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Home My WebLink About1979 ' ~'h11 k '9l ~•,~~~'VuN'Sra 'iS J k I l ' I+u w r r +.1 kw~ ~ !G~y ~ w~ a 4 Ai Y e. °4.J.3 "'F f • ~ w r v1 l M ~K IP~r FY I' ~ I.~M W ~ 1 wY1`. ~ l l+l y Y \ A R l i lL : r t ~y'. e i l i i• ? Y y a ' i w •i r r 1 i r 4 r a n~~ r~~ ~wi, ? i° r t f .I. : `Y Itl rrr er y i t ` ? { ! + r l •7 w ~r r n { r (11 ~ k 1 ~ : ~ rr ry r : A/ y p F Ir riL 11 v 41 r 1. of t iT r~ i t , t 1 ~w 5~ y r d i • . o S 4 CITY OF MNTON C.,f cy+r r ' :1 ` 1 BPLCTAu' STUDY J x ~i August 1979 .1 k t~tX w ` a ,a.. , 'r ~ t.:^ S f+~✓ v.,,w i• r ej' [:'7I,> ` J j 1C + a r x). c CIl~r ~i ~'•Nw .r ri ~„h"~M a 'r t~, ' +~2°~l ~t' Yf n( iq'- `~rd~~'~~~C~ y~7r~j y~ •t- 7s h ,A e~v 1 : ar °1 t ~9~~~~{~f ~~i~ } ~'ti?'h}'C~{f bl r~ i. 5 r r ~ + ei ~ f P 1 v °y r j 1 I i tyia,.t >.lb b .t ~ w ay I5 ~i 'q i;~y ` a 1 rr' w h~" a t~ t ~ t^ ts` l M iT i 1 4 dti ! ! 11' oi' i f t P i t '1 1fY' w r f w+! f 1 1~ w i ,1 ~ ',a' "1 it r~Y.l~~1 v 1 ? ~e;1R1LJ ~Y , ~ • ' ~ r w ~u i ,ti C 1 JdrY ! jk! I • ti` 4 •A 1 7 7 r+. ~J~J1, b ry'JI h , r. ' 1•Y f ~ 4~'d n ~ r 79 • ` ~•1 Y § tki • r ~ w 1 rN qqyy 1 y: J G S 1 Y , / ~ 1 P f i ~ r M' r~ nyl, oia ` "',r r.t Il, A r t t. t I, >r }1 r e 1 t r ~ 1 { ~ ~ i ~ ~ i ~ r Q 1N I 1 rl ~ ai s ~ ` ° 3 ♦ i + A y[ ~ ~ ~ tk yA` ~ ~n yr Y' ' 1, ti`s N t ~~J '12 r~r C ~ ' ~t iJ , CITY OF DENTON SPECIAL STUDY August 1979 Alexander grant COMPANY INTORNATiONAL PIRIA QtRTIFHD IUILIO A6000N1A~'T! ALIXANDNA GRANT TANOLIV WITT August 31, 1979 Mr. Chris Hartung City Manager City of Denton 215 E. McKinney Denton, Texas 76201 Dear Mr, Hartungl Enclosed is a copy of the report of the findings of our special study regarding questions raised by members of the City Council about various aspect's of the operations of the City owned utilities. This report completes our work as described in our engagement letter dated July 12, 1979, If you have any questions concerning the contents of this report, please feel free to contact us, Very truly yours, QNL MAIN PLACE DALLAS TX 162EO 1214) 74d-GI00 TABLE OF CONTENTS Page I , BACKGROUND. , 4 It, STATEMENT OF SIGNIFICANT ASSUMPTIONS, , , , , , , , 6 III, OPERATING ?UNDS LAST BY GENERAL FUND IF TRANSFERS FROM UTILITY FUNDS HAD BEEN DISCONTINUED, , , , , , , , , , , , , , , , 6 IV, PORTION OF i1TILITY TRANSFER!! ATTRIBUTABLE TO THE TAX-EXEMPT ORGANIZATIONS WITHIN THE CITY OF DENfAVN, , , , , , , , . , , , 7 . Y. INDICATED REDUCTION OF UTILITY BILLS IF TRANSFERS HAD BEEN DISCONTINUED . , , . , , 7 VI, INCREASE IN CITY TAX RATE NECESSARY TO OFFSET UTILITY TRANSFERS TO THE GENERAL FUND g VII, COWARABILITY OY CITY'S UTILITY RATE TO CITIE3.SERVED BY PRIVATE UTILITIES, , 9 VIII, TAXES THAT VOULD.BE PAID TO THE CITY BY A COMPARABLE PRIVATE UTILITY, , 9 EXHIBITS VI-A EFFECT ON SELECTED CUSTOMERS OF POSSIBLE UTILITY RATE DECREASE AND PROPERTY TAX RATE INCREASE , , , , , , , , , , , , , , , , , Ix VI-B SELECTED RESIDENTIAL UTILITY CUSTOMERS, , , , , 12 VI-C SELECTED COMMERCIAL UTILITY CUSTOMERS , 13 '17 77 City of Denton SPECIAL STUDY 1. A^KGROUND The City of Denton engaged Alexander Grant do Company to conduct a special study relating to six specific questions raised by members of the City Council about the operations of the city-owned utilities. Questions raised by members of the City Council were; How much operating funds would the City have lost if the administrative and discretionary transfers from, thu utility Funds to the General Fund had been discontinued? How much of the transfers were attributable to the universities and other tax-exempt organizations operating within the City? On the basis of some common demoninetor such as . kilowatt-hours, how much could utility bills have been reduced if the transfers had been discontinued? , How much eould the City tax rate have to have been increased in order to offset the transfers of funds to the 'General Fund? How does the City's utility rate compare to cities of comparable size which are served by private utilities? , How much would such o)mparable private utility pay to the City in taxes? Our work in connectio» with this special study was limited to the following specified procedures which do not constitute an examination in accordance with generally accepted auditing standards, We made inquires of certain City personnel and reviewed selected City utility records furnished by City personnel in order to determine the recorded amount of utility usage both in total and for the tax-exempt entities, 4 t 7-7-117 By reference to the City's financial statements for the year endad September 30, 1978, we computed the amount of transfers made by each utility to the General Fund, By relating the amount of transfers to the units used, we computed the per unit amount of such transf::re, Using the units consumed by the various tax-exempt entities and the per unit amount of the transfers, we calculated an assumed amount of such transfers which would have been attributable to the tax-exempt entities. We also calculated the per unit amount by which utility bills might have bean reduced for the year ended September 30, 1978, if the transfers had been discontinued, V Review and inquiry was made of the overall tax base in the City and the amount per $100 assessed valuation by which the City tiAx rate would have naeded to be increased in order to offset th9 discontinued transferr of funds from the utilities was calculated, Inquiries of other offices of our firm, the Texas • Public Utilities Commission and the Texas Municipal League wer0i mail in an attempt to determine,if data relative to utility rates charged to a comparable size city by private utilities was available. In connection with our inquiry concerning comparable private utility rates, we also attempted to learn the amount of taxes paid to comparable sized citie:,by such private utilities, II, STATEMENT OF SIGNIFICANT ASSUMPTIONS s " Some of the more significant assumptions made in %ompilLng our findings in this special study are as follows; , The work performed in this study was based upon 1978 tax and utility rates and upon the City's financial statements for the fiscal year ended September 30, 1978. , Utility useage data was obtained directly from reports prepared by the City and was not subjected to f•irther verification, 5 7777 All data was assumed to be representative of the given population taken as a whole and appropriate to the circumstances in which used, A flat utility rate was assumed with income and coats assumed to be distributed equally to each unit billed or produced. No estimation or projection as to future periods was made with the data, No income tax effect was considered in our calculation of costa to taxpayers. The remainder of this report presents our findings relative to the questions raised by members of the City Council. III. OPERATING FUNDS LOST 9 GENERAL FUND IF TRANSFERS FROM U Water and Electric Sewer system system - Total pnr Loss of operating funds by the General Fund if discretionary and administrative transfers from the utilities had been discontinued Discretionary transfer $10192,623 $1,0121823 $180000 ?dministrative ' services transfer 647,805 395,180 252,628 Total $1,840,628 $10408,003 $432,625 8 „ r i Y i . 7777"77 77 17 IV. PORTION OF UTILITY TRANSYXR9 ATTRIBUTABLE TO THB TAX-EXEMPT Water and Electric Sewer system System Total Fund Fund Per cent of transfers attributable to the tax- exempt organizations operating within the City Nurth Texas State University, 11.0% 5.6% 'texas Womens University 5.4 .4 Denton ISD 2,6 1.0 Denton State, School 2,1 2,1 Flow Memorial Hospital ,7 ,7 Chur:her .4 Good 'am*ritan Village 15 01 Fede: sa l Center , 2 2 Denton County "tot0,1 24,6% 10,6% Doll/ir portion of ti mbefers DIs cretionary transfer $268,234 $2490154 $ 19,080 Administrative services transfer 123,992 _ 871214 26,77 $ Total $392,226 $3460368 $ 45,858 V, INDICATED REDUCTION OF UTILITY BILLS IF TRANSFERS HAD BEEN DISCONTINUED w Water and Electric Sewer System System Fund Fund Per cent reduction in utility bills as a result of the discontinuance of transfers Disoretionary 5,434 5,18% Administrative servicea 2,12 7,24 r r`r Total 7.554 12,42% 7 r. . a. r r P ;7-771 Vt. INCREASE IN CITY TAX RATE NECESSARY QB'FSET UTILITY Analyses of effect on tax rate of transfers from the utility systems Total 1978 assessed valuation $27103390200 Rater and Electric Sewer System System Total Fund_ Fund Amount of transfers per $100 of tax valuation Discretionary transfer $ ,44 $ .37 $ .07* Administrative services transfer .24 .16 .09 Total $ ,88 $ 52 $ is rrrrr rr~ Historical tax rate per $1+00 j a) of tax valuation $1.24 Tax rate necessary to offset lose of Oeneral Fund revenues if transfers had been discontinued Discretionary only $1.88 $1,61 $1.31 Administrative services only 1148 1439 1.33 Both 1.92 1178 1.40 *Had the discretionary transfer from the Rater and Sewer Fund been a full 8% of equ!,'.y, the amount for FY 1978 would have been $332,404 and the amount per $100 tax valuation would have been 120, Exhibit VI-A shows the net effect of the elimination of both the administrative and discretionary transfers and the resulting increase in property taxes and decrease in utility bills on selected residential and commercial taxpayers in the City of Denton, 8 VII. COMA BIOP CITY'S UTILITY RATE TO CITIES SERVED BY S After considerable research of this question, we have determined that meaningful. comparative data is not available$ Also, several significant problems exist in attempting to compare utility rates by city, Those problems are: There is no single base utilit: rate for a city. Base rates are set for each of sever%~l levels of service, (i,e, the base rats for 250 KWH of consumption is not the same as the base rate for 500 KWH of consumption,) To determine the total cost to the utility consumer the fuel adjustment charge must be added to the base utility rate, This fuel adjustment charge can fluctuate significantly from month-to-month and from utility to utility depending upon the time of the year and whether or not the utility hao been able to negotiate favorable fuel supply contracts, Data available fiom the Texas Public Utilities Commission relates only to base utility rates of • those utilities that come under its jurisdioticn and to comparison of base rates did not appear to provide meaningful results, VIII, TAXa~T W07LD BE PAID TO THE CITY BY A COMPARABLE Again, we have determined that meaningful data is not available with respect to this question. Several factors prevent the development of meaningful figures, For economic, environmental, and other reasons private utilities usually do not locate their generating plants within the boundries of th9 cities they serve or in other populated areas, If the City's electric utility was sold, its generating facilities would probably not be utilized because of the current excess generating capacity of most area private utilities, This would greatly reduce the generating facilities va1+tA for tax purposes. e 1 41so, private utilities iv some instances negotiate the value of the base on which they are to pay . property taxes, which may or may not be the actual market value of the property. For the reasons mentioned hbove, we have not attempted to compute the taxes that would be paid to tho City by a comparable private utility. 10 EXHIBIT VI-A, City of Denton SPECIAL STUDY Effec% on Selected Customers of Poes'_Ale Utility Rate Decrease and Property Tax Rate Increase The net effect of the elimination of both the administrative and discretionary transfers and the possible resulting increase in property tAxes and decrease in utility bills follows: Indicated Indicated (decrease) increase in 1978 Indicated in 1978 utilit bills 1978 net property water an increase taxes Electric Sewar Elimination of both transfers Residentt~~l 1 (1) 00 $ 141 f 2283 43 $ (63) $ ~41; 300,040 123 204 60~ (21) 21,1460 101 113 13g) (33) 19,260 79 131 (34) (18) 14,800 50 101 (22) .(29) 100590 49 72 13; (10) 5,420 12 31I !x_31 (g) Commercial (2) Acme Brick Company $ 2,227 $17,603 $(13j830) $(11348) Moore Business Forms 90388 20,296 (9,427) (11303) Victor Equipment OL"Apany 230768 370280 (10,727) (11383) General Telephone Company 580947 62,4W (6,018) (438) First State Bank 27,400 30,931 (2,383) (968) .1) Calculations based on data in Section V, Section VI, and Exhibit V1-B, (2) Calculations based on data in Section V, Section VI, and Exhibit VI-C. 11 ;t EXHI131T VI-8 City of Denton S SPECIAL STUDY Selected Residential Utility Customers utilitzusago Residential water assessed Electric and Sewer valuation * Amount a ons mount $41,580 Annual 35,352 $1,010 379,700 $326 Monthly Average 21946 84 310642 27 36,060 Annual 28,850 $ 841 3860800 $332 Monthly Average 2,404 70 320233 28 30,040 Annual 27,179 $ 7S6 1690500 $170 Monthly Average 20268 68 14,125 14 25,460 Annual 180839 $ tmH 2970400 $262 Monthly Average 11405 43 24,783 72 i 19,280 Annual 13,160 $ 453 138,800 $142 Monthly Average 1,097 38 11,887 12 14,800 Annual 8,516 8 286 237,800 $231 Monthly Average 710 24 21,467 19 100590 Annual 41152 $ 167 581900 $ 18 Monthly Average 348' 14 4,098 7 5,420 Annual 5,885 $ 214 54,800 $ 74 Monthly Average 489 18 41550 6 +KWH - kilowatt-hours 12 i' 7 Af i". f n ♦by rr yi " .90t aft ♦ S ~C• l City of Denton SPECIAL STUDY Selected Commercial Utility Customers Commercial Utility useage Assessed ec r c water an ewer "l.uat ion KWHT--* Amount Gallons Amo~t AC , eU8r~c0 Com an Annual 11,418,048 $183,183 26,050,200 $12,451 Monthly Average 551,337 15,265 2,170,850 10038 Moore Business Forms ~ 8_4 MonAthlyup Average 7 620,232 $1240862 21,781,800 $1p 874 Victor E u:"ment Company nnua 80803,200 $134,127 22,9740900 $11,1S0 Monthly Average 733,800 11,197 11914,375 929 C.Aeral Tele hone_ _C_o_m_ ~an 'Annual 405880005 $ 79,710 41885,900 $ 3,524 Monthly Average 382,334 80843 4051492 294 first State Bank $4,548,612 1,847,878 $ 33,942 10,9990100 $ 7,794 Monthly Average 183,973 21829 916,592 650 *KWH - kilowatt-hours 13