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What Are Our Recreation (“RFF”) And Beach (“BFF”) Facility Fees (According to Us)?

IVGID 101 Posted on by

In a nutshell, they are taxes. And invalid ones no less! Which are intended to cover (aka “subsidize”) the financial shortfall between budgeted revenues and intentional overspending assigned by staff to the District’s Community Services (insofar as the RFF is concerned), and Beach (insofar as the BFF is concerned) Funds, respectively1. Plus MORE! Don’t believe us? Listen to what past Boards have told us:

The Difference Between Budgeted Revenues And The “Costs of…Acquisition, Administration, Operation, Maintenance And Improvement of…Recreational Facilities, Including The Improvements Thereon, And…The Servicing of Bonds Issued or to be Issued:”2 As we’ve explained elsewhere, “each year (its Board)…establishes…annual Recreation…and Beach Facility Fee(s)…As part of the annual budget process the Board traditionally approves a resolution which…establish(es) the amount of the…RFF and…BFF to be collected.”3 In accordance with NRS 318.201(1), the resolution the Board adopts4 approves “a written ‘Report’5 (for collection on the county tax roll which)…contain(s) a description of each parcel of real property receiving…services and facilities and the amount of the charge for each parcel for such year, computed in conformity with the charges prescribed by the resolution.” ¶3 of that resolution recites that the “Report6 contains all of the properties within the District that will (allegedly) be benefited by being charged for the costs of the acquisition, administration, operation, maintenance and improvement of (public)…recreational facilities, including the improvements thereon, and…the servicing of bonds issued or to be issued therefor.”7

For “The Proper Servicing of…Bonds And The Administration, Operation, Maintenance And Improvement of…Real Properties, Equipment And Facilities:” Take a look at ¶II of the report adopted pursuant to ¶6 of the resolution the Board adopts each year which establishes the RFF/BFF and elects to have them collected on the county tax roll5:

“The amount of moneys required for the fiscal year extending from July 1…to June 30…has been determined by this Board to be about $(x.00)…for the proper servicing of said identified bonds and the administration, operation, maintenance and improvement of said real properties, equipment and facilities.”8

To “Financially Support…Debt, Capital Expenditure And Operations For The District’s Various…Community Services…And Beach…Facilities, Venues, Services And Programs:” Now listen to Board Policies 6.2.0.3.0 and 6.2.0.4.0 which address public recreational and beach facility pricing:

“The District establishes, through the annual budget process, a Recreation…and Beach…Facility Fee assessed on…eligible…parcels and/or dwelling units within the District…to (financially) support (i.e., subsidize)…Community Services facilities, venues, services, and programs,” and “the Beach…services, and programs,” respectively.

The District‘s Former Finance Directors‘ Admissions: At the IVGID Board’s May 26, 2022 and April 12, 2023 meetings former Finance Director, Paul Navazio, represented that:

“These fees are established based on the revenues required to (financially) support2 debt, capital expenditure and operations for the District’s various recreation and beach facilities. These revenues, combined with service charges collected by the District for facility use and program activities serve to (financially) support2 the operations of the District funded by the Community Services…and Beach Fund(s), respectively.”9

And before then, the District had a long time Finance Director (Gerry Eick) who touted the very same narrative. At the Board’s April 10, 2019 meeting he presented a preliminary “Report for Collection on the Washoe County Tax Roll for the Recreation Standby and Service Charges [also known as the Recreation…and…Beach Facility Fee(s)]” for fiscal year 2019-2010 for approval which at ¶II subsidized the costs for

“The proper servicing of…identified bonds and…the administration, operation, maintenance and improvement of said real properties (the District’s public recreation and beach facilities), equipment and facilities.”11

Plus MORE: Recently the RFF/BFF have been used to not only subsidize the costs associated with the proper servicing of bonds and the administration, operation, maintenance and improvement of District public recreation and beach facilities, but to create a “slush fund” available to be used by staff to spend on future unbudgeted, unappropriated, and unidentified “pet” endeavors. Let’s provide some examples.

The RFF is assigned to the District’s Community Services Fund12, and the BFF is assigned to the District’s Beach Fund13. In both instances, look where staff assigns the RFF/BFF. Under operational revenues. One need only examine the budgets for these two funds to understand the RFF/BFF represent something far different than staff’s and past Board’s disingenuous words.

The District‘s Community Services Fund12: Let’s examine the District’s statement of actual fiscal year 2020-21 revenues and expenses assigned to its Community Services Fund. If one removes the RFF subsidy ($1,735,612) assigned to actual revenues, one sees that revenues from all other sources total $16,333,929. Compare this combined revenue ($18,069,541) to actual expenses ($15,286,460). The difference ($2,783,081) was more than that necessary to pay for actual expenses. In fact it was more than the RFF! Yet rather than returning the excess to those whose parcels were over assessed, this sum was transferred to Community Services Fund net position or fund balance as a slush fund!

Let’s examine the District’s statement of actual fiscal year 2021-22 revenues and expenses. If one removes the RFF subsidy ($820,300) staff assigned to actual revenues, one sees that revenues from all other sources totaled $18,532,733. Compare this combined revenue ($19,353,073) to actual expenses ($25,476,849). Although the reported difference14 ($6,123,776) is more than the RFF subsidy, we see this sum had to be transferred from excess net position or fund balance15 to balance. When we subtract this reduction in net position from actual overspending, we’re left with…voila…$820,300!

Finally, let’s examine the District’s statement of budgeted fiscal year 2022-23 revenues and expenses. If one removes the RFF subsidy ($3,692,700) staff have budgeted, one sees revenues from all other sources total $46,416,282. Compare this combined revenue ($50,108,982) to budgeted expenses ($50,119,021). Although the reported difference14 ($10,039) is more than the RFF subsidy, we see this sum had to be transferred from excess net position or fund balance15 to balance. When we subtract this reduction in net position from actual overspending, we’re left with…voila…$3,692,700!

Actually, 120% or More of The Financial Deficiency in The District‘s Community Services Fund: Because only a portion of the 2020-21 RFF was necessary to pay for fiscal year 2020-21 overspending, and rather than refunding the excess to those whose parcels were involuntarily assessed, at least $2,783,081 of positive cash flow was transferred to net position or fund balance. In each of these examples the RFF financially supported2 overspending for public “recreation facilities, venues, services, and programs”16 plus MORE!

The District‘s Beach Fund13: Let’s examine the District’s statement of actual fiscal year 2020-21 revenues and expenses assigned to its Beach Fund. If one removes the BFF subsidy ($648,974) assigned to actual revenues, one sees that revenues from all other sources total $803,975. Compare this combined revenue ($1,452,949) to actual expenses ($1,700,380). Although the difference ($247,431) is more than the BFF subsidy, to balance this sum had to be transferred from excess net position or fund balance17 to balance. When we subtract this reduction in net position from actual overspending, we’re left with…voila…$648,974!

Let’s examine the District’s statement of actual fiscal year 2021-22 revenues and expenses. If one removes the BFF subsidy ($5,268,640) staff assigned to actual revenues, one sees that revenues from all other sources total $898,125. Compare this combined revenue ($6,166,675) to actual expenses ($5,595,750). The reported difference14 ($571,015) is more than that necessary to pay for actual expenses. And rather than returned to those whose parcels were over assessed, this sum was transferred to net position or fund balance.

Finally, let’s examine the District’s statement of budgeted fiscal year 2022-23 revenues and expenses. If one removes the BFF subsidy ($2,556,840) staff have budgeted, one sees revenues from all other sources total $635,290. Compare this combined revenue ($3,192,130) to budgeted expenses ($2,631,439). The reported difference14 ($560,691) is more than that necessary to pay for actual expenses. And rather than returned to those whose parcels were over assessed, this sum was transferred to net position or fund balance.

Actually, 120% or More of The Financial Deficiency in The District‘s Beach Fund: Because $1,131,706 of .131.706overspending was transferred to fund balance for fiscal year 2021-22,rather than refunding the excess to those whose parcels were involuntarily assessed, at least $2,783,081 of positive cash flow was transferred to net position or fund balance. In each of these examples the RFF financially supported2 overspending for public “recreation facilities, venues, services, and programs”16 plus MORE!

Because $1,131,706 of excess BFFs were transferred to fund balance for fiscal years 2021-23, the BFF for those years represented more than that necessary to make the District’s beaches available to be accessed and used by those parcels which were assessed.

In each of these examples the BFF financially supported (i.e., subsidized) overspending for beach facilities, venues, services, and programs16 plus MORE! In other words, just as we have stated, more than the difference between budgeted revenues and intentional overspending assigned to the Beach Fund11.+560691

And 69.9% or More of The Financial Deficiency in The District‘s General Fund: According to staff, the District has developed a…Central Services Cost Allocation Plan18…[in accordance with NRS 354.613 and NAC19 354.8668(1) allegedly] to equitably distribute general, overhead and administrative costs incurred by the District’s General Fund in the course of supporting…operations of the District’s Enterprise Funds” in conformity with NRS 354.613(1)(c) and NAC 354.8668(1)20. So let’s return to page 131 of the 5/26/2022 Board packet and examine the Community Services Fund expense (i.e., use) category labeled “central services cost.” Because budgeted expenses assigned to this fund exceed budgeted revenues, and the financial deficiency is covered by the RFF, in essence costs assigned to this expense category are paid for by the RFF.

Similarly, return to page 172 of the 5/26/2022 Board packet. Your attention is directed to the Beach Fund expense (i.e., use) category labeled “central services cost.” Because budgeted expenses assigned to this fund exceed budgeted revenues, and the financial deficiency is covered by the BFF, in essence the costs assigned to this expense category are paid for by the BFF.

Now return to page 120 of the 5/26/2022 Board packet. Again your attention is directed to a Utility Fund expense (i.e., use) category labeled “central services cost.” Because this fund relies primarily upon water and sewer rates and charges to pay for the expenses assigned to this fund, in essence the costs assigned to this expense category are paid with the water/sewer rates and charges the District charges its utility customers.

Finally, go to page 114 of the 5/26/2022 Board packet. There you will find the District’s sources and uses summary page for its General Fund. The reader can see that without the financial subsidy of central services revenue, just like the financial subsidies required for the Community Services and Beach Funds, the General Fund is out of balance. Stated differently, just like the RFF insofar as the Community Services Fund is concerned, the BFF insofar as the Beach Fund is concerned, and water/sewer rates and charges insofar as the Utility Fund is concerned, central services cost transfers from these three enterprise funds cover the financial deficiency between budgeted revenues and intentional overspending.

Pick a column on each of these four pages, add the central services costs assigned to the Community Services, Beach and Utility Funds, and compare them to central services revenue assigned to the District’s General Fund. You will discover that the two numbers equal one another. Which means that 62.41% of General Fund central services revenue is paid by the RFF, 7.48% of General Fund central services revenue is paid by the BFF, and the remaining 31.1% of General Fund central Services revenue is paid primarily by the water/sewer rates and charges the District assesses.

In every one of the above examples: staff and the Board could have lived within the District’s financial means, eliminated overspending and the facility fee subsidy, and passed a balanced budget. But instead, they perpetuated their financially irresponsible ways by overspending, and then using the RFF/BFF as a revenue source to subsidize that and future overspending! In other words, neither was a fee17.

Unforeseen Expenses: “Beginning in 2010 the District had a portion of its property tax settlements offset (by the county) to settle a court ordered tax refund by Washoe County.”21 In August of 2011 Washoe County notified the District that in order to recover the District’s share of county real property tax refunds (due), the County would exercise unilateral offset from the District’s share of ad valorem taxes the County was collecting on the District’s behalf as collection agent. Notwithstanding, the District’s “General Fund was able to…maintain…service levels (to)…meet this obligation…while the refund was completed.” How was this possible? By using proceeds of the RFF (see page 87 of the 2017 CAFR). For 2012 a new “where your Rec Fee goes” expense category was created; “Reserves For Recreation” whereby the District reported this substitution for the loss of ad valorem tax revenue. And “over the course of four years the total offset was approximately $1,200,000.” In other words, the difference between budgeted revenues and intentional overspending, system wide.

Fund Balance22 Creep: “In…fund financial statements, fund balance(s) for governmental funds are reported in classifications that comprise a hierarchy based primarily on how amounts can be spent. These include: ‘non-spendable’ which are not expected to be converted to cash, such as inventory or prepaid items; ‘restricted’ by conditions of law, regulation, grants or contract(s) with external parties; ‘committed’ which arise from acts of the District’s Board; ‘assigned’ which reflect an intent by management of the District; or, ‘unassigned’ which is the residual amount”23. Here, the District’s Community Services and Beach fund balances have increased markedly. Remember, our staff are incapable of operating, maintaining, and providing for capital at District beach and public recreation facilities based upon the revenues they are able to generate. That’s why we have the RFF/BFF which act as a financial subsidy. So how can there be anything left over to add to fund balance? Unless the RFF/BFF total more than the amount of the subsidy. So let’s examine whether that is the case.

On July 1, 2015 the fund balance in the District’s Community Services (recreation) Fund was reported at $5,357,75524. On the same date the fund balance in the District’s Beach Fund was reported at $1,107,78625. Six (6) years later, on July 1, 2021, the fund balance in the District’s Community Services Fund was reported at $15,890,93226. On the same date the fund balance in the District’s Beach Fund was reported at $4,332,48524. That’s a nearly three-hundred percent (300%) increase to the Community Services Fund [which equates to a nearly fifty percent (50%) per year increase for six (6) consecutive years], and a nearly four-hundred percent (400%) increase to the Beach Fund [which equates to a more than sixty-five percent (65%) per year increase for six (6) consecutive years]! How could the fund balances in both of these funds increase so dramatically in so short an amount of time absent massive operational profits (which we’ve demonstrated were not generated) or excessive RFF/BFF subsidies? Obviously, the RFF/BFF have totaled far more than the costs to directly defray the expenses the District has incurred to furnish the alleged availability to access and use District owned beach and public recreation facilities.

So We Ask: What costs can you conjure up which are not included in those necessary for: “the acquisition, administration, operation, maintenance and improvement of…recreational facilities, including the improvements thereon?” Or, “the administration, operation, maintenance and improvement of said real properties, equipment and facilities?” Or, “to (financially) support2…Community Services facilities, venues, services, and programs” and “the Beach…services, and programs,” respectively? Or, “to (financially) support2 debt, capital expenditure and operations for the District’s various recreation and beach facilities?” Or, “the servicing of bonds issued or to be issued therefor?” Given the answers to all of these questions is NONE, hopefully now you can begin to understand why we contend the language cited represents an admission on staff’s/past Board’s behaves the RFF/BFF really represent nothing more than the difference between budgeted revenues and intentional overspending assigned by staff to the Community Services (insofar as the RFF is concerned) and Beach (insofar as the BFF is concerned) Funds, respectively. Stated differently, staff and past Boards have admitted the RFF/BFF are not “allocated directly to defray(ing) the costs (the District incurs) to furnish the (Recreation and Beach) Facilities” for which these “fees” are assessed27.

If Not Fees, Then What? We’ve elsewhere discussed in some detail the differences between taxes and fees. At their core, “taxes are imposed for…general governmental…revenue purposes, while fees cover the cost of providing a service…While some may equate a tax to any government action that results in costs of any kind…courts have been careful to distinguish between different forms of government-collection exactions. (And) the key difference between these different assessments, according to laws and interpretive rules used in nearly every state, is their purpose…Therefore, to determine whether a charge is a tax, one must look at its primary purpose.”28

In all of the examples noted above, the RFF/BFF represent nothing more than additional revenue intended to plug the difference between budgeted revenues and intentional overspending virtually systemwide. In contrast to recovering the reasonable costs the District incurs to furnish recreation and beach facilities, or more pointedly, the “availability” to access and use those facilities29. Given “an exaction of money for the purpose of generating revenue is a tax,”30 and here the RFF/BFF are clearly assessed to generate revenue, Clean Water Coalition31 instructs that based upon the modified Emerson College32 test, where “those criteria fit the charge, it is a” tax33!

Moreover, Invalid Taxes: NRS 361.445 is quite clear in instructing that

“The only basis for property taxation by any…district in (a) county…shall be…the assessment made by the county assessor and…the Department (of Taxation), as equalized according to law.”

In other words, a District’s NRS 318.225 ad valorem taxes34. But given the RFF/BFF are not the product of “assessment made by the county assessor and…the Department (of Taxation), as equalized according to law,” nor are they ad valorem35, they are invalid taxes.

Conclusion: So there you go. According to us the RFF/BFF don’t represent any type of “fee,” let alone the “standby and service charges…for the availability of use of the (public’s) recreational facilities” staff and past Boards have represented36. Here the Board could have lived within the District’s financial means by eliminating intentional overspending and the necessity for the subsidy of the RFF/BFF. But they didn’t. And because they didn’t, they cannot possibly represent the “fees” staff and past IVGID Boards have told us they do. And now you know why.

  1. Exactly what staff and past Boards have told us (see our What Are Our RFF/BFF According to Staff/Past Boards discussion.).
  2. I.e., the financial subsidy.
  3. See pages 102-103 of the packet of materials prepared by staff in anticipation of the Board’s May 27, 2020 meeting (“the 5/27/2020 Board packet”).
  4. An example of that resolution (for fiscal year 2022-23, i.e., No. 1893), appears at pages 228-231 of the packet of materials prepared by staff in anticipation of the Board’s May 26, 2022 meeting (“the 5/26/2022 Board packet“).
  5. An example of that Report (for fiscal year 2022-23), appears at pages 232-237 of the 5/26/2022 Board packet.
  6. Which is adopted pursuant to ¶6 of the resolution (see page 230 of the 5/26/2022 Board packet).
  7. See page 229 of the 5/26/2022 Board packet.
  8. See page 235 of the 5/26/2022 Board packet.
  9. See pages 224-225 of the 5/26/2022 Board packet, and pages 999-1000 of the packet of materials prepared by staff in anticipation of the Board’s April 12, 2023 meeting (“the 4/12/2023 Board packet“).
  10. See pages 287-88 of the packet of materials prepared by staff for the Board’s April 10, 2019 meeting (“the 4/10/2019 Board packet“).
  11. See page 293 of the 4/10/2019 Board packet.
  12. Page 131 of the 5/26/2022 Board packet depicts a statement of revenues and expenses assigned to the District’s Community Services Fund for the three (3) fiscal years prior thereto.
  13. Page 172 of the 5/26/2022 Board packet depicts a statement of revenues and expenses assigned to the District’s Beach Fund for the three (3) fiscal years prior thereto.
  14. I.e., the RFF subsidy.
  15. Given excess fund balance was accumulated from prior years’ excess RFFs (just look at 2020-21 above), we see that all overspending was subsidized by the RFF!
  16. See Board Policy 6.2.0.4.0.
  17. Given excess fund balance was accumulated from prior years’ excess BFFs (just look at 2021-23 below), we see that all overspending was subsidized by the BFF!
  18. Insofar as fiscal year 2022-23 is concerned, see page 043 of the 5/26/2022 Board packet.
  19. NRS 354.613(8) authorizes “the Committee on Local Government Finance (to) adopt regulations setting forth the extent to which general, overhead, administrative and similar expenses of a local government…may be allocated to an enterprise fund.” This NAC represents one of those regulations.
  20. See page 043 of the 5/26/2022 Board packet.
  21. See page 5 of the 2017 CAFR (“the 2017 CAFR“)].
  22. Fund balance represents “the residual difference between assets and other inflows and liabilities and other outflows…for budget purposes” (see the District’s “Accounting Glossary“).
  23. See ¶P at page 42 of the District’s 2016 Comprehensive Annual Financial Report (“the 2016 CAFR”)].
  24. See page 29 of the 2016 CAFR.
  25. See page 30 of the 2016 CAFR.
  26. See page 63 of the District’s 2022 CAFR (“the 2022 CAFR“).
  27. See Emerson College v. City of Boston, 391 Mass. 415, 424-25, 462 N.E.2d 1098 (1984).
  28. Go to https://taxfoundation.org/blog/how-money-used-federal-and-state-cases-distinguishing-taxes-and-fees/#:~:text=Taxes%20Are%20Imposed%20for%20Revenue,Cost%20of%20Providing%20a%20Service.
  29. See our discussion of the What Staff And Past Boards Have Told Us The RFF/BFF Represent.
  30. See Clean Water Coalition v. M Resort, LLC., 127 Nev. 301, 314, 255 P.3d 247 (2011).
  31. Clean Water Coalition, supra, at 127 Nev. 317.
  32. Go to 462 N.E.2d 1105.
  33. See State v. Medeiros, 89 Haw. 361, 973 P.2d 736, 742-745 (1999); Douglas Co. Contractors v. Douglas Co., 112 Nev. 1452, 1457, 929 P.2d 253, 256 (1996); State ex rel. City of Reno v. Boyd, 27 Nev. 249, 256, 74 P. 654, 655 (1903); 71 Am. Jur. 2d  §13, State and Local Taxation (2001).
  34. An ad valorem tax is a tax based on the assessed value of an item, such as real estate or personal property” (go to https://www.investopedia.com/terms/a/advaloremtax.asp).
  35. The RFF/BFF are the same regardless of a parcel’s/dwelling unit’s assessed valuation (see Policy 16.1.1.1.0 which instructs “the Incline Village General Improvement District will charge the prescribed Recreation Fee, and if applicable the Beach Fee, to all qualifying real properties”).
  36. See our Are The RFF/BFF The Standby Service Charges Staff And The Board Represent discussion.

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