Well, it didn't take very long for our prediction from last Thursday to come true.
You might recall that in commenting on the situation in Indio where former Claremont City Manager Glenn Southard is getting some extra summer heat for a screw up in the tax collection department, we said that we wouldn't be surprised to see Southard's staff trotting out stats and charts to show how none of this was really Glenn's fault at all.
The problems in Indio stem from the failure of the city's electrical utility, the Imperial Irrigation District (IID) to collect the city's five-percent Utility User Tax (UUT) from about 8,000 households and 650 businesses. The missed tax money for the Indio UUT, collected over $4.5 million last year, could easily run into the millions of dollars.
Southard wasted no time dropping the possible litigation threat and hiring MuniFinancial (the same company that handled Claremont's failed Parks and Pasture Assessment District vote) to audit IID and determine how long the money has gone uncollected.
Southard's team also took the Desert Sun newspaper for a quick spin, as a Desert Sun article on the subject indicated. The article, titled "Indio: There Were No Signs Tax Wasn't Collected," noted that some residents were questioning how the city could overlook the missing revenue. Southard's assistant Mark Wasserman, however, argued that there appeared to be no drop off in revenues:
Wasserman said the city has annual revenue audits, and problems with the utility tax did not surface.
“When you look at the population and the UUT revenue they do grow at consistent rates with one another,” he said.
For example, from 1995 to 2000, Indio's population grew by 14 percent, and the utility tax revenue by 14.5 percent, Wasserman said.
From 2000 to 2005 — the height of the city's development boom — population grew 35 percent; the utility tax revenue increased even by 54 percent, Wasserman said.
Nothing seemed out of the ordinary during budget preparations. Projections for utility tax revenues are based on prior years, he said.
“There were no huge increases, no decreases. Revenues that we received from IID were in line with the growth from the city,” said Susan Mahoney, management services director who oversees finance.
The Desert Sun's article also carried a helpful graphic that showed that UUT revenues since 1994 tracked population growth in the city fairly consistently, just as Indio officials had said:
Chart from The Desert Sun, 8/7/08
(Click to Enlarge)
But should the tax be tracking the population or should it be rising much faster than population growth because of rising energy prices? You can see from the graph that in the last five years the UUT revenues did outpace population growth, but how do we know that curve is what we should really be seeing? Maybe the difference should be much more dramatic.
It seems to us there's a pretty simple way of figuring the correct amount. The Desert Sun reported that Indio has 27,704 households, according to the California Dept. of Finance. Let's say we know that the average household's yearly utility tax payment for 2007 was $100 and 30% of that cames from electrical bills. Then, $30 times 27,704 households would equal the annual UUT revenue the city would have expected to collect from electric bills. In our example, the city should have collected $831,120 from IID electric bills.
But if the Desert Sun is right about 8,000 households not being billed, then the total electric bill portion of the UUT revenue from households would be closer to $591,120 - $30 times 19,704 households. It's a difference of $240,000, and you would think that would jump out at people. An analysis for business UUT revenue would be similar.
And it's not as if Indio doesn't consider these sorts of projections. Below is an image of a fiscal analysis for the 2/19/03 Indio City Council meeting. The analysis shows estimated utility tax revenue for a then-new housing development called Generations at Shadow Hills:
Click here to see the actual report. (Sorry, the city of Indio doesn't make this easy. You have to click on the archive link, then click on the "City Clerk" folder and find the agenda packets. Look for February, 2003.)
The table shows what the estimated UUT revenues should be for the project as the homes become occupied. These are the figures, based on an average annual $166 utility tax collection per household:
2003 - 0 homes occupied, $0
2004 - 0 homes occupied, $0
2005 - 11 homes occupied, $1,824 (Uh-oh, the analyst's math may be wrong here; 11 times $166 should equal $1,826)
2006 - 22 homes occupied, $3,648 (Wrong here, too; should be $3,652)
2007 - 32 homes occupied, $5,306 (Wrong; should be $5,312)
So, did Indio really collect the amounts estimated for the housing units studied or did they instead collect some fraction of those numbers - $166 per household per year, minus whatever the electric bill portion of the utility tax was since the IID wasn't billing for that?
Indio was clearly used to figuring what the projected incomes should have been, so what was so hard about checking to see if the real numbers actually measured up to the projections? Southard and his staff were supposed to be auditing the numbers. Now, this was a problem that Southard inherited, but shouldn't a new administrator coming in with fresh eyes and getting paid barrelfuls of money be expected to do a proper audit? We know for sure that almost 8,000 households and 650 businesses weren't being billed. How did Southard overlook that?
More importantly, can whatever spin Indio's city management puts on the story trump the facts, as so often happened in Claremont over the various crises of the Southard administration here?
We can probably be sure that whatever audit is done, if the auditor isn't truly independent - loyal to the people of Indio rather than Southard or the Indio Council, then we might never know what happened. A citizen's group might be better off hiring their own auditor to go over the figures.
If that doesn't work, they can always start a blog.
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