City Council discusses fund transfers

Published 1:05 am Thursday, March 31, 2011

Washington’s City Council continues to emphasize the need to reduce transfers from the city’s electric fund to its general fund, which pays for the day-to-day operations in the city.

During its review of a report on Washington Electric Utilities earlier this week, the issue of such transfers surfaced. So did discussion of a “forgotten” amount of money that goes from the electric fund to the general fund and a payment in lieu of taxes.

Many WEU customers who don’t live in the city object to transferring money from the electric fund to the general fund. They contend that at least part of the money they pay on their electric bills is used to subsidize city operations, services and programs.

Some city officials, including former City Manager James C. Smith, have said the transfer from the electric fund to the general fund is similar to a private power company like Progress Energy paying a dividend to its stockholders. Eliminating the annual transfer – or reducing it – and making the general fund self-supporting likely would require finding revenue sources to replace the transfer amount, cutting expenses or a combination of the two, city officials have said.

Mayor Archie Jennings and the current council, after being elected in 2009, said they planned to reduce the amount of money transferred annually from the city’s electric fund to the city’s general fund.

In previous fiscal years, the annual transfer from the electric fund to the general fund was a little more than $1 million. The electric-fund transfer in this year’s budget amounted to around $973,000, about $200,000 less than transfers from the fund in the previous fiscal year.

Council members and Jennings have said they want to eventually wean the general fund off transfers from the electric fund.

Jennings said there’s another “forgotten” piece of the transfer picture, referring to the general fund charging the electric fund for administrative services the city administration (general fund) provides WEU (the electric fund). Other city departments also pay for services provided by the city administration.

Jennings said that “forgotten” figure comes to about $1.3 million a year. Reducing those charges would leave more money in the electric fund, he said.

“What I didn’t see mentioned there were the administrative charges that we pay from the electric fund to the general fund,” Jennings said during the discussion of the report’s findings with Tim Blodgett, president and CEO of Hometown Connections, which reviewed WEU’s operations and wrote the report. “Did you check into that?”

“We looked at that, but we did not list that in the report, but, yes, that’s something to be aware of” and to keep in consideration, Blodgett said.

Jennings said the absence of that “forgotten” number in the report and in budget discussion concerns him.

“I know we need to have administrative charges because we borrow services or contract, essentially, with the general fund, but is that being done at a level that’s suitable, or are we stretching the finances of the electric fund? Do you follow me?” Jennings said.

“The charge-backs are very common and very appropriate,” Blodgett replied.

City Electric Director Keith Hardt said the administrative costs charged to the electric fund by the general fund are “very equitable based on the services that are provided.”

“We don’t have a relative comparison of those administrative charges,” Jennings said.

It would be helpful to know how other public-power municipalities handle such administrative charges, he said.

Hardt said about half of the 73 public-power municipalities in North Carolina do not list administrative charges as part of their transfers.

“There’s probably only a handful that actually have a very detailed chart. We can get some of those,” Hardt said.

WEU also makes a payment, known as a payment in lieu of taxes (or PILOT), to the general fund. If WEU was a private, investor-owned utility, it would be paying taxes on the property it owns within the city. So, instead of paying taxes, WEU makes a payment equivalent to what it would pay in taxes if it were a privately owned power provider.

For this fiscal year, that payment in lieu of taxes comes to $119,745.

Councilman Doug Mercer said the combination of the direct transfer from the electric fund to the general fund, payment in lieu of taxes and the administrative charges (about $250,000 annually) the electric fund pays to the general fund results in a substantial amount of money leaving the electric fund each year.

“So, we’re taking $2.5 million out of a budget where we are purchasing $28 million worth of power and selling it for $35 (million). So, we’re getting over 30 percent of that income (the $7 million difference) going into the general fund either by direct charges, administrative charges or PILOT,” Mercer said.

Mercer said the city needs to find out if that 30-percent figure, when compared to other public-power entities, is high or low.

About Mike Voss

Mike Voss is the contributing editor at the Washington Daily News. He has a daughter and four grandchildren. Except for nearly six years he worked at the Free Lance-Star in Fredericksburg, Va., in the early to mid-1990s, he has been at the Daily News since April 1986.
Journalism awards:
• Pulitzer Prize for Meritorious Public Service, 1990.
• Society of Professional Journalists: Sigma Delta Chi Award, Bronze Medallion.
• Associated Press Managing Editors’ Public Service Award.
• Investigative Reporters & Editors’ Award.
• North Carolina Press Association, First Place, Public Service Award, 1989.
• North Carolina Press Association, Second Place, Investigative Reporting, 1990.
All those were for the articles he and Betty Gray wrote about the city’s contaminated water system in 1989-1990.
• North Carolina Press Association, First Place, Investigative Reporting, 1991.
• North Carolina Press Association, Third Place, General News Reporting, 2005.
• North Carolina Press Association, Second Place, Lighter Columns, 2006.
Recently learned he will receive another award.
• North Carolina Press Association, First Place, Lighter Columns, 2010.
4. Lectured at or served on seminar panels at journalism schools at UNC-Chapel Hill, University of Maryland, Columbia University, Mary Washington University and Francis Marion University.

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