Memorandum

City of Lawrence

City Manager’s Office

DATE:
TO:	David L. Corliss, City Manager
FROM:	Casey Toomay, Budget Manager
CC:	Cynthia Wagner, Assistant City Manager Diane Stoddard, Assistant City Manager Jonathan Douglass, Assistant to the City Manager / City Clerk
RE:	Additional information related to proposed transfer policy

Pursuant to your request, staff contacted a number of communities to learn what policies and practices they have in place regarding payments from their enterprise funds into their general operating fund.  A summary is provided below.

Many of the communities staff contacted were included, along with Lawrence, in the 2010 Public Sector Statistical Analysis prepared by RubinBrown LLP.  Others were contacted because they are cities we typically use for comparisons. 

The details are summarized below.  The conclusion is that when comparing municipalities, how cities categorize revenues and expenditures matters.  In some cities, for example, payments to the general fund are categorized as “fees” or “charges for service” rather than as” transfers in.”  In others, they are categorized as “property taxes” because they are considered a franchise fee.     

• Topeka.  The City of Topeka makes payments to the general fund from their utility funds 1) as a payment in lieu of property taxes (PILOT), and 2) for administrative fees.  The PILOT is calculated based on assets and is supposed to be similar to what a private firm might pay.  The administrative fees are not itemized and are been used to help prevent the need for tax increases in the general fund.  In addition, their utility fund pays fees for engineering services rendered and for permits.

• Olathe.  The City of Olathe operates water and wastewater as well as solid waste and storm water utilities.  They do make transfers for central allocation and they charge the utilities for administrative fees.  They do not have a formal policy, however, they reviewed their practice about 2 years ago.  The transfer to central allocation is for central garage, centralized purchasing, and information technology services.  Each component has a unique formula that is used to determine the amount of the transfer.  The administrative fees are set at 5% of total revenues for water, wastewater, and storm water and 5% of agreed upon revenues in solid waste (some recycling revenues are not included.)  The storm water fund also pays a 5% administrative fee to the water and sewer fund. 

• Manhattan.  The city of Manhattan makes transfers from both their Water and Wastewater Funds to the General Fund.  They do not have a written policy, however they conduct a yearly analysis to determine a justifiable amount.  The amount transferred depends on the financial capacity of the fund.  Their overhead transfer consists of a detailed analysis of the amount of time and resources each department spends in regards to the utility funds and is reviewed annually to make sure the percent allocated remains accurate. 

• Lenexa.  The City of Lenexa does not have a transfer policy.  The City does not provide water, sewer, or trash service, nor do collect franchise fees from the private providers.  However, the do charge a street degradation fee if a private provider has to cut into the street.  It is based on the age of the street and the size of the cut. 

• Wichita.  The City of Wichita makes transfers from their utility funds.  The amount is based on applying a mill levy equivalent for their public safety functions to the utility funds taxable value minus depreciation and work in progress.  In addition, the City collects a payment in lieu of a franchise fee from their water and sewer utility, equal to 5% of their revenues.  Finally, they allocate overhead costs to all their funds using an variety of cost allocation methods.    

• Raytown.  The City operates only a wastewater utility.  They make transfers to the general fund but they do not have a policy.  The transfer is intended to cover overhead costs but it is not itemized. 

• Independence.  The City of Independence had a declaratory judgment against them back in the late 1970’s, and as a result, they treat their City owned utilities the same as privately owned utilities.  They collect a franchise fee of 9.08% of gross receipts from their water and sewer utility as well as their power and light utility.  The collect a payment in lieu of property tax and have a cost allocation method to determine the amount of transfer to pay for overhead examples (finance, computer, HR, legal.)  In addition, their power and light utility makes a payment in lieu of sales tax. 

• Belton.  The City of Belton collects a franchise fee and an overhead allocation from their enterprise funds into their general fund.  They do not have a policy.  They also pay the general fund for their “utility billing” operation. 

• Leavenworth.  The City does not have a formal policy but they do make transfers from their enterprise funds for “overhead charges.”  The charge is adjusted by a rough estimate of the cpi each year. 

• North Kansas City.  The City of North Kansas City does not have a policy and does not make transfers from their enterprise funds to their general operating fund.  They do not charge a franchise fee.  The do however charge their utility funds for their allocation of overhead costs and charge them directly for serves provided by planning and legal.