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Troxclair wants to cut utility transfers

Friday, February 19, 2016 by Jo Clifton

Wading into the affordability debate with a new tactic, City Council Member Ellen Troxclair is proposing to cut transfers from the Austin Water utility to the city’s General Fund. On Wednesday, members of Council’s Public Utilities Committee unanimously approved forwarding Troxclair’s resolution – which seeks information on cutting or eliminating the transfer – to the full Council.

Austin Water currently transfers $40.8 million into the General Fund per year. Deputy Chief Financial Officer Ed Van Eenoo explained to the committee that this figure amounts to 8.2 percent of the three-year average of Austin Water’s gross revenues since 2000.

The General Fund pays for police, fire and emergency services; parks; and libraries, among other things.

Troxclair told her colleagues that she also intends to propose reducing or eliminating the transfer from Austin Energy into the city’s General Fund and would bring that item before the next Austin Energy committee meeting. Austin Energy has transferred up to $105 million per year into the General Fund since 2012.

Troxclair also wants to cut or eliminate transfers from the utilities to the Economic Development Department. The water utility transfers about $2 million a year, and Austin Energy sends about $9 million a year.

Troxclair’s resolution states that Austin Water’s debt levels have escalated by 45 percent since 2008 and that the utility’s bond rating was downgraded from stable to negative in 2014. In addition, the resolution notes that “despite more than a 20 percent increase in population, since 2008 Austin Water has raised rates every year, resulting in a 61.6 percent increase in customer bills.”

The utility foresees additional rate increases over the next five years in order to improve its financial outlook, Troxclair noted. Those General Fund transfers cost the average customer $192 per year, according to the resolution.

“Not only do transfers contribute to rates charged by Austin Water, but they compromise transparency in the cost of government and the services it provides,” Troxclair says. In addition, the resolution notes that “because low income residents pay a higher percentage of their income to utility bills, those transfers impact the affordability of Austin for those customers the most.”

A nationwide study by the American Public Power Association, an organization of publicly owned electric utilities, has found that the median General Fund transfer for municipally owned electric utilities is only 4 percent. The study, published in March 2014, did not reference water utilities.

CPS, San Antonio’s electric utility, transfers a total of 14 percent of its revenues to that city’s General Fund. The San Antonio Water System transfers 2.7 percent of its gross revenues, with an option to go to 5 percent if needed, according to Austin Water Assistant Director David Anders.

At the request of the Austin Monitor, Anders found data on fund transfers from other Texas utilities. El Paso transfers 10 percent of its water sales revenue to the city’s General Fund, according to information compiled by Raftelis Financial Consultants for the city in 2013. Plano transfers 7 percent of budgeted revenue to the city’s General Fund.

Dallas pays 5 percent of its revenue for “street rental” to the city General Fund and another amount based on utility assets and property taxes. Arlington’s water utility pays a 5.8 percent franchise fee, minus impact fees and interest, as well as an additional amount based on utility assets and the property tax rate.

Together, the transfers from both Austin Energy and Austin Water add up to $145.8 million, or 16 percent of total General Fund revenue, Van Eenoo said. Austin Energy and the water utility also pay into the General Fund for services such as human resources, adding more money to the amount actually transferred. According to Van Eenoo’s data, reliance on utility transfers as a revenue source has decreased from 24 percent in 1997 to the current 16 percent.

Van Eenoo told the committee that eliminating the $40.8 million water utility transfer into the General Fund would mean the city would have to make up for the loss by raising property taxes. Eliminating the whole amount would mean a tax increase of 3.8 cents per hundred dollars of valuation or $89.78 per year on the average priced home, he said.

Anders tried to explain to the committee that cutting the transfer would result in more cash in the utility’s coffers but would not necessarily allow the utility to cut rates.

“If you use that money to not issue debt, then $40 million would be saved over 30 years,” Anders said. “But if you defease debt that is near-term,” by which he meant paying off debt, “then you might get $20 million worth of savings over the next 5 to 8 or 10 years.”

However, that $20 million financed over 40 years will turn out to be $40 million, he added. So, “your most value is to use that cash to avoid debt.”

If Troxclair is able to persuade a majority of her colleagues to cut the transfer, there will obviously be a lengthy argument over whether that money can then be used to cut customers’ water bills. However, she will also have to figure out how to convince them that they should cut enough from the General Fund to avoid raising taxes.

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