Why Is My Water Bill So High? Improper Fund Sweeps, Maybe? Or Definately?

Over the past few months I have asked Deputy City Manager David Morgan about some details concerning the Water and Sewer Fund.  The question comes about because of transfers of money out of the these non-tax supported, dedicated funds, for items such as “Reimbursements-General Funds”, “In Lieu of Street Rental Use Fee”, “General and Administration” and “Franchise Fees” note in the CAFR for the years 2014 and before. These same types of transfers have been made from the Solid Waste Fund and other funds.

Approximately $150,000,000 has been transferred out of the W&S and Solid Waste Funds since 1994. More than that has actually been swept from these funds, but I only have the CAFR pages back to fiscal year end 1994.

The laws and statutes governing local governments are very extensive and voluminous. It would be very easy miss relevant statutes or rules one would be looking for. This was the reason for my earlier questions in the emails concerning the transfers of revenue. I wanted to know what the city administrators and the city council were using for their justification and authority in making these transfers.

In response to an open record request, the makeup of General and Administrative was described as containing three parts: 1) The G&A portion of the fee covers the costs of administering these funds that are incurred by the General Fund. 2) The PC lease reimburses the General Fund for equipment. 3) PILOT (Payment in lieu of Taxes).

Of the three items, the only real and actual expense would seem to be item 2, leases on computer equipment.

Concerning the franchise fee, they state it is a 5% fee and the reason for the charge is because all utility providers in the city pay this fee. The point they seem to be missing is that the rights of way for the public works are already owned by the citizens.

The transfers have been called “Reimbursements-General Funds”, “In Lieu of Street Rental Use Fee”, “General and Administration” and “Franchise Fees”. These sweeps appear to be for “phantom” costs, not actual, real or quantifiable expenses, as best I can tell from the information David Morgan provided. As you probably already know, Dan Johnson has stated the purpose for these fund sweeps is for economic development reasons. The conduct in which these public funds are being used looks to be a case of city officials funding economic development and other projects in a manner violating restrictions found in statute and the charter.

Local government code, Section 552.017 (d) states, “The municipality may create, from revenue received from operating the water system, a separate fund dedicated solely to extending, operating, maintaining, repairing, and improving the water system.” “Phantom expenses” are not included as a justifiable expense in the statute. The statute includes the phrase “dedicated solely to”. As “Reimbursements-General Funds”, “In Lieu of Street Rental Use Fee”, “General and Administration” and “Franchise Fees” are not true expenses, sweeps using these named purposes do not appear to be authorized by statute. Only real and actual expenses should be paid out of the non-tax supported funds, not phantom expenses.

To use the non-tax supported utility funds as a piggy bank or revenue streams for other purposes, as appears the current practice, for such items as general government through the General Fund, or as a revenue stream for economic development, as well as being contrary to Local Government Code, would also be contrary to the city charter, specifically, Section 11.07 which in part states:  “… but no such transfer shall be made of revenues or earnings of any nontax supported public utility for any other purpose.” If there is no expenditure directly related a fund, there should be no transfer of funds.

When asked where the authority for transfers came from to make the transfers of revenue from the non-tax supported funds, your reply was that the authorization came from the City Council adopting a “Financial Policy” document. The use of the financial policies adopted in that document appears to not only be inconsistent with Section 552.017, but also appear to be inconsistent with Section 11.07 of the city charter. The non-tax supported funds are to be used solely for the purpose for which they were created.

Sometime back, a resident of Richardson questioned the finance department about transfers out of the Golf Fund which were called “PILOT” (Payment In Lieu Of Taxes). During the discussions what was revealed showed that the fee for PILOT were actually phantom expenses. The explanation given was that if the golf course were privately owned, then it would have a taxable value and property tax would be owed. But since the golf course was actually owned by the citizens of Richardson, and not a private party, the PILOT fee was abandoned after discussions with the citizen who raised the question.

The citizens of Richardson own the rights of way where the infrastructure for the water lines, sewer line and where the solid waste vehicle run. A Franchise Fee is normally used to pay a third party for use of a right of way not owned by an entity. Time Warner, Atmos, Oncor, AT&T and other companies may place their equipment on the property owned by the citizens and pay a fee for using citizen’s property. The Franchise Fee paid by the W&S and the SW Funds are phantom fees which are exactly like the PILOT fee that was once charge to the Golf Fund. The citizens are in effect paying rent to themselves for using their own property. That is not a true expense to any of these non-tax supported funds. It is an extra revenue stream for general government which is contrary to both Section 11.07 of the city charter and Section 552.017 (d) of local government code.

Concerning the General and Administrative Fee charge to the non-tax supported fund, the above paragraph would apply equally. The General and Administrative Fee is calculated using software that was not intended for this use. The General and Administrative Fees do not have actual expenditures tied to the fund sweeps. It would appear that this action is contrary to the city charter and statute just as the PILOT, Franchise and In Lieu of Road Rental Use Fees happen to be.

While these wrongly done transfers may artificially keep the official ad valorum tax rate lower than it would otherwise be, it needlessly increases the cost of city services to the citizens in one area where they could otherwise exercise some control over their expenses. That combined with fundamental structure of the Water and Sewer Fund works to penalize most those who most effectively conserve water.

When it comes to conservation of water, those who conserve should be rewarded. Currently there are just over 33,000 W&S accounts in Richardson. The $16 minimum fee on W&S generates about $6.3 million each year.  About $9.6 million a year is wrongfully taken out of the W&S Fund for general government purposes. A stop to the minimum fee and elimination of the wrongful fund sweeps would reduce a customer’s water bill by $290 a year, or $24 a month, all other things being the same. Such actions properly appropriate the W&S and SW revenues in addition to lowering the utility bills for all utility customers and provide rewards, rather than penalties, for those who actually conserve water.

Link to the relevant CAFR pages: http://graphics.dc-tm.com/CAFR-NonTaxSupportsFunds-94-14.pdf

Link to spreadsheet with extracted data: http://graphics.dc-tm.com/G&ATransfersFromW&S-SW-Golf.xlsx

Link to emails with Deputy City Manager: http://graphics.dc-tm.com/EmailExchangesWithDavidMorgan.pdf

Link to Open Records Request explaining G&A: http://graphics.dc-tm.com/ORR-MakeupOfG&AandFranchiseFees.pdf