Colorado Springs Utilities “Payment in Lieu of Taxes” is a fraud on the public.
By Seth Richardson
In 1912, amateur archeologist and fraudster Charles Dawson perpetrated one of the most infamous scientific frauds in history, one that endured for 41 years. His presentation of bone fragments dubbed “Piltdown Man” (Eoanthropus dawsoni) was thought at the time to be a major advancement in paleontological knowledge. Turns out it was nothing more than a fraud that deeply embarrassed the scientific community.
Colorado Springs has its own embarrassing 17-year long PILT fraud that’s still in progress, but it’s time to reveal it for what it is and rectify the situation.
PILTs, or “payments in lieu of taxes” are an accounting technique that allows government to move money from profit-making government enterprises to other government units or to its own general fund without actually imposing a tax on the government-owned enterprise. This is a necessary accounting fiction because Separation of Powers Doctrine considerations prohibit one level or department of government from levying a tax on another level or department of government. This is why the federal government has to tax taxpayers directly, rather than simply levying a tax on the state itself, and why El Paso County can’t send a bill to the federal government for property tax on National Forest lands.
PILTs are often used as an appropriate way to compensate various government sub-units for the financial effects of a profit-making enterprise operated by another unit, such as convention centers, zoos, museums, sports stadiums and the like. But all these revenue-generating enterprises have one thing in common, and it is that commonality that makes PILT payments both legal and just; they are all profit-making enterprises that generate revenue through the sale of tickets or services to citizens and commercial interests who are free to choose NOT to utilize the publicly-owned venue, thereby avoiding the fees charged by the facility.
Convention centers are prime examples of publicly-owned facilities that commercial interests use for profit-making activities. It is fully appropriate that the managers of the venue charge a fair-market price for the use of the facilities, both to maintain them and so as not to unfairly compete with the private sector, and it is appropriate for some of the profits from operating the venue to be directed to the government’s general fund, for the benefit of the citizens. This is an appropriate use of PILT policies.
The fraud that Colorado Springs is perpetrating, however, is an utterly inappropriate and fraudulent use of PILT policies.
Colorado Springs residents voted in 1924 to establish the Colorado Springs Utilities to provide water, sewer, electricity and gas service. Below is the mission of the CSU, according to its own website:
“To turn a phrase from Abraham Lincoln, in 1924 the residents of Colorado Springs voted to create a four-service utility of the people, by the people and for the people. Since then, as a municipal utility, our focus has been on the basics – providing exceptional customer service while keeping costs low.” (emphasis mine)
This statement was true from 1924 to 1992, when Colorado Springs Utilities were operated as a standard municipal utility, under the supervision and guidance of the City Council. In 1992 however, the City Council created a Utilities Board to oversee and operate the Utilities as a “separate municipal enterprise.” That’s when the game of “Three-card Monte” began.
The Utilities Board, you see, is not a separate political body elected by the People and accountable to them, whose fiduciary duty it is to serve only the utilities needs and interests of the rate payers, it’s comprised of the members of the City Council, who use the Utilities to generate an invisible tax that the public has not ratified.
The primary policy stated by the Utilities Board (City Council) is “to provide safe, reliable, competitively-priced electric, natural gas, water and wastewater services to the citizen owners and customers of Colorado Springs Utilities.” (emphasis mine)
But this “Ends” differs significantly from the ends described by the website, and authorized by the People when they voted to acquire the utilities in 1924, which is to provide “the basics,” which consists of “exceptional customer service” at “low costs.”
The People of Colorado Springs did not vote in 1924 to acquire these public utilities so that they would be charged “competitively-priced” services, they purchased the infrastructure so that they would be charge the lowest possible rates consistent with exceptional customer service. There’s a huge difference in those two goals.
By changing the goal of the Utilities to “competitively-priced” services, the City Council, wearing it’s Utilities Board hat, created a self-justification for charging rate payers MORE than they would otherwise be paying based on how “competitive” the rates are with other commercial, for-profit utilities providers like Xcel Energy in other cities.
Sure, CSU can afford to (and must by policy) charge somewhat less than the highest-priced utilities, in order to keep the lumpen proletariat thinking they are getting a good deal, but the question is are the People getting the very BEST deal that they possibly can on their utilities services, which was the intent of the People in acquiring the utilities in the first place.
The answer is absolutely not, and PILTs, profit-making and slush funds are the reason why.
Utilities Board Policy 2.1.1. (click on the “Utility Board Policies” tab to the left to download the complete PDF file) says, “Combined rates for the four core services will rank at least among the lowest 20th percentile of identified economic competitor cities.”
Note that this policy does not state that “the combined rates shall be the minimum possible rates for the four core services provided, consistent with the necessary and proper operations and maintenance of the facilities.”
Instead, it allows the Utilities to set the rates based on selected “economic competitor cities.” This allows the city, wearing it’s utilities hat, to cherry-pick which cities it uses for comparison, so as to hornswoggle and hoodwink the public into thinking that it is getting a good deal on services. Moreover, it allows the city to actually INCREASE rates if necessary to keep the rates hovering right at that “20th percentile” level. And by choosing cities for comparison with relatively high utility costs, the Board can fudge the numbers and in doing so actually make a de facto profit on the Utilities.
Quite a lot of profit, actually. The Colorado Springs Utilities budgeted nearly $26 million in PILT payments for 2009, and another $25.2 million is budgeted for 2010. This isn’t chump-change we’re talking about. This is a high-stakes shell-game indeed.
And guess what the Utilities Board (City Council) does with that profit (which is claimed as an EXPENSE on the Utilities balance sheet)? It pseudo-taxes it by charging PILTs against the Utilities balance sheet directing the money into the General Fund, on the specious, noxious and fraudulent excuse that if the Utilities was actually a private, profit-making enterprise, it would be compelled to pay taxes on its income.
But the Utilities is NOT a private, profit-making enterprise, it’s entirely owned by the People of Colorado Springs, and it’s not supposed to be making “profits,” nor is it supposed to be paying pseudo-taxes in the form of PILTs to the city’s General Fund.
It is supposed to be collecting the absolute minimum amount from rate payers that it possibly can, consistent with good management, operation, maintenance and improvement of the infrastructure of the various utilities. It’s supposed to be putting an adequate, but not excessive amount of money away into a “rainy day” fund to pay for things like sewage spills (and associated lawsuit settlements) and power-line collapses or damage. It’s supposed to be exercising a fiduciary duty to the People to collect only what it reasonably needs and spend only what it reasonably must to provide “the basics” to citizens, with “excellent customer service.” No more, no less. Period.
If there are excess funds flowing into the CSU, those funds should be going right back into either improving utilities infrastructure or lowering utilities rates for rate payers, or into actual refunds to rate payers, rather than being funneled by the Utilities Board (City Council) into the city’s General Fund.
The CSU PILT policies are like a wormhole in the time-space continuum that allows one to bypass the distance between here and Alpha Centauri. Actually, it’s more like a literal wormhole in the fabric of our laws that allows the city to tunnel right past TABOR and raise General Fund revenues by increasing utility rates without having to call it a “tax.”
It’s a fraudulent shell-game and nothing more. And it’s an improper exercise of PILT authority because unlike a convention center or even the airport, nobody can avoid paying utilities fees if they live in the city.
Rate payers should be getting not just “competitive” utility rates, but rather they should be getting the lowest possible utility rates, because that’s precisely why they bought the utilities in the first place.
It’s time to shut down this immoral and illegal game of Three-card Monte that the City Council (Utilities Board) has been playing since 1992.
Ending the Stormwater Enterprise didn’t end the need for money
November 24th, 2009, 11:20 am by Seth RichardsonColorado Springs has obligations, both legal and contractual, to deal with stormwater issues that must be met, so get on with it already!
By Seth Richardson
Gadfly Dave Hughes, in one of his comments on Douglas Bruce’s guest column in the Gazette on November 23rd, said, “Not ONE of those commenting, including Sean Paige, points the the BASIC REASON the Stormwater Fee was imposed, AND the need to ‘phase it out’ rather than just stop collecting now.”
He’s right. But neither has the Council, and therein lies the root of the problem.
The crippling of the enterprise systems is a response to arrogant and incompetent governance by the Council, but it’s going to have unintended consequences for the public that need to be addressed with alacrity.
The problem is that the City Council, Mayor and City Manger abused their “enterprise” discretion and misused the concept to generate “fee” funded income to the General Fund from government services and utilities that have traditionally been paid for through taxation and are not properly supposed to be profit-making branches of government. They did this mendaciously and dishonestly. This angered the public, as well it should have. The stormwater charade was just the straw that broke the camel’s back.
And, like all laws that constrain government, a law was enacted to constrain their ability to do this, and it’s entirely the City Council’s own fault that it happened. But that doesn’t resolve the very real problems with stormwater flow, intergovernmental agreements and the Clean Water Act. Colorado Springs has obligations to its neighbors and the federal government regarding water flow and the Clean Water Act, and the government will have to continue to meet those obligations.
What this means is that City Council needs to get off its collective butt and start the campaign for a tax to meet those obligations. Council members need to simply give up the idea that they can somehow salvage the enterprise systems as a funding mechanism, because they can’t.
As Bruce says, “As of Nov. 16th, the stormwater enterprise (and all others) must cease gifts or subsidies to the city, like free work on city-owned infrastructure, or paying bills the city owes the federal government. It cannot bill fees for what it can no longer do.”
Completing stormwater improvements underway involves doing “free” work on city-owned infrastructure, which is a gift or subsidy to the city, in that the city itself does not pay fair market value for the work, as it would if it had to directly hire private contractors to do the work. That work was being paid for directly by fees collected by the enterprise from landowners. Bruce is correct in saying that enterprises, which despite the legal fiction are still legally branches of municipal government, cannot collect fees if they are forbidden to do work that comprises a gift or subsidy to the city. That provision is in effect right now.
On the other hand, the City can (and indeed must) still fund the stormwater projects by appropriating funds from the General Fund, or by asking voters to approve a tax to fund such construction, just as it would if it hired an independent contractor to do the work. Remember, Issue 300 only bans gifts from an enterprise to the city, and it only phases out payments of money from an enterprise to the general fund.
Of course, the whole point of the Stormwater Enterprise was to give it independent fee collection authority to fund the contracts that the enterprise managers made with private companies to actually do the work. But now that this fee-collection and free-work authority has been revoked, the Stormwater Enterprise is a completely redundant and pointless waste of taxpayer money. All the functions of the Stormwater Enterprise should, and arguably must, be transferred back to the city’s engineering and contract staff, where it should have been in the first place, and all the employees who work for the Stormwater Enterprise who are performing duplicate functions that can be done by city employees should be laid off as redundant, including the CEO and other administrators. Administration of the stormwater improvement projects should be done by the City Manager. That’s what she’s paid rather a lot of money to do, after all.
It appears that all other enterprises will also have to be legally dismantled as well. Issue 300 effectively bans all fees collected by any enterprise, and all work done by any enterprise, since anything an enterprise does could be construed to be a “gift” or “subsidy” to the city if city property is utilized and the costs of providing that service is not paid for out of the city coffers. Therefore, all enterprises will simply have to be dismantled in the technical, legal sense, and the fee-setting authority returned to the Council for what will simply become services the city provides, like libraries, building permits, and electricity.
This is not be a bad thing, because it returns the Council to its proper place as overseers of the city’s operations and services and makes them directly accountable to the taxpayers. The inability of taxpayers to directly hold the enterprises accountable through recall is one of the things that drove Issue 300 to victory.
There is also an interesting question as to whether Issue 300 also bans “payments in lieu of taxes.” Arguably, it does, as Mr. Bruce seems to point out in his column when he says, “The first sentence phases out over a maximum of eight years “all enterprise payments to the city.” It covers payment of money from Utilities and other enterprises, and cash reimbursements for city services to enterprises.” While this clearly eliminates the practice of the city billing an enterprise for “shared services” like accounting, the PILT program is somewhat less clear, given that PILTs have their own statutory basis, which may exempt them from the language of Issue 300. That’ll have to be discussed with the lawyers, but in my judgement PILTs are also banned.
In any event, City Council is seeing its enterprise cash cows being slaughtered, and is imprudently balking and trying to weasel its way out of the handcuffs it placed on itself. Council needs to get over it and move on with the process of asking for a tax to fund the stormwater projects in process and those improvements that are required as a part of intergovernmental agreements and federal law. It also needs to get on with legally dismantling the enterprise systems and returning their functions to the fold of city government.
In order to accomplish this necessary task, the Council is going to have to humble itself before the People and admit that it was wrong to try to raise slush-fund revenues by misusing the enterprise authority it once had. Council is going to have to bend to the will of the people and actually do their job as TABOR demands, and ask permission to impose a necessary and reasonable tax to fund necessary and reasonable government services.
This is the one thing that the Council seems completely unable to do. It’s as if they are two-year-olds balking at being told to eat their peas. Rather than choke them down and get on with life, they are going to have a temper tantrum of monumental proportions while trying every possible excuse they can think of, rational or otherwise, to avoid the inevitable. It’s simply astonishing how arrogant the Council and City Manager can be, however. Progressivism has infected even Colorado Springs, and our elected officials evidently actually believe that they are smarter and wiser than the public is. Well, when that happens, it’s time to take them down a peg or two, which is what Mr. Bruce and the voters have done.
Dear Council: Quit acting like two-year-olds, start acting like adults, and get on with the job of asking the public for the necessary funding by carefully explaining why you need it!
That’s all that TABOR requires. Just ask. Tell taxpayers the truth about why you need the money, give us the correct, complete and honest information about the necessity of the project and how much it’s going to cost, and then sit humbly by and wait for us to decide if we want to pay for it. If we don’t, then get over it and move on.
Pretty simple really.
© 2009 Altnews
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