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$25 million NHL payment will come from Glendale utility fund

by Cecilia Chan - Jun. 1, 2012 09:06 AM

The Republic | azcentral.com

Glendale's second $25 million pledge to the National Hockey League largely came from city water and sewer funds, which is not what city administrators said would happen.

Actually, city staff said the money wouldn't be needed at all because they expected the Phoenix Coyotes to be sold. If that had occurred, the pledge to help the NHL cover team losses during the 2011-12 season would have been moot.

That didn't happen and the biggest chunk of the pledge, $15 million, was siphoned from the utility fund into an escrow account awaiting the NHL's bill, which is expected any day.

It's the second year in a row that the city made good on its NHL pledge with help from the utility accounts, which is largely funded by fees, such as water and sanitation, paid by residents and businesses. The enterprise funds are suppose to pay for long-term utility projects, such as sewer plants or pipe replacement.

In May 2011, city bookkeepers said this year's pledge would come from the general fund, which covers operating expenses. That plan was noted in the budget adopted in June.

Some time after that, staff made the decision to again take the money from the utility funds, also called enterprise funds. City staffers say elected leaders should have been aware of the change late last year, but City Council members offer mixed messages on when they learned about the switch.

Either way, nothing was said publicly to taxpayers until earlier in May when Mayor Elaine Scruggs began asking questions.

Finance Director Diane Goke said council members were informed last December when they received a copy of the city's annual comprehensive financial report for the fiscal year that ended in June.

She said residents could have looked through the document, which is online, and found the same information.

The 160-page financial report spells out that the $15 million "is recorded in the water and sewer fund."

Goke said it was a "business decision" to take the money from the utility funds. "It's a combination of where the money is and what makes the most business sense at the time."

Here's a look at where the city now says it drew the money this year, as well as last year.

• $15 million from the water and sewer enterprise fund.

• $5 million from the technology and vehicle-replacement funds within the city's general fund.

• $5 million is to come from the city's general-fund reserves.

• $25 million for the first pledge paid to the NHL last spring came from landfill and sanitation funds.

Councilman Manny Martinez said council was told early this year that the utility funds were used again.

"I wished it didn't happen that way but the options were limited," Martinez said.

That said, Martinez said he is not concerned that the money came out of the enterprise fund because it must be repaid. Glendale begins reimbursing the first $25 million payment next budget year at $1.1 million for 25 years.

Councilman Phil Lieberman said he learned in January or February that the pledge came from the enterprise funds.

"Nobody ever mentioned it to me until six months after it happened," he said. "That is my fault. I didn't ever think to ask where that money came from."

Lieberman has concerns about the interest costs the city will incur as it repays the utility funds. He doesn't think $1.1 million annually for 40 years will be enough.

The mayor's chief concerns are the "effect on our water and sewer bond ratings caused by the use of enterprise funds for arena management expenses" and the cost to the general fund to repay the "interfund loans."

The city has repeatedly dipped into its rainy-day account to shore up a fragile general fund after years of anemic revenue. The reserves are down to $2 million.

The council this month approved a preliminary spending plan for next fiscal year that closed a $35 million shortfall with layoffs and tax increases.

Moody's Investors Service earlier this year downgraded Glendale's bond rating, citing the low reserves and the $50 million in NHL pledges.

Scruggs also is concerned that turning to the utility accounts may become common practice. The city in 2010 had no intention of relying on the accounts for the first pledge as it planned to set up a taxing district around the arena. But the NHL pressed for the $25 million to go into an escrow account immediately, so the city borrowed from the utility funds.

The mayor said she was unaware that this year's pledge also came from the utility funds until April, after inquiries to staff.

But Councilwoman Norma Alvarez insisted staff informed council of the fund transfer before November.

Alvarez said it's not right that the city borrowed money from the enterprise fund -- or any fund. She opposes the professional sports spending.

"First place, it's not your money," Alvarez said. "It's direct money from the taxpayers."

And she questioned whether, if an emergency were to occur with water and sewer infrastructure, there would be enough funds to cover the expense. The enterprise accounts totaled $411 million in net assets for the year ending June 2010, according to an annual report.

Council members Steve Frate, Yvonne Knaack and Joyce Clark did not respond to requests for comment.

In Chandler, the council is notified of changes in funding sources, although no formal council action would be required if the expense had already been approved as part of a larger budget, Dawn Lang, management services director, said.

In Peoria, if the council approves an expenditure, the money generally comes from where it was budgeted, city spokesman Bo Larsen said.

"We would go to the council for any changes but (it) should not happen," he said. "Normally we plan the appropriate expenditures from the appropriate funds. There is no clear policy. It is just good fiscal management." Coyotes update

The Glendale City Council is expected to vote in the coming weeks on agreements with a potential Phoenix Coyotes buyer Greg Jamison regarding the lease and management of the city-owned Jobing.com Arena.

Glendale denied The Republic's request for copies of draft agreements provided to council in late May.

The request was made to provide details on the costs taxpayers are expected to bear, including $17 million in the coming fiscal year. The Republic noted the state's public-records law does not exempt draft agreements from disclosure and that residents need time to review and offer feedback on the complex, 20-year deal.

City officials said they would not release the documents because they are the subject of ongoing negotiations and it would not be in the city's best interest to release them.

As it stands, the city is expected to release the deal to the public by 5 p.m. June 8 ahead of a Tuesday council vote. That would provide taxpayers just two working days to review and offer feedback to elected officials on the deal.