This article originally appeared in the Friday, April 26, 2019 issue of the Progress Times.
The city of Mission improperly transferred millions from the utility fund to the general fund during the past decade, prompting scrutiny from the Texas Water Development Board.
Mission transferred more than $30 million from the utility fund, which is dedicated to providing water and sewer service, to the general fund, a catch-all account that supports a wide array of government services, from Oct. 1, 2008, to Sept. 30, 2018, according to city records.
“Transfers out of the utility fund are not acceptable,” said Carleton S. Wilkes, team lead for the Financial Compliance Division of the water development board. “They’re a prohibited transaction.”
Wilkes and another water development board administrator sent a letter to Mission about the situation on Nov. 30, 2018.
The state provided Mission with nearly $25 million through the Economically Distressed Areas Program — what the water development board calls “EDAP” — for local utility projects.
“As a result of the review and because the City has used EDAP funds to construct all or part of your wastewater system, staff has concluded that the City is noncompliant with Section 16.356 of the Texas Water Code (TWC),” according to the Nov. 30 letter, which cited an agreement between the city and the water development board.
The Texas Water Code prohibits Mission from using “any revenue received from fees collected from a water supply or sewer service constructed in whole or in part from funds from the economically distressed areas program account for purposes other than utility purposes.”
A major transfer noted in the city’s 2017 Comprehensive Annual Financial Report prompted scrutiny from the water development board.
Mission transferred $4.4 million from the utility fund to the general fund and $300,000 from the utility fund to non-major governmental funds that year.
In the annual financial report, Mission described the purpose of the transfer.
“A transfer from the Utility Fund to the General Fund is to supplement the General fund for administrative services provided to the enterprise fund,” according to the report.
The 2018 Comprehensive Annual Financial Report included nearly identical language to describe another $4.4 million transfer, according to a draft copy provided by the city.
“Transfers from the Utility and Solid Waste Funds to the General Fund were to supplement the General fund for administrative services provided to the enterprise fund,” according to the report.
The draft, however, included a note: “Is this true? Was the entire $4.4 million reimbursing the general fund for services the general fund provided to the enterprise fund? Please provide what it was for to modify wording.”
Mission will not be required to repay the money, which would pose a major problem for the city. The city, though, must stop making transfers without a clear, utility-related purpose.
City Manager Randy Perez sent the water development board a draft City Council resolution last month, requesting feedback.
The proposed resolution would classify the transfers as a “franchise fee” and reduce the amount to 15 percent of the utility fund’s operating revenue.
Mayor Armando “Doc” O’caña said he wanted to resolve the problem as quickly as possible.
“My position is very simple,” O’caña said. “That we are going to do everything legally possible to move from noncompliance to compliance.”
Reducing the city’s reliance on transfers from the utility fund will require structural changes, O’caña said, adding that Mission must increase city revenue and reduce costs.
“However, the hole is too deep for me to make just cosmetic changes,” O’caña said. “I have to do long-term changes.”