Hidden Taxes
May 1, 2011, 12:21 AM
Filed under: Taxes, Water-Sewer-Sanitation

Slush Funds?

In response to our April 24, 2011 post on the City’s use of enterprise funds to balance the budget, the City’s Finance Director, Matt Lalla, wrote to Commissioner Blattner, justifying the practice.

While the practice is not uncommon, as Mr. Lalla states, we do not believe it is justifiable for a well-managed city. Both views are posted below. You decide.

Matt Lalla
Finance Director
City of Hollywood

This version of the “Balance Sheet” newsletter is, in my opinion, a little misleading. The amounts transferred out of the City’s enterprise funds to the General Fund represent payments for Administrative Service Charges and Payments in Lieu of Taxes (PILOTs).

These payments are imposed on the City’s enterprise funds in order to reflect the true and complete cost of these operations. These payments are made to recapture General Fund support services provided to enterprise operations in the form of: general management (from the City Manager’s office), legal services, accounting, payroll, human resources, risk management, bond financing, cash management, etc.

In addition, these payments have been reviewed and accepted by the City’s auditors and do not reflect some sort of accounting that is less than factual (as implied in the newsletter).

If the City did not recapture the cost of such support services, then the City’s taxpayers, through the General Fund, would be subsidizing the rates imposed by the City’s enterprise operations. This situation would certainly be deemed unfair for City residents.

As I am sure you are aware, the recent water and sewer rate increases have nothing to do with administrative service charges or PILOTs. Recent (and future) water and sewer rate increases are necessary to support the Public Utilities capital improvement program in order to replace an aging infrastructure and comply with regulatory mandates.

FYI, these types of charges are not unique to Hollywood and are a common practice in most jurisdictions….

Balance Sheet

Mr. Lalla simply amplifies the techniques by which the city has balanced our budgets for years. The question is whether diverting water-sewer-garbage fees is the best method to raise the funds necessary to run the city.

The use of enterprise funds in this manner creates a burden on those least able to pay and prevents those more able to pay from taking a tax deduction. (Real property taxes are an itemized deduction on the federal income tax form. User fees are not.)

Let’s look at the Payments in Lieu of Taxes (Mr. Lalla’s PILOTs). Agreed that the water, sewer, and public works facilities sit on city owned land and do not pay property tax. If we’re going to charge them a payment in lieu of taxes, why don’t we charge parks and rec for all of the buildings and fields on city land?–or for that matter any other facility on a city owned parcel. The obvious answer is that enterprise funds differ because they are cash generators of income that can be raided.

Let’s take a quick glance at the Administrative Service Charges made against these funds. Each enterprise fund has its own budget and most conceivable administrative costs are covered in its operating budget. Why then should the General Fund remove millions from the enterprise funds for unspecified “administrative costs.” Double dipping?

Mr. Lalla states as justification only what is legal and convenient, but not what a prudent well-managed city would do. Isn’t it time to eliminate old practices that merely disguise the problems instead of trying to justify their continuance?

Instead of raiding the enterprise funds, the City should supplement the General Fund through better bargaining and streamlining operations. Any shortfall should then be covered by raising the millage rate.

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