Opinion ID: 1700088
Heading Depth: 1
Heading Rank: 11

Heading: commingling and conflict of interest

Text: Two concepts involved in this case are more easily apprehended by judges and lawyers than by laymen: commingling [24] and conflict of interest. [25] I have given illustrations of commingling as well as obvious misuse of public funds regarding the Property Improvement Fund and the subdivisions. These unlawful expenditures have no doubt come about because of the built-in conflict of interest in the system under which the District officers have operated. Under the statute creating the District, once the bonds are paid off, the District is entitled to no more tax revenues, and Jackson's $500,000 yearly obligation ceases. On the other hand, so long as a single bond remains outstanding, the District gets the two mill tax levy from all five counties, and can call on the counties, by the simple expedient of an order on the District's minutes, to levy up to an additional two mills in tax. In the year 1981, the last year for which records were introduced at trial, the District received $1,626,260 from the counties and Jackson over and above all amounts paid on bonds. The District has not been timid in its calls upon the counties for the additional levy. In 1981 they paid in ad valorem taxes over a million dollars over and above the amount necessary to retire bonds. Had the District officers operated the District more frugally, these tax levies would either be reduced drastically or have gone to retiring bonds prior to their maturity. Also, if the District in the sale of leases had done two things: (1) seen that all income therefrom was net to the District, and (2) provided that the property owners, not the five county taxpayers, paid for all municipal services, this would have generated income which would have gone to retire the bonds. Such action by the officers of the District most assuredly would have been of benefit to the taxpayers of the five counties, saving them millions of dollars. Such action, however, would result in paying off the bonds before 1999, and thereby terminate all ad valorem tax income from the five counties and from the City of Jackson. The District officers have clearly taken the course of action which avoids any prepayment of bonds, or reduces the yearly ad valorem tax levy load on the five counties. [26] Let us return momentarily to the Trust Indenture. The Trust Indenture was designed so that tax funds and other revenues would, wherever possible, be used to retire bonds. The first expenditure fund is Operation and Maintenance. The District's Board is required to spend money under it simply to operate and maintain the project, which of course excludes private properties, in good repair and working order during the year by economical management. If the District has more than enough receipts for this fund's purpose, the overflow goes into the Bond and Interest Fund, and then to the Bond Reserve Fund. Instead of restricting the Operation and Maintenance Fund solely to maintenance and repair of the public facilities and the administrative expense connected therewith, the District's officers have expanded it into servicing the entire privately-leased properties as well. Simply put, the Operation and Maintenance bucket has some very large leaks. The Property Improvement Fund serves the same invidious purpose. This fund is totally aside from, and never envisioned by the Trust Indenture. The Property Improvement Fund has enabled the District to privately set aside millions of dollars which might otherwise be available to reduce the tax levies or retire bonds. The festering of this conflict of interest has been revealed in the lamentable lack of effort to reduce yearly expenditures, thereby reducing the tax load on these five counties, as well as blatant foot dragging by District officers towards taking one single significant or substantial step which might reduce the tax levies, or retire bonds prior to maturity. Perhaps this accounts for the reply of the president of the District's Board when asked during trial why no charge had ever been made for street maintenance: ... did not feel we needed to. Further, the president testified that the Board did not consider it necessary to charge the lessees for police or fire protection. Let us take the curious reasoning of the general manager towards the conclusion of trial when the management of the District had been exposed. He was then asked whether the District proposed to start charging the lessees for these municipal services. He replied the Board had begun to pass through some of the costs. But, detailed study would be required before the Board could fairly and equitably distribute the costs. It would require another study by some experts. For seventeen years the District has been operating under this grossly unfair, disastrous business management, and still the general manager had not experienced a moment of truth. How else can his reasoning be explained than he was affected with a conflict of interest mental aberration? How else can you explain the testimony of the fiscal officer of the District, holding a degree in accounting from a major state university? He said it was not his job to, and he never made any recommendation to the Board regarding these expenditures. This officer, together with the general manager, prepares the yearly budget request for the District to the State Budget Commission. How else can you explain the dogged insistence of the District's officers, the consulting engineer, and the realtors that the District's affairs had been managed properly in all respects? The reader will now be able to grasp the full import of the use of the Property Improvement Fund and the Operation and Maintenance Fund in reference to these lease rentals and private developments. The Property Improvement Fund received District funds and District resources to develop property belonging to the District, and has been favored as the District officers saw fit to favor it over the years, unchecked by any obligation under the Trust Indenture. All municipal services rendered these subdivisions, however  the fire and police protection, the water, sewer, and garbage, and the administrative expenses for all these  have been paid as regular operating expenses of the entire District from the Operation and Maintenance Fund. They have, and will continue to be furnished at no cost, or far less than cost, to the lessees under the District's mode and plan of operation. The lessees have been favored. The Property Improvement Fund has been favored. Result: a few million dollars in irrevocably lost revenues from the lessees, and the Property Improvement Fund had $1,357,312 in net funds at last report on October 31, 1981. If one were looking at the District's operation with a view of how well the taxpayers of the five counties had been served, such management would have to be deemed incredibly stupid. On the other hand, if one viewed the operation as an attempt to keep the tax spigots turned on to a maximum flow and to delay payment of bonds to the last possible moment, the system is diabolically clever. No more perfect way of keeping these counties paying in over a million dollars a year in taxes in excess of the amount necessary to pay off bonds from now to June 1, 1999, can be envisioned. Thus, the wisdom of an operation where there is a conflict of interest.