those budgeted appropriations for this year or modify the proposed budget to pull those out and instead budget in a settlement project ordinance. If the FY 2024-2025 annual budget ordinance has already been adopted, the board can do the same thing through a formal budget amendment.