Many local government officials, reticent to increase their unit’s property tax or other tax rates, look to alternative revenue sources to support general government services and activities. One potential source of revenue is that generated from the fees and charges assessed on “customers” of a unit’s public enterprise services (such as water, sewer, solid waste, electric, natural gas, or storm water services). This source of revenue may be particularly enticing to local officials if a substantial portion of the enterprise revenue is generated from non-resident customers (customers residing outside the local government’s territorial boundaries). But, may a local unit transfer the revenue earned from its public enterprise services to support its General Fund expenditures? The answer is maybe. It depends, in part, on the amount of revenue generated by the enterprise activity and the specific public enterprise service from which the revenue was derived.
According to NYS Law a local unit generally must establish and maintain an accounting system that includes, among other funds, a General Fund and a Fund for each public enterprise owned or operated by the unit (to the extent required under Generally Accepted Accounting Principles). A fund is a separate fiscal and accounting entity with its own self-balancing set of accounts; its own assets, liabilities, and equity; and its own revenues and expenditures. The General Fund is the main operating fund of the government and accounts for all transactions that are not properly accounted for in another fund.
Transfers from an Enterprise Fund to the General Fund
NYS law states that “[n]o appropriation may be made from a utility or public service enterprise fund to any other fund than the appropriate debt service fund unless the total of all other appropriations in the fund equal or exceed the amount that will be required during the fiscal year, as shown by the budget ordinance, to meeting operating expenses, capital outlay, and debt service on outstanding utility or enterprise bonds or notes.” This provision, thus, actually authorizes a local unit to transfer monies from an Enterprise Fund to the General Fund, as long as all of the budgeted expenses for the enterprise activity are covered for the fiscal year.
Does that then mean that a local government may set its public enterprise utility rates so as to earn a profit to supplement the General Fund? Not necessarily. To determine if a transfer can be made to the General Fund, you also have to consider any limitations on the use of the public enterprise revenue.
There are no explicit restrictions on the use of water or sewer revenue (other than those imposed by NYS Office of Comptroller bond covenant requirements, or local ordinances). There are restrictions on solid waste revenue—statutorily, the revenue from most solid waste fees and charges must be used only to support solid waste services. Similarly, storm water fee revenue must be used only to support storm water services. And, NYS Public service laws restricts transfers from an electric fund for certain general fund activities.
Note that the above restrictions do not prohibit a local unit from using enterprise revenue (from any of the enterprise activities) to compensate the General Fund for any reasonable overhead expenses, such as for administrative oversight and support. This allowance, however, should not be used to circumvent the statutory or local policy limitations.
Authority to Make Transfers
Who has the authority to make transfers between the Enterprise Fund and the General Fund? Only the governing board. Although, pursuant to NYS municipal accounting law the governing board may authorize the unit’s budget officer to transfer moneys from one appropriation to another within the same fund, the governing board may not delegate the authority to transfer moneys among different funds.
In the Village of Ilion, use of electric and water utility funds( enterprise funds) have been routinely used for years to supplement the budgets of the General fund, thus offsetting or reducing increases in property taxes. I will not debate the legality of such Interdepartmental transfers, nor whether all the legal criterium and procedures are and were followed at this time, however a discussion of whether this is a wise long term policy having overall benefit to the fiscal health of a community and its public operations and obligations needs to be explored.
It is some what cumbersome and difficult to determine the exact amount of funds that are annually transferred and or supporting the General fund from the budgets and reserves of the Village water and Electric utilities. There are interdepartmental transfers, general Government support services, and other budget line items listed, totality of these line items and transfers for Water is nearly near or over $200,000, electric $377,000 to $500,000 dollars, for the Fiscal year 2019-2020.
Based on the preamble of this discussion, and NYS laws and regulations the first and foremost criterium of legal allowance is for a municipality to prove and show that the enterprise Fund( in this case water and electric are self sufficient)that the budgeted expenses for the enterprise activity are covered for the fiscal year. We Know with the water fund, cash flow has been a chronic issue, bonds and debt are in trouble of being paid and rate increases in the double digits have been imposed. Capital projects, maintenance and improvements are not even listed or broken down, no capital or reserve funding exists. Yet the annual Transfers to the General budgeted continued, in violation of the letter and intent of governing accounting rules and Legislation.
We also see, must recently in Municipal Utility Board( MUB)) minutes that a request for an Electric Comprehensive master plan has been tabled and or rejected by this current Village Board. Why? Could it be is it not self evident that these funds are being committed/ planned to the General fund first and not the utility?
These laws and regulations are in place to protect the people, to assure transparency and integrity, that their property tax and rate payer funds are used/ appropriated to those public resources and amenities in which they were/ and are intended by public vote, referendum, law and stated budgetary and adoptive policies set forth.
We are seeing the consequences of these egregious actions, of misappropriations. A water system in failure and disrepair. Costing tens of millions of dollars. Is the Electric Utility next? Are there major upgrades and maintenance that needs to occur to prevent similar catastrophic failures. We do not know, as the MUB is virtually inactive, offering little to now discussions, insights, recommendations or advisement, and the Village Board itself continues with lack of transparency, unaccountability, vison and direction.
All of this as the Title of this discussion states is a recipe for disaster, the first and final steps to bankruptcy and insolvency.
David Murray
13 Grove Street
Ilion
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