Public records show that McCleary Mayor Gary Dent chose to transfer funds from the city’s dedicated power fund to the general fund, declaring the funds no longer needed despite millions of dollars in power infrastructure projects that still need to be done and, in doing so, avoided having to seek voter approval to increase taxes.
When former public works director Nick Bird openly questioned the situation, it likely cost him his job.
McCleary Mayor Gary Dent said Monday evening that he wasn’t doing anything nefarious and ran the scenario past his city attorney, who found a way using state law to do it. Dent acknowledges that if he hadn’t done his transfers, starting back in 2011, he would have needed to go to the voters and seek a tax increase earlier and jobs would have been laid off sooner. Earlier this year, Dent laid off a police officer and a half-time police clerk.
“I did what I had to do to keep this city afloat,” Dent said. “I was not going to have this city go bankrupt.”
City Attorney Dan Glenn urged city staff to keep the knowledge of the fund transfers “as much ‘in house’ as possible,” according to a memo Glenn sent on Nov. 11.
“While this is not a technical matter, I do question the wisdom of ‘doing something legal’ but not being able to talk about it by ‘keeping the discussions as much in house as possible,” Bird wrote to the mayor on Nov. 13. “In my opinion, this is akin to doing something underhanded.”
McCleary is the only city on the Harbor to operate its own power utility. Other areas of the county depend on the Grays Harbor PUD.
By state law, utility funds are only supposed to be used for specific purposes. For instance, the light and power fund goes to pay for new poles, infrastructure and for a crew that ensures the power is restored after a storm. When residents pay their power bill, the money goes straight into the special fund.
At the same time, the city has a 6 percent utility tax on its power bills. Many residents may not notice the difference — just paying the bottomline bill. However, funds from this utility tax go into the general fund for use on just about anything. The state caps the utility tax for power at 6 percent. If the city wanted it to be any higher, state law requires the city go to the voters and increase the tax. That’s supposed to be the only legitimate way for the city to get more money from the light and power fund.
As an end around, however, Dent administratively declared hundreds of thousands of dollars from the power and light fund as “surplus” and instructed staff to use the money to balance the operating budget. In turn, the McCleary City Council approved those budgets. Utility funds are only supposed to be declared surplus if there’s nothing left to spend the money on. In McCleary’s case, there was a backlog of millions of dollars of infrastructure improvements needed — and two rate hikes during the time of the transfers.
In 2011, $200,000 was transferred into the general fund from the operating budget. In 2012, another $200,000 was transferred.
Last year, $120,000 was budgeted to be taken, but Clerk-Treasurer Wendy Collins said the transfer wasn’t needed. No money was taken out of the fund. Collins says the city was able to rely on an insurance payout and some unpaid garbage taxes came in that helped balance the budget.
This year, the approved budget authorizes a transfer of $55,000 out of light and power to balance the operating budget. At the start of this year, the light and power fund had about $580,000.
“I’ve been cutting back on our dependence on the fund,” Dent said on Monday. “I saw expenses going up and there was nowhere to pull the money. And my city attorney said what I was doing was legal. For years, Montesano took money from their forest funds and they used it to cover their water and sewer funds. Nick had his biases. He was there to look out for public works. But I was there for the big picture. And we had a police force to fund.”
Before November of last year, Bird said he had no idea the mayor had declared any of the money in the light and power fund as “surplus.” For one thing, Bird pointed out that in the city’s 2011 capital improvement plan, the city had identified approximately $2.936 million in necessary capital improvements “focusing on replacement of items currently failing or at their useful life expectancy.”
“We have currently completed approximately $173,500 of the planned work, which leaves $2,762,500 of remaining work to be completed in the 20-year planning period or $1,238,500 of work to be completed by the end of 2017,” Bird wrote in a memo to the mayor last fall. “… If we cannot facilitate the annual improvements identified in the planning document due to fiscal constraints and we do not have the cash balance to complete all of the planned work, I fail to see how we can identify portions of the cash balance as surplus.
“While the operations have generated revenue, as previously noted, the cash balance does not exceed the amount of planned work in the near future,” Bird wrote to the mayor. “It could be viewed by an outside source that administrative control of the fund limited the work that was being done specifically to generate a surplus for transfer.”
City Attorney Dan Glenn provided a memo to the mayor and city staff on Nov. 11 that gave clear guidance as to what was happening and how to get around potential objections that may emerge from the state Auditor’s Office. He cited state law that could be used as a defense to use the money without going to the voters.
Glenn also advised city staff not tell anyone outside the city of his advice in order not to draw specific attention from the state Auditor’s Office, noting that Bird had a discussion with Montesano City Administrator Kristy Powell about the situation. The fear was that Powell might mention it to the Auditor’s Office if Montesano comes under fire for the way it allocates the use of special funds. Montesano received a finding from the Auditor’s Office when it didn’t keep proper records of employee time being charged to its own special funds.
“I would recommend keeping the discussion as much ‘in house’ as possible,” Glenn wrote in his memo, adding that if Powell were to be questioned by the State Auditor again, “We could reasonably anticipate that she would point out to the state Auditor’s Office that McCleary had taken this action without an objection.”
Glenn explained in his memo:
“When any special fund of a public utility department of a town has retired all bond and warrant indebtedness and is on a cash basis, if a reserve or depreciation fund has been created in an amount satisfactory to the state auditor and if the fixing of the rates of the utility is governed by contract with the supplier of water, electrical energy or other commodity sold by the town to its inhabitants, and the rates are at the lowest possible figure, the town council may set aside such portion of the net earnings of the utility as it may deem advisable and transfer it to the town’s current expense fund: Provided, that no amount in excess of 50 percent of the net earnings shall be so set aside and transferred except with the unanimous approval of the council and mayor.”
The key parts of the law allowing the transfer of funds, however, is if the rates are “at the lowest possible figure.”
McCleary Councilman Brent Schiller has consistently questioned that fact, noting that if the city weren’t declaring the funds surplus, then the rates could be lower — or rate hikes may not be needed. In January, the council boosted the power rates by 3 percent. And, after transferring $200,000 in 2011 and the same amount in 2012, the power rates were increased. Schiller was the only one to vote against both the budget and the recent rate increase.
“Our approach in the Public Works Department is to be open, honest and transparent,” Bird wrote on Nov. 13. “We are a public-owned utility, and it is in my opinion that the public has every right to know what we are doing with their rate dollars.”
Within a week of sending the letter, Bird also expressed his views of the power transfers to various members of the council and other city staff.
And, on Nov. 20, records turned over by the city of McCleary show he was put on administrative leave.
Dent began termination proceedings soon after.
“As a department head, you work for me as mayor and owe me a duty of loyalty,” Dent wrote. “Your job description is clear that you perform your duties subject to my direction and under my supervision.”
Dent wrote to Bird that Bird should have just followed his instructions in preparing his budget.
“The utility department is under my direction and the preparation of the initial budget is delegated to me as mayor,” Dent wrote to Bird on Dec. 16.
Bird resigned his post on Dec. 31 after reaching a separation agreement with the city to receive a severance and insurance coverage. Last week, Bird was hired as the public works director for Ocean Shores.