Budgeting maneuver could backfire on Tacoma
The City of Tacoma’s efforts to close a $12 million budget shortfall might take a step backward after public utilities officials recently discovered that a city budgeting maneuver three years ago likely misused utility funds and ran afoul of the law.
The upshot: The city might need to reimburse its utilities for as much as $1.7 million.
“It does appear to finance staff that the funds need to be repaid to the respective utilities,” city spokesman Rob McNair-Huff said Friday.
Tacoma Public Utilities director Bill Gaines said Friday that a TPU staff member discovered the bulk of questionable transfers from a fund into which the city, TPU and other city government entities contribute payments for shared overhead and administrative costs.
In 2009, the city transferred about $1.2 million of TPU contributions from the internal services fund to the city’s financially strapped general fund, which pays for basic city services.
“There were excess monies in that fund, and they got swept out and into the general fund,” Gaines said. “The question is, should that have been done that way or should those excess moneys go back to those who contributed them? We’ve asked (the city) to look into it and, if appropriate, to return the money.”
Since TPU raised the issue in January, city finance director Bob Biles and his staff have been reviewing the matter, McNair-Huff said. That review is not yet complete, but finance staff members have already determined the city made about $1.7 million in questionable “fund balance transfers” to the general fund, he said. The amount includes TPU’s contributions and about $478,000 in collective contributions from Tacoma’s solid waste, wastewater and surface water utilities.
The money was used to help balance the city’s 2009-2010 budget, which ultimately was cut by about $40 million over the two-year cycle.
Asked whether then-City Manager Eric Anderson or Biles authorized the transfers, McNair-Huff said: “Probably both. But I believe that the council was briefed about what was happening as well.”
State law generally prohibits municipalities from shifting costs of general government services to utility ratepayers, and Tacoma’s City Charter states that utility revenues “shall never be used for any purposes other than” those related to utilities. Many TPU customers live outside Tacoma and don’t use other city services.
If the city, in fact, has misused the money and needs to pay it back, the repayment will add to the $12 million general fund shortfall that must be closed by year’s end.
Biles’ staff hasn’t yet determined how much of the $1.7 million in questionable transfers would be added to the budget gap, McNair-Huff said.
“They’re anticipating some offsetting revenues that could lower the impact on the general fund,” he said. “We’re hoping that that’s the situation.”
Since late September, the city has grappled to close a 2011-12 budget gap that at one point swelled to a projected $33 million. The city so far has addressed about $21 million through a mixture of layoffs, retirements, furloughs, service cuts and new city taxes, charges and fees. City Manager T.C. Broadnax is expected to unveil a plan to deal with the rest of the shortfall in mid-April.
The city’s questionable fund transfers are a separate issue from problems state auditors recently identified in the way Tacoma has charged TPU for shared administrative costs.
An audit report released in November found that the city potentially overbilled TPU by more than $1 million for overhead assessments in 2009. Findings of the state’s review, which looked at only five of some 50 charges assessed by the city, supported TPU officials’ long-running contentions that the city for years has been overcharging the utility to help balance the general fund.
Late last year, then-interim City Manager Rey Arellano formally disputed some of the audit’s findings and contended that changes in Tacoma’s assessments process had addressed others.
But auditors’ recommendations and TPU’s concerns have yet to be resolved, Gaines said.
“That’s something else they’re supposed to be working on that we haven’t seen happen,” he said.
Specifically, the city and TPU are trying to iron out two issues, Gaines said. “One is to make corrections to the assessments going forward,” he said. “The other is to determine whether or not some corrections need to be made looking backward.”
The latter would mean determining whether and how much the city should reimburse TPU for overbilling the utility.
“We don’t know yet if they’re going to do that,” Gaines said.
McNair-Huff said Friday that he didn’t readily know where the city’s response to the audit stood, but he noted that finance staff is now working to address TPU’s concerns about assessments for the 2013-14 budget.
Councilman Jake Fey – the only council member to vote against Anderson’s controversial 2011-12 budget plan partly due to concerns raised by TPU – said he and other council members learned about the questionable budget transfers Monday.
“We were all kind of taken aback,” he said.
“We don’t really know yet how this happened or who’s responsible,” Fey added. “Somebody was either told to do it or somebody has made a mistake. But it needs to get corrected.”
Lewis Kamb: 253-597-8542