Storm clouds are gathering over the city's use of the Wastewater Enterprise Fund

Some people decorate their yards with garden gnomes, others use happy frog sculptures. Gertrude Cox has gargoyles. Four of the winged statues have the faces of cats; two feature the snouts of dogs. All of them guard the front walkway of her home in Athmar Park.

"People love them," Cox says of the three-foot-high metal beasts. "They're always making comments about them."

Cox installed the statues six years ago, around the time that she and her late husband, Ivan, decided to replace their front and back yards with decorative concrete — light pink, to match the roof of the house — so that they didn't have to deal with maintaining landscaping. "And it came in handy a few years ago with all the watering restrictions," she notes.


Denver Wastewater Management

Though this extreme act of xeriscaping has allowed Cox to earmark a smaller portion of her fixed income to her water bill, she pays more to the City of Denver for Stormwater Utility — a fee that ostensibly assesses property owners for the amount of snow and rain that drains from their land into the municipal storm sewer system. Since nearly all of Cox's 9,320-square-foot lot is considered "impervious surface area," her Stormwater Utility rate is roughly double that of her neighbors with big, grassy lawns. Last year the bill was around $400, an increase of 211 percent over the 2001 charge.

Each of the city's 150,637 property owners must pay at least $10.26 a year for Stormwater Utility to the city. The result is at least $28 million annually for the Storm Drainage Enterprise Fund, which is supposed to be used solely for maintaining and updating Denver's rapidly aging storm-drainage sewer system.

But tough budgetary times have led to some tough choices for the Denver Department of Public Works, which includes Wastewater Management, the division that oversees the Storm Drainage Enterprise Fund. As money got tighter in recent years, city officials started dipping into the fund to help pay for such services as emergency snow removal and street repair. Over the past three years, in fact, nearly $29 million has been pulled from the fund to "reimburse" other agencies within Public Works, such as Street Maintenance. Another $9 million has paid for sweeping streets and paving alleyways. And $14.6 million went to buy land that Public Works plans to use for a new general facility; in March, $27.9 million was taken from the fund for the design and construction of a new campus with state-of-the-art offices, warehouses and maintenance garages for every Public Works agency but Wastewater.

This regular raiding of the Storm Drainage Enterprise Fund has occurred without the official approval of Denver City Council or city residents, leading some critics to call the practice a secret tax on property owners. And last week, the Denver Auditor's Office moved up its audit of this enterprise fund.

Cox, who lets her mortgage company handle her property taxes, doesn't pay much attention to the Stormwater Utility fee; as a lifelong Denver resident, she understands the importance of bringing the city's sewer system into the 21st century. Even so, she says, "If I'm going to pay more taxes, I'd like to know where the money is going. I don't think they should tell you that it's being used for the storm drains and then use it for something else."

Have a question about the city's Stormwater Utility fee? The Wastewater Management division of Public Works will point you to a circa 2006 brochure with the heading "Your stormwater utility rates have increased." Prior to 1970, the brochure explains, stormwater management was not considered a priority, which means that many of Denver's neighborhoods were not built with adequate storm sewers. So in the '80s, the city began charging property owners a storm drainage fee for the management of runoff. The money collected through this fee was put under the financial umbrella of the Wastewater Fund, alongside a pool of money from what residents were already paying for sanitary sewers, a separate bill based on metered water usage.

In the case of storm drainage, officials decided that the fee should be based on the amount of water that might flow from a particular property into the public stormwater system. Undeveloped land allows rain and melting snow to soak into the ground; rooftops and paved areas theoretically send water into city gutters. So the city established a ratio system that calculated how much of a property was "permeable surface" — brick walkways, garages, driveways, porches, etc. — and set the property's yearly fee accordingly. A 1989 master plan identified $100 million in needed improvements to Denver's stormwater system, all of which were supposed to be paid for through these fees.

In 1992, Colorado voters adopted the Taxpayer's Bill of Rights, which set constitutional limits on public spending at all levels of government, including state, counties, cities, school districts and special districts such as RTD. Among other provisions, TABOR requires that voters must approve any tax increases or the issuing of bonds to be paid off by public funds. The only public entities excluded from these restrictions are "enterprises," which TABOR defines as a "government-owned business" that receives less than 10 percent of its revenue from state and local taxes and is authorized to issue its own bonds.

As a result, governments started using enterprise funds as a way to finance specific projects, collecting fees from end-users — or "customers," as the state auditor's office has called them. In a memo discussing whether state higher-education institutions could qualify for enterprise designation, the state auditor pointed out that a TABOR-exempt "enterprise should engage in arms-length market exchanges and provide goods and services at a market rate sufficient for the independent operation of the enterprise."

In 1993, the City of Denver took advantage of this new funding mechanism by amending the definition of its two enterprise funds — one for airport facilities and the other the Wastewater Enterprise Fund, which includes a sanitary-sewer fund and the Storm Drainage Enterprise Fund, whose expenditures were earmarked for the "cost of the administration, management, operation, and maintenance, planning and engineering of sanitary and storm sewer facilities." The fund could also be used to pay back bond debt, acquire land and buildings for storm drainage system facilities and buy equipment "that is or will become permanently attached to or a functional part of...any building or structure, and for other related operational expenditures."

In 1991, before TABOR, the city used water fees to build the Denver Wastewater Management building — dubbed "Gotham City Hall" — at 2000 West Third Avenue. Although the facility houses the city's wastewater operations — the division builds and maintains the city's 1,500 miles of sanitary sewers and 500 miles of storm drainage facilities — it also houses various Public Works agencies, as well as the department's customer service office.

But the Wastewater Management building was not wholly owned by the city. And in 2001, Public Works exercised an option to purchase it outright. To enable that move, Denver City Council approved a bill allowing for $4.1 million to be taken out of the general Wastewater Enterprise Fund. That same year, another city analysis found that $400 million was needed to improve the stormwater system of gutters, drainage tunnels and culverts. Some 10 million feet of sewer line snake underneath Denver; about 10 percent of that is over a hundred years old and in desperate need of repair. To fund a new storm system, Denver City Council approved a series of Stormwater Utility fee increases spread out over four years: 38 percent in 2002, 20 percent in 2003, 20 percent in 2004 and 20 percent in 2006.

This fee structure ensures that low-density properties with lots of grass or vacant areas pay less into the system, while properties containing dense commercial building or apartments with parking lots pay much more, and areas like downtown, with nary a permeable surface in sight, pay the highest rate, $4.48 per 100 square feet. These higher rates allowed the city to issue $30 million in revenue bonds on behalf of the fund in 2002 "to finance improvements to the City's storm drainage facilities."

In 2004, Denver City Council again took a look at the Wastewater Enterprise Fund and passed a bill allowing Public Works to take $1 million from the fund "to reimburse the General Fund for street sweeping costs." It would be the last time any such proposal went before council for approval. Because in October 2005, Public Works manager Bill Vidal sent a memorandum to Mayor John Hickenlooper detailing how operational expenses that the Street Maintenance division was incurring for such activities as street sweeping and alley paving could automatically be charged to the Wastewater Enterprise Fund.

Unpaved alleys, the memo reasoned, allow erosion that causes dirt and other materials to flow into the stormwater system; by the same token, street sweeping reduces debris that can flow down the drains. Vidal also argued that snow removal and ice scraping affects the flow of water into the storm system. But since all of this traditionally had been paid through the Public Works budget, "the General Fund has subsidized ratepayers in the Enterprise Fund," he noted. Therefore, from that point on, the Storm Drainage Enterprise Fund would pay 50 percent of the total cost to pave alleys, 50 percent of street sweeping and 25 percent of snow and ice removal. In addition, fund fees should pay Parks and Recreation at least $477,466 each year for mowing, weeding and litter control, since many of the city's parks also serve as flood control and storm drainage areas.

Councilwoman Jeanne Faatz recalls Vidal telling council about the new allocations. "This is a fairly common practice among cities," she says. "Enterprise funds have special designation. You can't tap or purchase just anything. The only thing that can be criticized is, 'Are those charges excessive?' They assured us it would be within the acceptable guidelines."

When John Orr started working for Wastewater Management thirteen years ago, the heads of the division were essentially in control of the projects that fund money would be spent on. But that power has gradually been co-opted by political appointees, he says. Today, Wastewater officials are often not even informed of the general-fund expenditures that will be attributed to their ratepayers, adds Orr, who last week retired as manager of the division's information systems.

This has inspired an inside joke at Wastewater Management regarding the division's status within the Department of Public Works: "If it rains on it, it's Wastewater's problem."

"Usually it's in the context of justifying an expenditure that Public Works wants to use the Enterprise Fund money for," explains Orr. "So somebody would say, 'Oh, now we're going to pay to paint bridge railings in Montbello.' And somebody else might say, 'What does that have to do with wastewater?' Well, rain falls on it."

In Denver's 2006 budget, $5.1 million was taken out of the Storm Drainage Enterprise Fund and transferred to Street Maintenance for snow removal and general roadwork, as well as 100 percent of its concrete repair and construction costs, 29 percent of its customer-service costs and 29 percent of its salaries. Suddenly, storm drainage fees were responsible for more than a third of Street Maintenance's budget, and also kicking in an extra $4 million for curbs, gutters and alley paving. Another $484,900 from the Storm Drainage Enterprise Fund went to the Department of Parks and Recreation, for "maintenance costs related to stormwater-related facilities in streets, alleys, and parks."

Then in December 2006, the biggest set of blizzards to hit Denver since 1982 dumped more than four feet of snow over the course of a week. The city was virtually shut down, and the Street Maintenance division of Public Works was pushed to the breaking point trying to keep the roads clear. But Wastewater wound up covering more of the cost. "There was a very high charge to Wastewater for snow and ice removal, but that's because the city spent a heck of a lot of money and Wastewater was charged only 25 percent," says George Delaney, Public Works's deputy manager for finance. (Vidal was unavailable for comment.)

"Removal of this season's large amount of snow" was used as justification in Denver's 2007 budget for taking $5.2 million from the Wastewater Enterprise Fund for payouts to Street Maintenance and Parks and Recreation. The fund also gave up $2.5 million to pay for curb and gutter replacement across the city, and another $1.3 million to pave dirt alleys. All told, this came to $9 million for aboveground projects and services that were once covered by the Public Works general fund.

And that was just the tip of the melting iceberg.

That year, Public Works also purchased 37 acres at 1271 West Bayaud Avenue, just south of the Wastewater Management building, as a future site for a general maintenance facility, since the department's current facility at 1390 Decatur Street has to be vacated by December 31, 2010, to make way for FasTrack's West Corridor light-rail line. The deal's contract route sheet shows that $12.7 million for the purchase came from the Storm Drainage Enterprise Fund.

Since the site had previously been occupied by various industrial and chemical plants, Public Works arranged with IRG Environmental, a Littleton environmental remediation company, to clean up the property. The company wound up charging an extra $1.6 million in overruns — and Public Works again dipped into the storm fund. Delaney says that money will be reimbursed to the fund, since the land is to be used as a general maintenance facility for Public Works.

"The enterprise fund acquired that property partly because they needed expansion of their current grounds," Delaney explains. "They also needed a second entrance to their facility."

The March 3, 2007, meeting of the Denver City Council's Public Works Committee included a presentation by Lesley Thomas, the department's deputy manager for engineering, on the "new city service campus at 1271 W. Bayaud," according to minutes of the meeting. Yet there was no mention of how the new campus would be used by Wastewater, or what its connection would be to the enterprise fund. Instead, the 100,000 square feet of facility space is to be a new "city services campus" for Fleet Maintenance, Street Maintenance, Solid Waste, Traffic Engineering and Right-of-Way Enforcement. A new municipal animal shelter is also being built on the site.

As chair of the Public Works committee, Councilwoman Marcia Johnson oversaw the passage of the two bills that gave the go-ahead for the 1271 West Bayaud project, though she was unaware of its connection to the Wastewater fund at the time. After speaking with "sources" at Public Works this week, Johnson tells Westword that using fund money to purchase the Bayaud property was justified because Wastewater's need "triggered the purchase for the land." She says she's been assured that the fund will be reimbursed for the acres used for the new campus by 2011, and that approval for this exchange "has gone clear up to the mayor's office."

But Orr laughs at the idea that Wastewater initiated the land purchase, since none of the division's personnel or management were involved in any discussion of the deal. "I think [Public Works] saw the land and wanted a new facility there, and they saw that Wastewater had the money," he says. "There's no question that [Denver officials] are increasing costs over time to the city's ratepayers without their blessing."

But it turns out the fund is also paying for the design and construction of this massive facility. According to the city's $27.9 million contract with Pinkard Construction, the Storm Drainage Enterprise Fund will pay for a new $4.8 million office building for the Street Maintenance, Solid Waste and Traffic Management agencies; a $6.7 million vehicle maintenance garage to service all city fleet vehicles; a $1 million enclosed garage for 35 street sweepers and graffiti-abatement trucks; a $900,000 salt dome to house 15,000 tons of road salt; a $600,000 fueling station; and a $700,000 automated car wash. The only thing in the construction contract that could be remotely considered a responsibility of Wastewater are eight stormwater runoff channels that cost a mere $57,639.

 Delaney says the plan is to reimburse the fund with $16 million that the city is getting from RTD for the Public Works land at Decatur Street and another facility near Park Avenue West and I-25. However, the earliest completion of these payments would be in 2012. The fund would still be picking up $13 million for the construction of the facility, he adds, but Wastewater will at least get a small access road out of it.

Denver has set up other enterprise funds over the years. The Golf Enterprise Fund, for example, collects fees from people who use municipal golf courses; the money is going to paying off $7.3 million in bonds. But golfers have a choice: Rather than pay the fees, they can play elsewhere. Property owners have no choice about the stormwater fees; they're obligated to pay them, and there's nothing they can do to reduce the amount they're billed.

Nothing on the Public Works website or in the department's informational materials tells property owners that part of their Storm Drainage Enterprise Fund fees are paying for government services and projects that may have very little to do with the collection of stormwater.

Longmont has a similar enterprise fund for its stormwater system. Cal Youngberg, manager of that town's Water Resources Department, says that property owners pay about $3 million in fees every year — and careful accounting practices ensure that the money only goes to the operation, maintenance and replacement of the storm system. "With enterprise funds, you're restricted to the use that the fund was developed for, under state law, so basically you have to run it like a business," he explains. "You have to use the funds you collect specifically for the service that you're collecting for. We have to account for that. So you have to match your expenses with your revenues, with some reserves and the usual things you put in to make sure it doesn't collapse on you. It's solely for the purpose of the stormwater system."

Longmont will sometimes use storm funds as "transfer fees" to reimburse other agencies, such as Street Maintenance, but only if the work is directly associated with the storm system. "If you're ripping up a street or tearing up a sidewalk to maintain or work on a storm sewer, you replace that out of the storm fund," Youngberg says. "But the storm sewer systems — the streets and everything are all identified and mapped, and we track the expenditures with budget numbers as to where it goes."

That tracking is critical, according to Penn Pfiffner, a former Republican legislator and current president of the Colorado Union of Taxpayers. Without it, the reallocation of money from Denver enterprise funds is a "back-door tax increase" on property owners, he charges, and puts the city in violation of TABOR's legal intent. "Any enterprise is supposed to charge a fee only for its work," explains Pfiffner. "Any enterprise that charges an enhanced fee, a larger fee than it should, and spends it on general-revenue activities, is at the very least an unethical way of doing business by the city, and very likely should be found unconstitutional. And if it's not, there should be a law that closes that loophole."

Last Thursday, the Office of the Denver Auditor sent a note to Bill Vidal, director of Public Works, informing him that the office is initiating an audit of the Wastewater Enterprise Fund. The fund had been on a list of routine audits slated for 2010, but Auditor Dennis Gallagher decided to bump it up.

"The auditor is always out and listening to the public, and we started to hear that there should be something that we should be taking a look at," explains Clay Vigoda of the auditor's office. "We're looking at the service-level agreements and all the financial arrangements between the enterprise fund and the city. We just want to be sure that there are clear agreements on how the money is used and that it's being used properly."

The auditor's office won't find any service-level agreements for the new Public Works campus off Bayaud. Apparently the administration never bothered drafting an inter-governmental agreement, a contract or even an IOU promising that the $42.5 million dip into the Wastewater fund will actually be paid back.

"I know we've had discussions with the budget office, with finance, with the city attorney's office — and the manager's fully aware of it," Delaney says. "It's fully our intent to make this whole, but I don't have it written down on a piece of paper."

In 2006, a grand jury found that San Diego had improperly diverted tens of millions of dollars from stormwater fees into the city's general fund each year to pay for everything from legal fees to city lobbying contracts to the construction of daycare playgrounds. San Diego mayor Jerry Sanders fired his water department director, formed an eleven-member committee to oversee the fund, and ordered the city to pay back more than $1 million to ratepayers.

Westword's open-records request for a detailed breakdown of how Storm Drainage Enterprise Fund and Wastewater Enterprise Fund monies have been used outside of the Wastewater agency is still pending. As of January 2009, the balance in the Storm Drainage Enterprise Fund was $50.4 million, with $29.6 million of that coming from storm utility charges in 2008. The city still has $24.2 million outstanding on its stormwater bond debt; every year, more than $2 million in stormwater fees goes to pay off the bonds, plus interest. But this year's city budget shows that the amount of money being "billed" to the fund has gone up to an all-time high of $5.8 million. And with the new, $42 million city services campus being put on the ratepayers' tab, it's unclear how much money is left in the fund.

City sources say the mayor's office is currently reviewing a proposal to raise stormwater fees even higher. According to Delaney, nothing has been decided. "We are still in the process of looking at our future needs for the stormwater system," he says.

And, no doubt, for the stormwater system's enterprise money.

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