The Official Response - We Are Doing Nothing Illegal

Reminds me of Bill Clinton - " I DID NOT have SEX with THAT woman"

While this isn't abut sex, it is about pushing the edge and what appears to be going beyond that edge in legal terms.

Here is the response from Laura about the fund sweeps:

Thank you for your understanding about being out of town.  It was definitely a much needed break and I managed to get back to Richardson with no serious injuries…other than to my ego from the falls I took when I forgot that I am 50 not 15!!  Anyways…

I did in fact want to get back to you on the topic addressed in both your emails below as well as the recent Richardson Tea Party meeting.  I am responding on behalf of the entire City Council and have included them all on this response as well as the City Manager’s office.  Candidly, we take the words “official misconduct” very seriously.  And as I mentioned to you last week, despite the fact that it was spring break, I spoke by phone with Paul Voelker – who was contacted by David – as well as asked the staff for some additional clarification and background to share.  Additionally, we have confirmed that our practices and procedures are not in violation of our charter with the city attorney.

Regarding the General and Administrative Charges and Franchise Fees…This is a question that we get occasionally and we are happy to explain the procedures/policies/etc…of how the City operates:

The City has historically made transfers from the Water & Sewer and Solid Waste enterprise funds.  The transfers consist of general and administrative charges (includes a payment-in-lieu of taxes) and franchise fees. 

These utility funds are accounted for as enterprise funds because the revenues raised by these funds fully support the operation of each utility.  If these were private utilities, they would have their own boards, management, financial staff, engineering staff, buildings, maintenance and janitorial services, and pay franchise fees to the municipalities where they operate, etc.  Because the utility/enterprise funds use services that are hosted in the general fund, the utility fund is charged for the portion of the service they use.   

A transfer from an Enterprise Fund to the General Fund to support general and administrative services, payments-in-lieu of taxes and franchise fees is a common practice that is allowed by Generally Accepted Accounting Principles.  The City’s financial statements are audited by an independent auditor and the City’s financial practices and statements are also reviewed by bond rating agencies.    

The City Attorney has said that the transfers do not violate the City Charter because they are budgeted in the utility funds and the City Council approves the budgets for those funds.  In other words, no transfer of an unencumbered balance of an appropriation is made from a nontax fund.   Additionally, Local Government Code 552.017 does not apply to transfers or charges from a utility fund to the city’s general fund; and therefore is not applicable.  In fact the statute does not even mention or address transfers or charges from a utility fund to the city’s general fund. There is nothing in that statute or otherwise that prevents a city from charging a public utility for the goods/services they use that are hosted in the general fund. 

The City Council’s adopted financial policies include a provision that allows transfers for general and administrative charges and the franchise fee.

General and administrative charges are calculated based on a cost allocation plan that is completed by a third party company.  Between plans, the amount is adjusted each year based on the consumer price index (CPI).  The cost allocation plan allocates the cost of services provided by general government employees and services to the water and sewer and solid waste funds.  The allocation amount includes costs for building use, records management, facility maintenance, mail, CITV, city secretary, CIS, engineering, finance and accounting, budget, information services, human resources, fleet, fuel, and purchasing, to name a few.  General and administrative charges also include a payment-in-lieu of taxes (PILOT).  The PILOT is calculated using the value of the property, plant and equipment times the city’s tax rate and the CPI.  This amount equates to the amount of taxes the utility would pay if they were a private utility. 

The franchise fees are calculated based on 5% of revenues from the utility charges in the Water & Sewer and Solid Waste funds.  The City does not have a franchise agreement with itself, but the City Council approves the franchise fee as part of the budget.  If the city contracted with a private company for utility services, then the private utility would pay a contractual franchise fee.  For example, solid waste trucks are heavy and cause wear and tear on city streets.  The franchise fee helps repay the general fund for this wear and tear.  Another example is that water lines are in the city’s rights-of-way and the franchise fee pays for use of the right-of-way just like a private utility has to pay a franchise fee for use of the right-of-way. 

I hope this explanation helps. If upon reading the above you still have questions or concerns, I would be happy to discuss this further.

Laura

What can you say to a response like that. B.S.? Well, here were my thoughts:

Hello Laura,

What  the city attorney has supplied you with for this response is very bizarre, twisted even. Apparently he seems to have trouble understanding English.

There are two points here, first is his unarguably misunderstanding of the language in the city charter, the second is that 552.017 does apply to the concerns mentioned.

Regarding the charter, your response indicate that he thinks section 11.07 only applied to unencumbered revenues in a fund. "The City Attorney has said that the transfers do not violate the City Charter because they are budgeted in the utility funds and the City Council approves the budgets for those funds.  In other words, no transfer of an unencumbered balance of an appropriation is made from a nontax fund. "

Here is the language in the city charter: "Section 11.07. Transfer of appropriations. The Council may at any time transfer an unencumbered balance of an appropriation made for the use of one department, division, or purpose; but no such transfer shall be made of revenues or earnings of any nontax supported public utility for any other purpose."

Quite obviously, to any intelligent person, the reference in the city charter is speaking to transfers in general. The first parts states that transfers of unencumbered funds may be transferred from one department or another. The second part very clearly states an exception to transfer of any revenue or earnings, encumbered or not, from non-tax supported funds. To argue otherwise is simply lunacy.

If it were the case, as the city attorney argues, that all it takes to appropriate money within a budget from a non-tax supported fund, then all taxes and fees could be done away with, with the exception of water sales, and sufficiently raise the water rate to cover all expenses incurred for running the city.

A municipality is granted the authority to created a water fund through LGC 522.017, or so it would seem. Section552.07 (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. This revenue may be pledged for paying the principal of and providing an interest and sinking fund on bonds issued for these purposes, subject to applicable regulations in the municipal charter."

I find it interesting that the city attorney claims this section of LGC does not apply. There are 5 specific categories for which revenue can be used. The use of revenue for phantom and non-existent expenses are not among those 5 items. As you have noted, PILOT. payment in lid of taxes, is a made up fee, not and expenditure or cost. It is quite simply a money grab. The franchise fee, as you admit, is not an expense. Rather it requires the use of an imagination to pretend the water and sewer and solid waste funds are privately own in order to justify the improper taking of revenues. It is not privately owned. That is the reality.

But, whatever.