'Local press has labeled it "an accounting error."
The multimillion-dollar, multi-year disagreement between the city and Colorado Springs Utilities is more feud than error. And it turned into an embarrassment when, shortly before approving the 2010 budget, City Council found itself arbitrating a long-simmering argument it had no idea existed, and absorbing a surprise $4.3 million windfall.
"It just doesn't make sense to the person that's observing Council from afar," Councilor Darryl Glenn says. "Because we keep saying how financially strapped we are, then ... millions show up."
How did this happen? It's complicated.
Since 1969, Utilities has been giving the city an annual payment in lieu of taxes — a fee to make up for the fact that the publicly owned enterprise doesn't pay taxes. But recently, there have been some big-time differences of opinion on how to calculate that fee.
In 2000, Council approved a resolution stating that the PILT would be based on the city's consumption of energy multiplied by a set rate. That rate would automatically increase if Utilities raised the "base rate" charged to customers.
This worked fine until 2007, when then-City Manager Lorne Kramer and Utilities CEO Jerry Forte decided the term "payment in lieu of taxes" should be taken more literally. The two signed an agreement to hire a consultant to tell them how much Utilities would pay the city in taxes each year if it were privately owned. Once that "equivalent tax" figure was bigger than that churned out by the old rate-based system, PILT would be based on the new "equivalent" figure.
Sounded good. But ...
"There were inaccurate computations from the consultant that really didn't help us or the city," says Bill Cherrier, Utilities' chief planning and finance officer. "So we terminated the consultant and agreed to work directly with the city on those computations."
From late 2008 until last spring, the city and Utilities talked. But it's hard to say what a Utilities tax bill would look like, and not surprisingly, they couldn't reach an agreement.
Meanwhile, something else happened. Utilities' base rates increased, which in the past would have forced PILT rates up, meaning a bigger check for the city. Presumably, the "equivalent tax" — whatever it is — was also increasing. But with both sides deadlocked, PILT was frozen at 2007 levels.
The mess landed on City Auditor Jeff Litchfield's desk this summer. The 2000 resolution, he says, trumps the 2007 agreement, because the former was approved by City Council and the latter wasn't.
"I couldn't decide that I wanted to do something different than what the City Council has directed," Litchfield reasons.
Using that logic, the PILT rate should have increased with the Utilities base rates in 2008, 2009 and 2010. The city was owed an estimated $4.3 million above what it budgeted to receive for PILT in 2010.
Utilities has argued the 2007 agreement is still in play, but Council — after being briefed on this for the first time at a November meeting, and then spending hours discussing what to do — sided with its auditor this month and forced Utilities to pay up. The city spent about $600,000 of the money to save programs, then socked the rest away into reserves.
How this will play out in the future remains uncertain. The entire matter has been forwarded to City Attorney Patricia Kelly for review.
Complicating matters, Kelly has yet to issue an opinion on how, or if, the recently passed Issue 300 will phase out PILT payments to the city over the next eight years — an issue destined to throw another wrench into this wheezing machine.