Supporting Your Interfund Transfers

It seems that a number of cities have gotten letters from a law firm asking for the back-up detail for their interfund transfers from enterprise funds to the general fund.  While not ascribing any motives to the law firm, their requests follow in line with the terms of Proposition 218 passed in 1996.  Section 6(3) of the proposition, which became Article XIIID of the State Constitution, states that:

The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel.

Since the burden of proof is on you to prove the proportionality of the costs (Section 4(f)), and the Supreme Court has held that water and wastewater usage charges fall under the terms of Proposition 218 in the Bighorn decision, you need to be able to substantiate your charges, and therefore your transfers from the enterprise funds to the general fund.

What does this mean for you?  It means that if you are transferring monies to the general fund from your enterprise funds then you need to have back-up documentation and calculations to support those transfers.  To merely transfer monies based on past history or what you estimate to be the effort is going to leave you in a legal pickle.

The cleanest way to solve this problem is to prepare a cost allocation plan (CAP).  There are numerous firms that provide this service, including RCS, but this is also something that you can do yourself.  This allocation plan doesn’t need to be complicated or even an actual CAP, but it does need to be fair and proportional.

At this link is a relatively simple CAP Spreadsheet that you can use as a template. Feel free to use it and make it your own.  Or come up with your own allocation method.  But come up with something.

If you decide to do it yourself, feel free to let us know if you have any questions.