Thank you, AMP

The next time you send in your check to Alameda Municipal Power, be sure to enclose a thank-you note on behalf of the City of Alameda.

For years, AMP has been filling the City’s coffers with millions of dollars annually.  Indeed, payments by AMP account for as much of general fund revenue as sales taxes do – and often more.

Here are the recent numbers:

“Transfer to general fund” “PILOT/ROI” “Cost allocation” Total
FY 2009-10 $2,800,000 $1,241,623 $759,168 $4,800,791
FY 2010-11 $2,800,000 $2,657,408 $762,768 $6,220,176
FY 2011-12 $2,800,000 $1,284,652 $784,500 $4,869,152
FY 2012-13 $2,800,000 $2,285,210 $812,160 $5,897,370

Veterans of the golf wars will recognize the columns labeled “PILOT/ROI” and “cost allocation”:

  • “PILOT/ROI” refers to “payment in lieu of taxes” and “return on investment.”  These are fees enacted by Council in 1993 and 2005, respectively, as a way to siphon cash from the City’s “enterprise funds,” of which AMP is one, for the general fund.  They’re supposed to be based on 1% of the value of the enterprise fund’s fixed assets as of June 30, 1993, adjusted annually for inflation.
  • “Cost allocation” is another charge devised to compensate the City — using a formula known only to staff — for services provided by City employees.

It can be argued that fees like these are perfectly legitimate.  After all, the City owns the assets of AMP.  Why shouldn’t it earn a return on its investment?  And why shouldn’t the City be reimbursed if, say, the City Attorney drafts a settlement agreement for AMP?

But this argument won’t work for the column labeled “Transfers to general fund,” which represents about half of the annual payments by AMP to the City.  The City Charter requires AMP to transfer its “excess earnings” – computed using a formula set forth in the Charter – to the general fund.  In fact, in each of the last four years (and as far back as Fiscal Year 2007-8), AMP hasn’t actually generated any “excess earnings.”  But in each of those years the Public Utilities Board that oversees AMP – which includes the City Manager – has approved transferring $2.8 million to the general fund, even though AMP has absolutely no legal obligation to do so.  This transfer is a gift – or, if you’d prefer, a subsidy – by AMP to the City, pure and simple.

What does the AMP money pay for?  It would be disrespectful to suggest that it’s AMP’s largesse that allows the City to give such generous wages and benefits to its police and fire employees.  So we’ll let somebody else do it.

Take a look at the report by the business representative for International Brotherhood of Electrical Workers Local 1245 about the negotiations with the City over a new contract with AMP in 2010.  According to the report, when the City demanded concessions from the union, the IBEW lead negotiator responded that “our members received inferior health and welfare benefits compared to Public Safety employees” and pointed to the millions being transferred from AMP to the City’s general fund.  These “huge transfers,” the IBEW’s negotiator argued, are “paying for superior benefits for Police and Fire.”  Whether because of that argument – or because the three candidates backed by the IBEW were elected that fall — the City caved on its demand that IBEW members begin paying a share of their medical coverage.

(Incidentally, this report provides a fascinating look at how things get done in the City of Alameda.  It’s a must-read: 040811 IBEW report on negotiations).

But whatever the AMP money pays for, one thing is clear:  without the beneficence of AMP, the City’s general fund would have run out of money long ago.  And even Bonasera himself would find it difficult to patch a hole the size of the one that would be left in the budget if AMP stopped or reduced its payments.

To those of us who fought the golf wars, it’s déjà vu all over again.  For years, the City drained money from the Chuck Corica Golf Complex under the guise of PILOT, ROI, and cost allocation. Since the Golf Complex was making an operating profit – i.e., its revenues exceeded its expenses – it could satisfy the City’s demands for cash by turning over all of its income (and keeping nothing for maintenance).  The problem arose when the City insisted that the payments stay the same even as profits fell.  To keep paying at the level to which the City had grown accustomed, the reserves in the Golf Enterprise Fund had to be drawn down – and they were, to the point where the politicians claimed that this “money-losing” enterprise had to go.

AMP soon may be facing an even worse situation than the golf complex did.   According to a report submitted by AMP staff to the Public Utilities Board, revenues won’t cover expenses this fiscal year or the next one.  The forecast for the following years is equally bleak.  Yet if AMP starts losing money on its operations, it will need to dip into its savings just to keep afloat.  In that case, maintaining the payments to the City at their current level will exhaust AMP’s reserves even more quickly.

Obviously, this state of affairs can’t go on forever:  Eventually, AMP will have nothing left to give.  Ironically, however, the City appears committed to hastening the day of reckoning.  Beginning in fiscal year 2012-13, the City intends to take an advance from AMP of the PILOT/ROI payment due in the following year:  $1 million in FY 2012-13, $1.2 million in FY 2013-14, and $1.4 million in FY 2015-16.  Indeed, these advances are one of the key stratagems used by City staff to “balance” the budget in the next two years, even though, according to AMP staff, the PUB never actually passed a resolution authorizing them.

AMP surely deserves a word of thanks from City officials like Mayor Gilmore, City Manager Russo, and former Local 698 president and current fire chief Mike D’Orazi for its continuing contribution to the general fund.  As a public-spirited citizen, you might want to accompany your check to AMP with a note on their behalf.

Sources:

AMP CAFRs: 2011 AMP CAFR; 2012 AMP CAFR

AMP 2013-14 budget presentations: 13-0415 staff report re AMP draft budget; 13-0415 AMP draft budget presentation

City staff budget presentations: 062811 transmittal letter; 062612 transmittal letter; 2013-04-18 Power Point for budget workshop

Alameda City Charter and Municipal Code: City Charter; Municipal Code section 3.28

IBEW report on negotiations: 040811 IBEW report on negotiations

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Budget, Uncategorized and tagged , , , , , , , . Bookmark the permalink.

One Response to Thank you, AMP

  1. Denise Lai says:

    This is outrageous. Our city priorities should be allowing AMP to use these monies for undergrounding electrical lines, improving our neighborhoods!

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