A state audit has found the City of Tacoma potentially overbilled city utilities by more than $1 million – money auditors say the city charged utility ratepayers that probably should have been shouldered by city taxpayers.
“The City of Tacoma followed most leading practices but charged some overhead to the utilities that did not clearly benefit the utilities,” a summary of the 53-page audit report said.
The findings – which focused on billings for overhead costs in 2009 – also appear to support long-running contentions by Tacoma Public Utilities’ officials that the city has been overcharging the utility to help balance the city’s general fund budget for years.
“We’ve had concerns about the city’s allocations for a while,” said Chris Gleason, TPU spokeswoman. “The report really supported what our concerns have been.”
The law bars the city from shifting the costs of general government to utility ratepayers, many of whom live outside Tacoma and don’t use other city services.
In a Nov. 15 letter to State Auditor Brian Sonntag, Tacoma’s interim City Manager Rey Arellano disputed some of the audit’s key findings. Among them, Arellano took issue with the finding that the city “did not clearly link” charges for some human services programs to TPU “with service levels” provided to the utility.
“While the city will continue to evaluate the feedback provided by the state auditor’s office,” Arellano wrote, “I continue to believe that the assessments … to TPU are appropriate.”
Arellano added that changes to the way the city assesses some overhead charges already have been made and address some of the audit’s other findings.
The performance audit reviewed the way eight Washington cities charged their utilities overhead costs for various services, such as information technology, government relations, human resources, accounting and clerking services.
“As municipalities increasingly face shrinking revenue, they commonly use utility or other dedicated funds to help pay for overhead services,” the report explained as its reason for the audit. “However, our past audits have found cases in which cities overcharged their utilities for overhead, essentially shifting costs onto utility ratepayers that should have been borne by all taxpayers.”
Other cities audited included Aberdeen, Bainbridge Island, Bellevue, Monroe, Mukilteo, Redmond and Spokane.
The audit only reviewed a portion of Tacoma’s overhead cost allocations charged to utilities in 2009 – or about $3.5 million of $17.6 million charged. It found the city used an up-to-date overhead allocation plan that charged actual costs and used “equitable allocation factors” to calculate the charges.
“However, it did not always allocate overhead to all funds and departments that benefited from that overhead,” the audit found. “Because not all funds and departments paid their fair share, the utilities paid $176,000 more than they should have.”
The audit also found another $845,000 in “potential overcharges” that “the city could not clearly link the service or level of service provided to the amount charged to the utility funds.”
In his response letter, Arellano noted the city has recently “shifted from a multi-tier to a single-tier assessment system,” which addresses at least one of the findings.
But TPU officials have never agreed to the methodology changes, Gleason said.
“When we went through the budget process last year, we asked for agreed-upon methodology for allocations,” Gleason said. “Our request was not fulfilled.”
Instead, the city “assigned new methodology and told us, essentially, what we owed them,” Gleason said.
Some of the overhead charges assessed to TPU during last year’s budget process – including charges for government relations and clerk’s office services – skyrocketed by more than 170 percent, Gleason said.
TPU Director Bill Gaines complained to the City Council last year that then-City Manager Eric Anderson didn’t collaborate in the process and was overcharging the utility. The utilities board approved a TPU budget partly based on the agency’s own calculations, finding lower allocations. But the council later passed a budget based on Anderson’s recommendations for the higher allocations.
For the next budget, Gleason said, “we will insist on agreed-upon methodology for all allocations, not just the ones covered by the audit report.”
She added Arellano and Finance Director Bob Biles have committed to using a collaborative process for the next budget cycle.
The audit recommended the cities of Tacoma, Monroe and Redmond further examine their 2009 overhead charges to “verify that the utilities truly benefited from them, and document those benefits.”
“If they cannot do so, we recommend the three cities reimburse their utilities accordingly,” the report said.
Councilman Jake Fey, the lone council member to vote against Anderson’s recommended 2011-12 budget – partly due to the concerns raised by TPU – said he doesn’t expect utility officials will demand the city reimburse any funds, given the city’s current projected shortfall of $26 to $31 million.
“Otherwise, it will just compound some problems here,” he said.
“I’m more interested in moving forward to get this cleaned up for the future than I am about arguing over who owes who what in the past,” Fey added. “But if there’s corrective action required, then we’ll do it.”
Lewis Kamb: 253-597-8542
lewis.kamb@thenewstribune.com
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