We are often asked what “the other guys” are doing when it comes to the practice of making transfers from utility funds. We posed this question in the 2011 North Central Region Utility Rate Survey. To quantify the size of the transfers made, we asked for the annual transfer amount, either as a percentage of utility revenues, or a percentage of the utility budget.
While the water and wastewater industries push for cost of service-based utility rates to promote self-supporting utilities, there has long been and continues to be a common practice in many municipal utilities of transferring revenues from utility funds to other City funds. To maintain accountability in utility fee setting by preventing what resembles taxation through the utilities, limits have been set in some states as to the maximum transfer that can be made from a utility fund. The practice of transferring funds is not wrong, as the transfers can often be justified by services from which the utility benefits, such as streets, safety, etc.
In addition, the opposite can also occur, in which some municipalities practice transferring funds into the utility accounts. Regardless, any transferred funds need to be properly accounted for when reviewing cost of service and setting rates, and ideally, each utility would be funded only from operating revenues from fees charged for services rendered.
Because the 2011 rate survey questionnaire did not include a detailed explanation of the transfers, it is probable that some of the data reported includes items such as labor for employees shared by more than one department, or other such shared expense that would normally not be viewed as a transfer, had greater detail been provided. As such, Figures 1 and 2 illustrate the average, minimum, and maximum transfer values reported for water, wastewater, and stormwater utilities for systems serving greater than 5,000 and less than 5,000, respectively. In future rate surveys, we will likely address this topic again in greater detail.
As shown in the graphics below, practices are varied. If your municipality is considering beginning the practice of transferring funds or is changing the transfer amount, make sure to consult the appropriate agency to be sure. Any transfers are within the legally allowable guidelines for your jurisdiction.