A bill introduced by state Sen. Charles Schwertner, R-Georgetown, would likely result in increased property taxes in Austin, San Antonio and other cities that own electric utilities, according to Austin Chief Financial Officer Ed Van Eenoo.
Simply put, Senate Bill 1110 would prevent cities from transferring money from their utilities to their general funds, “if the transfer would result in a rate increase or financial deficit for the municipal utility.” The bill also would prevent the utility from considering its transfer when putting together a rate case.
Van Eenoo and Mark Dombroski, deputy general manager of Austin Energy, testified last week before the Senate Business and Commerce Committee, emphasizing the problems the bill would cause for cities that own utilities.
“This bill would effectively ban transfers from publicly owned municipal electric utilities to their governing city by prohibiting a transfer in a cost-of-service study used to set rates and prohibiting transfers when a utility runs a deficit or increases rates,” Dombroski told the committee. “These prohibitions would be contrary to standard practices in the electric utility industry.
“All electric utilities compensate their owners,” he said. “Municipal utilities make a General Fund transfer to their city, (electric cooperatives) pay capital credits to their members, and investor-owned utilities pay dividends to their shareholders.”
Van Eenoo compared property tax rates in Austin and San Antonio, which each have their own electric utilities, to the higher rates in Dallas and El Paso, which do not. Austin’s tax rate is 46 cents per $100 of valuation and San Antonio’s rate is 54 cents per $100 of valuation.
The rate for Dallas is 71 cents per $100 of valuation and El Paso’s is 86 cents per $100 of valuation.
Republicans have made a point of calling for lowering property taxes this session. So the idea of passing a bill that will result in higher property taxes for hundreds of thousands of Texans could face resistance.
Van Eenoo told the committee that “the city’s annual return on investment in Austin Energy represents an important, albeit declining, share of Austin’s annual General Fund revenue, having dropped from 16 percent of total revenue in 2009 to just 9 percent today.”
He also noted that the transfer has grown by less than 1 percent per year on average, while at the same time, wages for utility employees have gone up by 2.5 percent and benefit costs have increased by 5.7 percent. Although the transfer adds stability and diversity to the city’s sources of revenue and bond rating agencies view it in a positive light, the transfer is not a major driver for Austin Energy’s budget, he said.
According to a report in Axios, Schwertner said it was not the intent of the bill to cut city budgets. “It just would prohibit transfers that cause a rate increase or cause indebtedness on the part of the utility,” he said. The Austin Monitor contacted Schwertner’s office for further comment but did not hear back from him before deadline.
All investor-owned utilities consider how much they wish to pay their investors in the form of dividends when putting together their rate cases. A typical utility achieves a rate of return of 9 to 11 percent.
Similarly, municipally owned utilities consider how much they wish to transfer to city coffers when writing their rate proposals.
Kaiba White, a member of the city’s Electric Utility Commission, told the Austin Monitor that Schwertner’s bill “would take municipal utilities and single them out amongst all utilities in Texas, with them as the only type of utility where there would be no shareholder benefit.” She characterized the effect of the legislation as “inappropriate and unfair.”
Many people do not understand the difference between investor-owned utilities and municipally owned utilities. Investor-owned utilities take into account how much they wish to pay their shareholders through dividends, generally on a quarterly basis. Municipal utilities give back to their customers by transferring a certain amount to the municipality to pay for parks, police officers, libraries and other city services, which would otherwise be funded only by taxes.
As Dombroski told the committee, “All electric utilities provide payment to their owners, just in different forms. Our General Fund transfer is very reasonable. It is a benefit to our community.”
The bill could potentially affect 72 municipally owned utilities in Texas. The bill was left pending in committee, but Schwertner is the chair of the committee and could seek the panel’s approval to send it to the full Senate whenever they meet.
Photo by Larry D. Moore, CC BY-SA 3.0, via Wikimedia Commons.
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Austin Energy: As a municipally-owned electric utility, Austin Energy is a rarity in the largely deregulated State of Texas. It's annual budget clocks in at over $1 billion. The utility's annual direct transfer of a Council-determined percentage of its revenues offers the city a notable revenue stream.
