Friday, February 26, 2016 by Jack Craver

Council explores reducing transfers from utilities

Members of City Council moved ahead Thursday on two initiatives aimed at scrutinizing the role that Austin’s two public utilities play in funding basic city services.

Early in the day, the Austin Energy Utility Oversight Committee, which is composed of every member of Council, voted to adopt a resolution asking city staff to assess the effect that reducing Austin Energy’s General Fund transfers would have on the city budget.

Later in the day, a similar resolution aimed at getting information about General Fund transfers from Austin Water passed 9-2, with Council Members Greg Casar and Delia Garza voting in opposition.

The effort is being championed by Council Member Ellen Troxclair, who has raised concerns about the amount of money being diverted from both utilities to the city’s General Fund, saying that city residents are paying higher electric and water bills because the utilities have to divert a significant portion of their revenue to the city. The city then uses those funds for general services, such as public safety, health and parks. Under current policy, Austin Energy diverts $105 million of its annual revenue to the city.

Although Troxclair has been clear in the past that she would like to reduce the transfers, she told her colleagues on Thursday that all she was currently seeking through her resolution on Austin Energy was to get information on the impact that different levels of reductions would have on city services and tax rates.

To that end, Troxclair agreed to a request from Mayor Pro Tem Kathie Tovo to strike a number of clauses from her resolution that hinted at her ultimate objective, including one that claimed that a high transfer rate “compromises transparency in the cost of government.”

“This resolution is simply a request for information,” said Troxclair. “I cannot even begin as a Council member to make an informed decision about the appropriate levels of our transfers until I have this information.”

Even without a Council resolution demanding information, City Chief Financial Officer Elaine Hart gave a presentation outlining the consequences of totally eliminating the Austin Energy transfers. The chunk taken out of the General Fund would have to be made up for either through big property tax increases or major cuts in services.

Hart said the necessary property tax hike would amount to $290.60 more for a home at the area median value of $217,400. If the city opted for cuts, it would have to find cuts equivalent to the combined budgets of the Health and Human Services Department and the Parks and Recreation Department.

Troxclair was adamant that she would not welcome such a radical outcome. “This is the most extreme scenario,” she said in reference to Hart’s presentation. “There are a lot of other options that we would want to explore before deciding if a reduction is prudent or necessary.”

Council Member Don Zimmerman characteristically voiced skepticism toward the notion of a municipally owned utility, suggesting that the lack of competition led to higher prices for consumers and protected the utility from facing the repercussions of bad business decisions.

“If we make a horrible decision, we just charge customers more,” he said. He suggested the transfer rates should be dramatically reduced, to perhaps 1 or 2 percent, in order to lower rates.

“Why is it a benefit for me to pay more on my electric bill so that I might not pay more on my property taxes?” Zimmerman asked.

Hart responded that Austin Energy ratepayers and city of Austin taxpayers were two overlapping but distinct groups. The utility services many living outside of the city who do not pay property taxes but do benefit from city services when they come into the city.

“They don’t ask where you live when you have an accident in our city,” she said.

A number of Council members made clear that their support for the resolution did not suggest an interest in dramatically reducing the transfer payments. Council members Delia Garza and Pio Renteria expressed skepticism toward the entire initiative, and both opted to abstain from the vote, which passed 7-0-2. Zimmerman and Council Member Ora Houston were absent.

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Key Players & Topics In This Article

Austin City Council: The Austin City Council is the body with legislative purview over the City of Austin. It offers policy direction, while the office of the City Manager implements administrative actions based on those policies. Until 2012, the body contained seven members, including the city's Mayor, all elected at-large. In 2012, City of Austin residents voted to change that system and now 10 members of the Council are elected based on geographic districts. The Mayor continues to be elected at-large.

Austin Energy: As a municipally-owned electric utility, Austin Energy is a rarity in the largely deregulated State of Texas. It's annual budget clocks in at over $1 billion. The utility's annual direct transfer of a Council-determined percentage of its revenues offers the city a notable revenue stream.

Austin Water Utility: AWU is the municipal utility that provides water service for the City of Austin.

City of Austin General Fund: The portion of the city's budget that represents its general operating fund.

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