Oct. 17, 2012 —
Past audits of Olive Hill’s finances by the Kentucky State Auditor, both in 1997 and 2000, show that the city has a history of using the utility fund to bolster its general fund.
In outlining the city’s areas of noncompliance in his 1997 report, then auditor Edward B. Hatchett specifically stated, “The city should cease subsiding the general fund with utility fund resources.”
In an August 2000 report, the state auditor documents his return for a special examination to determine whether or not his recommendations had been put into effect.
Hatchett outlines his findings in an executive summary that states:
“Our report reveals that the City failed to implement several of our previous audit recommendations. Chief among these was the recommendation that the City cease subsidizing the operations of the general fund through transfers and other payments from the utility fund.”
“We note that these subsidies and other factors resulted in a utility rate increase substantially higher than would otherwise have been needed.”
“The failure to implement these recommendations, along with other incidents of fiscal mismanagement, increased by 40 percent the level of utility rate increases,” Hatchett adds.
These comments are directly in response to the city’s adoption of new utility ordinances in April 2000, specifically ones dealing with electric rates, which the auditor describes as amounting to “substantial flat rate increases” to customers.
Using utility profits to fund general government operations isn’t categorically illegal, though. In some cases, cities are able to transfer profits from municipal utilities into the general fund. KRS 96.200 deals specifically with this scenario. It states:
“Any city of the third through sixth classes inclusive may, by ordinance, provide in what manner and for what purpose any profits, earnings or surplus funds arising from the operation of any public utility owned or operated by the city may be used and expended.”