$2 million gap in how much Utilities owes city as payment in lieu of taxes

There’s a new wrinkle in the issue of payment in lieu of taxes that Colorado Springs Utilities makes to the city government, payments that are to be ended under a ballot issue passed by voters this month:

Nobody seems to agree how much the city-owned Utilities owes in 2010.

During Tuesday’s City Council meeting, as the council was considering Utilities’ 2010 rate increases and $1.1 billion budget, assistant city auditor Denny Nester said he has found errors in how the payment-in-lieu-of-taxes amount is calculated. The payment is based on electric and gas sales, to compensate the city for what it would receive if the utility was privately-owned.

To complicate matters, Utilities has one figure – $25.2 million – it says it owes, while the city has another –  $27.2 million.

And to further complicate matters, the council was split 4-4-1 over whose figures to believe, a conundrum that must be resolved before Utilities can finalize its 2010 budget.

Utilities proposes to increase average residential bills by 4.5 percent for electric service, 1.15 percent for water and 1.12 percent for wastewater, and to drop natural gas rates, reducing bills by 4.45 percent. The average monthly bill would increase 2.32 percent, or  $4.18, to $184.39, if the council approves.

Payment in lieu of taxes goes back at least to the mid-1990s and possibly longer – Utilities officials did not know Wednesday when the program began. The council in 2000 adopted a resolution setting how it is to be paid, and a 2007 agreement between Utilities and the city refined how the payments are calculated.

But the math appears fuzzy.

The auditor’s report noted Utilities did not increase its payments to the city when it raised electric and natural gas rates this year, which could account for the $2 million discrepancy between the city’s figures and Utilities’ figures. However, Nester revised his figures even as he gave the presentation, and rather than recommend an actual payment amount, said the issue requires more study.

Council members were polled. Four - Randy Purvis, Sean Paige, Scott Hente and Jan Martin - supported the city’s figure, four- Mayor Lionel Rivera, Bernie Herpin, Tom Gallagher and Darryl Glenn- agreed with the auditor’s findings and Councilman Larry Small agreed with Utilities.

Anti-tax activist Douglas Bruce, who sponsored Issue 300 to do away with payments in lieu of taxes, called the discussion moot, since the payments are supposed to end. His measure requires they be phased out over several years.

“If you want to fire someone for under-financing the city for two years, be my guest, but it’s too late to recapture the money,” Bruce said.

With no agreement, Utilities and city officials said they would hash out the issue before the rate changes come to a vote by council Dec. 8.

“We believe we’ve been correctly calculating the PILT payment, however we will work with the city and the city auditor to come to an agreement on the interpretation of the resolution that set up that payment,” Utilities spokesman Dave Grossman said Wednesday.

Asked to respond to the auditor’s findings that Utilities did not adjust its payments in lieu of taxes amount to new rates, Grossman said it amounts to differing interpretations of the 2000 resolution. He did not elaborate, and said Utilities officials are looking into it.

“That’s part of the reason it needs to be looked at further,” he said.

The issue shouldn’t affect Utilities’ proposed rate changes. Even if officials have to change the budget to reflect a higher payment to the city, CEO Jerry Forte said that can be done without impacting rates, by cutting $2 million from elsewhere in the budget. He did not elaborate.

Council cuts Utilities bonuses

The City Council gave preliminary approval Tuesday to Colorado Springs Utilities’ 2010 budget, minus $930,000 Utilities had included for employee incentive pay.

Utilities last year ended a $9.2 million bonus program for employees, but proposed to increase from $592,000 last year to $1.52 million the amount it gives under its Star Awards incentive program for employees, which rewards employees for exceptional service. The council cut the amount to the 2009 level.

“For years, instructions from the Utilities Board have been ‘no bonuses.’ It took years to discontinue the practice and this is not discontinuing the practice,” Councilman Tom Gallagher said of the proposed incentive payments.

The council will vote on final approval of the budget Dec. 8.