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.

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