City Loan > Rexroad.com

I wanted to take the time to respond to a comment that was made by Dino Gay on my post about Ed Hernandez. it got pushed to the back page so I am going to respond in separate post here.

It is a good question and needs to be answered.

This is Dino's comment --

On the other hand, can the city explain the $2,500,000 "pay back" included in the rate increase? Can the city use Enterprise Funds to pay for unknown future services, because that is essentially what it comes down to.

The $2.5M was "borrowed," "transferred," "reallocated," "redistributed," or "taken" from other services - so those services were never rendered. With $2.5M of the proposed storm drain fee increase going to "pay back" the "loans" to subsidize those lost opportunities, the city will be putting themselves in a situation where specific Enterprise Funds will be used for undefined future services that aren't part of the Enterprise Fund.

I'm not opposed to paying more for improved infrastructure, but the city has done a poor job in communicating exactly what funds were used for what purposes and exactly what funds will be needed for improvements, maintenance and regulatory requirements. I don't believe past budget shifting should be part of the formula for improving our storm drains from here on out.

Maybe someone can coordinate a "City of Woodland 1a" course.

I will not argue the city communication system or the potential for a "City of Woodland 1a" course but I think I remember the loan. I have (and sometimes Flory joined me) in opposing the "information campaigns" run by the city at election time. I tried to enact an ordinance to restrict city money from going to this purpose but could not get even one more city council member to support that effort. Flory, Dote, Monroe, and Peart all refused to support the effort.

The majority felt that the city had the right and obligation to put forward "information" about a ballot measure. I disagree. I think the newspaper ads, fliers, and presentations amount to nothing more than campaigning on public funds. I think this is wrong.

Here is the deal on the loan from memory. I will check on Monday to make sure and clarify if this is not right.

The storm drain fund in an enterprise fund. Other enterprise funds that the City of Woodland has include water and sewer and several others. The money that comes into these funds comes from designated sources -- almost always fees paid by rate payers for that specific service. So, when the city increased water fees it did that to provide for upgrades or o/m to the existing water infrastructure. It does not go to parks, city council salaries, or anything else but the water system. They have separate accounting systems that make sure we account for each dollar that is spent and raised for this service.

On the storm drain fund it is the same thing. Any expenses charged to the account have to be related to storm drains. The revenues in the account come from storm drain fees. It is that simple.

In terms of a loan to another fund....it happens all the time. Local governments and businesses borrow money between accounts all the time. You may see money moved to a payroll account in order to cover a delay in accounts receivable or a short term loan to cover a pension obligation due to changes in payroll or retirements. These all are considered acceptable accounting practices as long as you document it.

In the case of this loan I believe it was because of a major repair along East Main Street (or at least that was included in it). Clearly a reasonable person would not want the city to face the liability for the flooding of businesses and homes because the city would not do a fund transfer to be able to get to the next election. That would be a prospect far greater than the administration costs associated with lending money to ourselves.

Dino -- you are implying that the money should not have been moved by calling it a "slush fund" and describing it in a negative light. Despite this, I will bet that if the city had simply not done the millions of dollars in repairs and let our homes and businesses flood in a storm event you would have been even more critical of the city. So how does the city win with you? Make the repair with money in the city's own pocket --get criticized. Don't make the repair and people have water all over the streets -- get criticized.

In the end they have to act and make the best decisions possible with the information available. I voted with a unanimous City Council on at least part of the funds transfer and would do it again in a heart beat. It was the best business decision available to repair an important part of the infrastructure of Woodland. Any business person would have had to do exactly the same thing.

Comments

By Anonymous @ Sunday, August 19, 2007 9:05 PM

Matt,

Although I enjoyed your creative interpretations of my specific comments, you are off-base with your assumptions.

I did not imply that the money should not have been moved. It's the $2.5M payback I'm opposed to, not the shifting of funds. On this issue, the city would win with me if the $2.5M of already shifted/spent money was not included in the proposed Storm Drain rate increase.

I'm not questioning the need to make emergency repairs and use money that was allocated elsewhere. I'm questioning where those funds came from and in what amounts. Do you really think the payback amount is exactly $2.5M? It is unlikely that the emergency "loans" amounted to that nice round number. In fact, the numbers keep bouncing around ($750K a year for maintenance, $9M deficit, $22M backlog, $25K a day for penalties, etc.) depending on what propaganda piece you read. What exactly will the new fees cover?

You stated, "Any expenses charged to the account have to be related to storm drains." Exactly... so how do you rationalize the $2.5M payback if our enterprise fund fees are supposed to go only to the storm drain? Is the $2.5M going to replenish water and sewer funds? Is the money going to replenish a general fund account? In any case, the fees will not be going toward storm drains. That money is gone.

The "borrowed" money was essentially sacrificed for emergencies - which is fine - but since some services were not provided because of it, then those opportunities are basically lost. It comes down to this: The "paybacks" will not actually be going toward the storm drains, they will be going for some services that weren't ever provided (unless they were provided through other "loans," then the accounting gets really squishy). In a nutshell, the new storm drain fees will pay for other future services that are not part of the enterprise fund.

It's ridiculous to think I would not approve of reallocating monies in time of emergencies. That's just sensational garbage. Also, I would gladly pay more than $9.50/mo. if hard numbers were used. The city accounting is pathetic and their proposal is worse.

By dgay @ Sunday, August 19, 2007 9:11 PM

That last comment was by me. I don't know why it says Anonymous. Dino

By Matt Rexroad @ Sunday, August 19, 2007 9:21 PM

Dino:

So why should this fund just write off this loan as bad debt? That would mean that loans made would simply be forgiven and would question the integrity of future actions like this.

Matt

By Anonymous @ Monday, August 20, 2007 1:57 PM

Matt,

I think our discussion is now entering an area of semantics and possibly philosophical differences. What you are calling loans, I may be calling reallocations - especially if the funds that went directly to emergency storm drain repairs were from the general fund. (I still don't know exactly what funds were used nor the true amounts - which is a big part of the problem.)

I do not consider the $2.5M as a bad debt if it does not find its way back to the budget item from whence it came. To me (as much as I can cobble together what the city has done), the emergency money was reallocated from other general fund budget categories to pay for the necessary repairs. That made a dent in the budget categories where the money was taken. Those categories (service areas, equipment areas, whatever) were then unable to provide the things they normally would because the money simply wasn't there anymore.

Philosophically, I do not see money transfers within the general fund as "loans" that need to be repaid (especially with interest added on - which is where part of the increased storm drain rates will go). This is why I don't consider the amount as bad debt. And I don't think that forgiving the redistribution or "back pay," in this instance, will set a precedence for future allocations or reallocations.

As an example, let's look at a typical household budget. (To keep it simple, let's say there's no equity line to draw from.) Okay... let's say a tree limb crashed onto your roof. The repairs will be $1,000. We are approaching the winter so it is essential you repair it now. The problem is that you've already spent your household repair budget because you fixed sprinkler heads and fixed the fences. Where will you get the money? Okay, let's say you have enough in your account but you planned to use the money for other things like mortgage, phones, family trip, recreation, school supplies, etc. Obviously you would "reallocate" your money from your other budget areas. Using money from your general account (savings, checking, whatever) will mean that you may not be able to visit Disneyland this year, or you won't upgrade your cell phone this year, or you will only have one taco at the Fair instead of 50. You don't "loan" yourself money - you use the money you have, but not in the way you intended to use it originally. So the roof is then repaired and you adjust next year's budget. If you expect more branches to land on your roof, you will increase that budget item and decrease your budget for other things. If you are unsatisfied with the impact that has on other activities, you might start recycling cans for your Tree Limb Enterprise Fund. In the future you may be able to go to Disneyland, but it's not guaranteed.

Let's say the storm drain repairs were actually paid by real loans. Okay... how were the loans to be paid back? What monies were to be used? Did the city expect to pay back the affected departments with the next year's storm drain budget? Or did they speculate that a future fund would be created to pay it off? The first rhetorical question is an example of false economy because there is no extra money coming in, just make-believe loans between departments. The second is an example of gambling - not a good thing to do with public money, especially if your sales pitch is unclear.

The following is from the advisory committee report, Item 3: "Pay back the “LOANS” [in quotations] made to the storm drain program only to the extent legally required." The fact that the committee put quotations around the term leads me to believe those reallocations were not actually loans. Again, semantics, but the city has to learn that "Government-speak" and "By-the-People-for-the-People-speak" are not jiving. I did my best to discern how the rate increase will be spent and I'm not convinced it's all accounted for. Therefore, despite your insight on the integrity of future Enterprise Funds, I still consider the $2.5M as money already spent. If you want to call it bad debt, that is up to you.

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