Opinion ID: 1700088
Heading Depth: 1
Heading Rank: 9

Heading: the property improvement fund

Text: The minutes for the establishment of the Property Improvement Fund simply state it as a revolving fund for improvements made and paid for, or to be paid for by the lessees. It became that and more. There have been only two general managers of the District since its inception. Both of them, and the District's president, testified that they recognized this fund was not a part of the project's operation, that no tax money was supposed to go into the fund, and that it would be improper to use tax monies for development of the subdivisions. The Property Improvement Fund has been used by the District, however, for two purposes: (1) to place on the District  and thereby the taxpayers of the five counties  the burden of paying for vast expenditures which should have been paid out of the Property Improvement Fund, and (2) to siphon off income that should have gone to the District, and thereby relieved the five counties of the tax levies, or for bond redemption. The first has been accomplished by commingling expenditures so that it will be extremely difficult, if not impossible, to trace for whose benefit the costs were incurred, and when such expenditures resulted in benefit to the Property Improvement Fund, they were treated as a part of the regular project of the District, paid for out of the Operation and Maintenance Fund. Here, another factor also comes into play. Under the statute creating the District, the tax levies cease when all bonds are paid off. The City of Jackson also pays $500,000 a year under its contract with the District, which obligation continues only so long as any bonds are outstanding. Unless sooner paid, the last bonds to be retired are June 1, 1999. Ordinarily, it is in the interest of any political entity to pay off its bonded debts, terminate the interest and save the taxpayers money. As may be observed from the flow down of funds in the Trust Indenture, this document is designed for this very purpose so that all surplus funds will flow down to redeem bonds ahead of maturity date. In this case, by statute, we have a built-in conflict of interest. It may be in the interest of the taxpayers of the City of Jackson, the taxpayers of the five counties, and of the state, for the bonds to be paid off as quickly as possible. The interest of the operators of the District is precisely opposite. It is in the interest of those needing funds to operate the District to postpone payment of the bonds as long as possible. When the bonds are completely paid, the tax spigots are turned off, the yearly $500,000 stipend from Jackson ends. The Property Improvement Fund serves this unfortunate interest well indeed. By diverting public money into this fund, and not paying its share of expenses, the Property Improvement Fund has not only used tax money which the managers said it was not supposed to, but also served the unfortunate interest of delaying payment of bonds. The last fund of the Trust Indenture, the Bond Redemption and Surplus Fund, has not only never been activated, no officer of the District expressed any expectation, interest, hope, wish or desire that it would ever be activated. From this voluminous record, I will give some examples of the questionable use of public funds, as well as the unquestionable misuse of public funds through the Property Improvement Fund. These are by no means all, or necessarily the worst, but simply a sampling to show the necessity for an injunction as well as an accounting. [20] The general managers testified the purpose of the Property Improvement Fund was to take the money paid by the purchaser for the cost of development of the subdivision and put that into the Property Improvement Fund, in order that there would be enough to pay for the development of the next subdivision. This presumably was the front end money paid by the lessee. There is no record of the Property Improvement Fund ever repaying the District any of the money spent by the District on the Development of the first, or initial subdivisions. The 1966 accountant's report of the accounting firm Peat, Marwick, Mitchell & Company shows the Property Improvement Fund received $232,742 in front and payments by lessees. In 1967 the report shows a receipt of $160,291. Manifestly, some or all of this represented cost to the District for development of these first subdivisions. At least $300,000 in District funds are thus unaccounted for. Over the years the District has charged the lessees a tapping fee of connecting the District water and sewer to the residences. The Property Improvement Fund has no employees, all District employees are employed by and paid by the District out of the Operation and Maintenance Fund. The District was paid a total of $35,095 in tapping fees from 1966 through 1981 for these services rendered by District employees. All of these receipts went into the Property Improvement Fund. Many of the lessees entering into lease contracts with the District were unable to pay the entire front end payment, but financed it over a two- or three-year period, paying the District interest on the unpaid balance. Over the years it amounted to a total of $250,510, and all of it went into the Property Improvement Fund. [21] Most glaring are the sewerage charges. These sewerage charges are direct costs to the District for monthly sewerage services to the lessees. These charges were far below the cost to the District, but at least should have been put into the Revenue Fund, as were the water charges paid by the lessees. Instead, they were put into the Property Improvement Fund, and total $493,396 from 1966 through 1981. There was one undeveloped area leased undeveloped to a private real estate developer, who subsequently made the capital improvements for a subdivision at his own expense. He paid the District $250,000 for this undeveloped land, belonging to the District. The District put this into the Property Improvement Fund. The plan of development, as explained by the real estate expert, was that when 60 per cent to 80 per cent of the lots in any subdivision were leased, the front end payments made on these leases would fully pay the entire cost of that subdivision, not only including the improvements within the confines of the subdivision, but also that subdivision's pro rate share of the lagoon, water tanks, and pumping stations needed to service all subdivisions. Yet, the District has put 100 per cent of all front end money into the Property Improvement Fund. Thus 20 per cent to 40 per cent over the cost of developing the subdivisions has gone or will go into the Property Improvement Fund. How many thousands or hundreds of thousands of dollars in excess funds have gone into, or will go into the Property Improvement Fund without some court order prohibiting it? From time to time the Property Improvement Fund has borrowed from other funds. As will be shown, the Property Improvement Fund has consistently had a substantial sum of money on hand. In fact, the Property Improvement Fund has earned $725,245 in interest in the years 1974 through 1981 from the surplus it had on hand. Perhaps to meet construction expense or pay contractors without taking money from its interest bearing deposits, it has borrowed from the District funds. The Property Improvement Fund never paid any interest on this money borrowed. Thus, in the year 1979 we have the Property Improvement Fund receiving $122,874 in interest on Property Improvement Fund surplus funds. At the end of the year it owed other funds $124,000. In 1981 the Property Improvement Fund received $181,169 in interest, but at the end of the year, it owed $110,000 to other funds of the District. Thus, not only has the Property Improvement Fund in the years 1975 through 1981 received $725,245 in interest which should have gone into the Revenue Fund for the benefit of the taxpayers, but we have the Property Improvement Fund getting the benefit of interest-free loans from public, tax-supported funds, which funds were thereby deprived of interest they would have otherwise earned. Of course, if the Property Improvement Fund was a Trust Indenture fund, such interfund borrowing would make no difference. Finally, there is no allocation whatever of the hours spent by District employees, District heavy and light equipment, District gas and oil, District administrative expense, in the development of the subdivisions. We do not know how many thousands or hundreds of thousands of dollars have been spent by the District in developing the land for these private residential and private commercial areas. We get indignant when county equipment works on some private subdivision. How many tax dollars have gone into these subdivisions in the same manner with no accounting to the taxpayers? The Property Improvement Fund was never charged survey costs or the like. All such costs were paid by the District. We do not know how much, or what should have been paid out of the Property Improvement Fund as payment for specific costs to the District. There is no accounting of legal services rendered Property Improvement Fund activities. This is the fund the general managers testified was not to have the benefit of tax money. Through the fiscal year 1981, the records reveal the Property Improvement Fund has received a total of $11,792,715. This sum has been derived from front end payments, tapping fees, interest, and some minor items. It does not include hidden payments or benefits through time, labor, material, administrative costs all supplied by District employees and District equipment. During this same period the Property Improvement Fund has expended on capital improvements for private benefit, $10,208,138, leaving a balance of $1,584,577. The 1981 accounting report shows the Property Improvement Fund had on hand $1,347,312. At trial the District expressed no intention of doing anything differently in reference to the Property Improvement Fund than it has over the years. Until 1974 the Property Improvement Fund had paid nothing into the Operation and Maintenance Fund for any costs which were attributable to Property Improvement Fund. From 1974 through 1981 the Property Improvement Fund has paid the Operation and Maintenance Fund a total of $1,664,394, but there is no accounting whatever as to whether this represents the true and accurate amounts due. Certain definite sums of money can thus be seen in the Property Improvement Fund which should be repaid into a public fund of the District. Just as clearly, from all this commingling in which the District has engaged, the counties are entitled to an accounting to determine where all public monies have gone, and how much the Property Improvement Fund owes the District. The Trust Indenture contains no authority for the Property Improvement Fund. The officers of the District testified the Property Improvement Fund was not supposed to receive tax funds, received no tax funds, and the purposes of its expenditures were outside the project. Without creating this Property Improvement Fund, the District could not have financed from its own resources any private developments. Had the District stayed within the terms of the Trust Indenture, all payment for the private developments, and all such capital investment, would of necessity have had to come from outside sources, such as the engineer suggested in his 1959 study. All District money, all District equipment, and all District personnel man-hours that were expended for the benefit of the Property Improvement Fund were, of course, diverted from the project, and from the funds in which they would otherwise have found final repository under the Trust Indenture. Put another way, the entire Property Improvement Fund is a debt due the District from use of District funds, personnel and equipment.