High utility bills are a problemPublished 10:41am Friday, August 9, 2013
This letter is in response to The Tidewater News article, “City manager addresses citizens’ comments from public hearing.” The article reported on the Franklin City Manager’s report made at the Monday, June 24, 2013, city council meeting.
City Manager Randy Martin addressed comments made by Linwood Johnson, the official spokesman for the Concerned Citizens Against High Utility Bills, at the June 10, 2013, public hearing regarding the 2013-2014 budget. Mr. Johnson stated that the city of Franklin should reduce its electric enterprise profit margin to match that of Dominion Power. He said that the council should consider lowering the enterprise’s 88 percent profit margin to match that of the State of Virginia’s mandated profit margin for Dominion Power, which is currently 10 percent.
Mr. Martin said that he and city council reviewed Johnson’s comment during a recent work session and felt compelled to respond. Councilmen [Benny] Burgess and [Barry] Chatham have stated publicly on several occasions that they have analyzed the electric operation as a business enterprise; although the city manager prefers to analyze the electric operation as a municipal monopoly that does not make a profit, but collects user fees that are arbitrarily transferred to the general fund by the city council. Instead of using profit — expense and profit — equity ratios the city manager uses a line-item percentage of gross income transferred between line item accounts as his non-standard definition of profit and loss for the city.
Before I go any further, I want to make sure that certain points are made clear and terms are defined because the City and the Concern Citizens are not on the same page in discussing the electric tax/profit margin which is confusing for the community. I feel clarity will enable the community to better understand the City Council and the Concerned Citizens Against High Utility Bills’ positions.
The City Council has stated that they treat the electric operation as a fictional business enterprise which is separate from the corporate city government. For the sake of discussion the Concerned Citizens Against High Utility Bills attempted to discuss the issue using the City Council’s fictitious approach. Although the City Manager refuses to answer the group’s charge using their fictitious approach, the City Council at this point seems totally confused as to how the Manager is treating the electric operation because they are responding using the fictitious approach and speaking in terms of profit margins and revenue above expenses. But the City Manager gives his reports with the revenue collected treated as a user-fee tax.
According to generally accepted accounting principles, the electric enterprise profit margin is defined as the gross electric sales minus gross expenses as a single amount; or stated differently, as the ratio of electric sales minus all operating expenses divided by electric sales.
For their public statement, Mr. Martin and the City Council decided to not use the GAAP definition of profit margin. They said that for their purposes they would interpret profit margin to mean the transfer from the electric enterprise to the City’s general fund; or stated differently, gross electric fund revenue minus a city council determined revenue amount transferred to the City’s general fund; with the revenue transferred treated as an expense to the enterprise and a ratio of gross revenue, and the transferred revenue treated as a profit for the corporate general fund.
The article reports, “In regard to Johnson’s comment, Martin said the ‘profit margin’ or really money in lieu of taxes that is transferred to the general fund during the current fiscal year (2012-2013) was 9.62 percent.” He also said that “We have analyzed historical information and determined (the 88 percent comment) is not the case.”
He presented a chart that showed the Electric Fund transfer to the General Fund from 2008-2009 was 13.32 percent; 2009-2010 was 12.84 percent; 2010-2011 was 11.49 percent; and 2011-2012 was 10.77 percent. The budget council just adopted will include a transfer of 9.37 percent.
There are several reasons why the city did not get the same answer as Concerned Citizens Against High Utility Bills.
First, the Concerned Citizens calculations were based on 2010-2011, 2011-2012 and 2012-013 data. Concerned Citizens used current figures, and the City Manager used 2008-2009, 2009-2010, 2010-2011 and 2011-2012 figures. The City Manager used old figures and excluded the current and most relevant term; i.e., 2012-2013.
Secondly, the city manager just moved money from one account to another. He pretended that the money taken into the electric account didn’t have anything to do with the city. So when he transferred the city’s money from the electric account to the city’s general fund he pretended the amount was a loss to the city, and also a profit to the city.
If the Council and Mr. Martin had been honest with the citizens, used 2012-2013 figures, he would have said this:
Our fictitious electric enterprise for 2012 – 2013 had gross revenues of $14,662,599.00. And we will not treat our electric revenue transfer to the general fund of $1,875,293.00 as an expense. Our actual expenses were personnel, $1,101,142.00; operating costs, $372,656.00; capital expenses, $778,654.00; and debt service, $102,106.00; for a gross expenditures total of $2,354,558.00.
We therefore had a 2012-2013 profit of $12,308,041.00, which equals a profit margin of 83.942 percent or rounded up to 84 percent.
The city council then transferred 9.62 percent our revenue to the general fund.
It is easy to see why their figures do not agree. The City is at best is confusing itself and the taxpayers, and at worst misleading the taxpayers by pretending to transfer money from itself as an expense, and then treating the cost, depending on their mood, as a small profit or loss to the city. The Council compared apples to cars, making up their own ad hoc definitions; where Concerned Citizens compared electric enterprise to a real electric enterprise using accepted accounting principles.
It is clear that if you compare the city’s electric operation to a private electric company that they are overcharging the citizens who must pay the bill. It is also clear that if you look at the revenue as a tax, their tax is too high for the citizens.
Mayor [Raystine] Johnson-Ashburn and Councilwoman [Mary] Hilliard as leaders of the city council alliance, the black majority on council, and the City at large should immediately reduce the electric operations tax burden that they have placed on their constituents. If the council would stop transferring electric department funds into the general fund they would not need to raise electric rates. We should unite and make it clear to Mayor Ashburn and the rest of the City Council that we do not want anymore tax raises that hinder economic development and support government waste.
Thomas Councill Jr., is a Franklin resident. He can be reached at firstname.lastname@example.org.