As we’ve discussed elsewhere, every year when the District’s Board of Trustees (“Board”) approves a budget for the forthcoming year, it adopts¹ an updated Central Service Cost Allocation Plan² which provides for payment, via transfers, from its Utility, Community Services and Beach enterprise funds to its General Fund³ to cover the financial shortfall between budgeted revenues and intentional overspending. Here we trace the genesis of these transfers.

These Transfers Go Back to IVGID‘s Formation Well Prior to Passage of NRS 354.613⁴: Pardon us for beginning our discussion by strolling down memory lane. But for decades prior to the passage of NRS 354.613 IVGID staff routinely transferred moneys from the District’s enterprise funds to its General Fund, as a matter of course. And their admitted justification was was nothing more than to cover the difference between budgeted revenues and expenses in order to balance the budget⁵. Listen how the District unabashedly admitted this practice at Note 12 to its various 2004-11 Comprehensive Annual Audited Financial Reports⁶ (“CAFRs”) under “Transfers:”

“Each year the District makes transfers between its General Fund and (its) Enterprise Funds in an amount equal to the excess or deficiency of revenues over expenditures⁷ (in) the General Fund. The purpose of th(ese) transfer(s) is to…cover General Fund (over) expenses⁸…(and to) maintain the General Fund’s fund balance at a sufficient level to (financially) support operations⁹ from year to year.” In other words, a balanced budget⁹.

The Revenue Sources For These Transfers Were Arbitrarily Determined: from the only revenue sources available to the District¹⁰. And that was the District’s Community Services Fund¹¹, and its Utility Fund¹³.

On April 30, 2008, the District created the Beach Fund (see Resolution No. 1783) effective July 1, 2008. To avoid the appearance that beach expenditures were being paid by those whose assessed properties were denied beach access, necessary transfers to balance the District’s General Fund over spending budgetwere modified just as arbitrarily: “50% to Utilities, 45% to Community Services and 5% to the Beach(es).”¹⁴ No mention of “central services,” no attempt at equitable distributions nor allocations, and just as we have represented, nothing more than an arbitrarily allocated financial subsidy intended to plug the deficiency between budgeted revenues and intentional over spending assigned to the General Fund.

The District‘s Justification For These Transfers: Because the District used these moneys for operating expenses, rather than reimbursing the General Fund for the costs of services allegedly furnished to the operations from which those transfers were made, the simple justification for use of these moneys was nothing more than as a means to justify the ends⁵. Similar¹⁵ to what the City of Ely was doing at the time¹⁶ which was the subject of former Assembly person Marilyn Kirkpatric’s May 11, 2011 testimony before the Senate Committee on Government Affairs¹⁷ (see the discussion below).

No One Came Forward to Argue That The Law Did Not Declare IVGID Could Take Whatever Means: necessary to justify the ends simply because the law did not say it could not. For as far back as we’ve been able to research, rather than reducing expenses assigned to the District’s General Fund in order to live within their financial means, staff have simply transferred the deficient funds required from its Utility and Community Services¹⁸ Funds¹⁹ in order to balance the General Fund budget⁵. Therefore just like Recreation (“RFF”) and Beach (“BFF”) Facility Fees²⁰ are financial subsidies for intentional overspending assigned to the District’s Community Services and Beach Funds, respectively, central services cost transfers are the same type of subsidy paid for intentional overspending assigned to the District’s General Fund!

Notwithstanding That‘s Exactly What Dillon’s Rule Instructs: Given Nevada is a Dillon’s Rule state²¹, and the Rule is applied to county, city and other local governments²², Dillon’s Rule²³ instructs that:

“That a (local government) possesses and may exercise only the following powers and no others: (a) Those…granted in express terms by the Nevada Constitution or statute; (b) Those…necessarily or fairly implied in or incident to the powers expressly granted; and (c) Those…essential to the accomplishment of the declared objects and purposes of the (local government) and not merely convenient but indispensable.”

So where in NRS 318 does it instruct, in express terms, that a general improvement district’s (“GID’s”) General Fund can subsidize the costs of an enterprise fund activity (whether through the guise of furnishing central services, or otherwise)? Where did it instruct back in 2011-12 that revenues realized from a GID’s enterprise fund’s activities can be transferred to its General Fund to pay for whatever? What case opinion(s) exist which construe the powers of GIDs in light of Dillon’s Rule²⁴? The answers to these questions are nowhere, nowhere, and nowhere!

And not that there’s any doubt insofar as a GID’s ability to subsidize the costs of enterprise fund activities from its General Fund, let alone reasonable doubt, but NRS 244.137(4) and NRS 268.001(4) instruct that if there is, it “is (to be) resolved against the (GID) and the power…denied.” Therefore advancing the narrative that a GID may exercise any power of its choosing where the law does not expressly declare it may not (whether as a means to justify an end, or otherwise), simply doesn’t cut it! And it didn’t cut it prior to 2011-12!

To Prove Our Point, Let‘s Examine The Facts: The reader can see how the above facts have actually played out in the summary spreadsheet below which depicts relevant General Fund entries for the seven (7) year period immediately preceding 2012:

Year	Revenues	Expenses	Deficiency	Transfers	Excess (Deficient) Transfers	Fund Balance
200525	$ 2,615,088	$ 2,640,436	$ 25,348	($ 560)	($ 25,348)	$ 415,774
200626	$ 2,694,291	$ 2,589,711	($ 104,580)	$ 128,798	$ 128,798	$ 415,774
200727	$ 2,619,260	$ 2,808,582	$ 189,322	$ 389,322	$ 200,00028	$ 615,774
200829	$ 2,493,880	$ 2,956,832	$ 462,952	$ 462,952	$ 0	$ 615,774
200930	$ 2,227,172	$ 3,090,704	$ 863,582	$ 863,532	$ 0	$ 615,775
201031	$ 1,961,140	$ 3,228,982	$ 1,267,84232	$ 1,267,842	$ 0	$ 615,775
201133	$ 2,221,467	$ 3,154,741	$ 933,274	$ 924,154	($ 9,12034)	$ 615,775

Note how the numbers in the Deficiency column fairly consistently match those in the Transfers column. In other words, just as we have observed, transfers represent the amounts required to plug the financial shortfall between budgeted revenues and intentional overspending!

The Legislative Response to The Enterprise Fund Transfer Abuse We Have Described: According to former Assembly person Kirkpatric¹⁷:

“Enterprise funds have become a mechanism for local governments to transfer funding from the intended use to be used for other things. It is happening in our smallest and largest cities. As an example, the City of Ely requested a (solid waste) rate increase and transferred the funding to (its) General Fund…In North Las Vegas, City officials have been practicing this type of transfer since 1977. My constituents have received an increase of 35 percent in their water and sewer rates, and most of the money is placed in the General Fund…This is a practice being utilized across the State. As ratepayers, we continue to pay these rates and the increases keep coming. The money brought in by the rate increases is being utilized for…new equipment, computers and other things rather than just water and sewer service…When enterprise funds were originally created, they were supposed to ensure (that) the money (generated from operations assigned to these funds would be)…used for specific items…Now enterprise funds are being transferred on a regular basis…This is not fair to the ratepayers who continue to pay these increased fees…We…need to change how the enterprise funds are being utilized. These entities need to stop using these enterprise funds as a revenue source because it has become a way to increase fees on constituents…Enterprise funds are not meant to be a mechanism for moving dollars from one category to another.”

Thus Assembly person Kirkpatric’s legislation (which became NRS 354.613) was intended “to stop…these entities (from)…using…enterprise funds as a revenue source.”¹⁷ It is for this very reason, NRS 354.613(1)(c) instructs that:

“The governing body of a local government may (not)…loan (n)or transfer money from an enterprise fund, money collected from fees imposed for the purpose for which an enterprise fund was created³⁵(,) or any income or interest earned on money in an enterprise fund (but)…(c) for a cost allocation for employees, equipment or other resources related to the purpose of the enterprise fund.”

The Regulatory Response to The Enterprise Fund Transfer Abuse We Have Described: Given NRS 354.613(8) instructs that:

“For the purposes of paragraph (c) of subsection 1, the (CLGF) shall adopt regulations setting forth the extent to which general, overhead, administrative and similar expenses of a local government of a type described in paragraph (c) of subsection 1 may be allocated to an enterprise fund,”

Effective December 20, 2012 the CLGF adopted NAC 354.865 – NAC 354.867 which set forth the extent to which general, overhead, administrative and similar expenses of a local government of a type described in NRS 354.613(c)(1) may legitimately be allocated to an enterprise fund. And those regulations mandate that “the costs which may be allocated…pursuant to paragraph (c) of subsection 1 of NRS 354.613” must:

1. Be “reasonable;”³⁶

2. Be “of a type generally recognized as ordinary and necessary for the operation of the…(enterprise) fund(s)”³⁷ from which they have been transferred;

3. “Provide…for an equitable distribution of general, overhead, administrative and similar costs of the local government;”³⁸

4. Be “necessary…for the proper and efficient administration and performance of th(os)e…fund(s);”³⁹

5. Be properly “assignable or chargeable to the cost objective(s) of th(os)e…(enterprise) fund(s)” from which they have been transferred⁴⁰;

6. “Be limited to indirect costs⁴¹ for services and property provided by the local government on a centralized basis;”⁴²

7. Be “consistent with sound business practices;”⁴³

8. Be “determined in accordance with generally accepted accounting principles”⁴⁴ (“GAAP”);

9. Be an “indicia of an arm’s length transaction;”⁴⁵

10. Not exceed “market prices for comparable services or property;”⁴⁶

11. Be “documented adequately for independent verification;”⁴⁷ and,

12. Demonstrate that staff have “acted with prudence under the circumstances considering their responsibilities to each pertinent governmental unit (they have allocated)…its employees, and…(we) the general public.”⁴⁸

Moreover, to assure the Department of Taxation and the public that any central service cost allocation plan⁴⁹ adopted by a local government⁵⁰ complies with the aforesaid regulations, the chief financial officer of the local government, or his or her designee, is required to attest “that the central service cost allocation plan complies with the provisions of NAC 354.865 to 354.867, inclusive.”⁵¹

Thus Everything Changed Commencing With The District‘s 2011–12 Transfers: given NRS 354.613 was adopted on June 10, 2011. And as a result, IVGID began relying upon the NRS 354.613(1)(c) Central Services “Cost Allocation Exemption For (The Costs of) Employees, Equipment or Other Resources related to the purpose of the enterprise fund.” In other words, adoption of a Plan⁵² which pays for “general, overhead and administrative costs incurred by the District’s General Fund”⁵³ And as a result, staff’s description of “interfund transfers” to “central services cost” transfers changed⁵⁴ And their description of those transfers changed⁵⁵ as follows:

“The District allocates the shared costs of Accounting and Human Resources…under a plan which considers wages, benefits, full time equivalents and services and supplies as…bas(e)s for determining charges. The charges are (treated as)…budgeted expenses. (And) the revenue generated by the allocation is recorded separate of…expenses.”⁵⁶

In other words, staff’s then explanation for its enterprise fund transfers was “undoubtedly (re-)drafted with [NRS 354.613(1)(c)] firmly in mind!”⁵⁷ And as follows:

Because “the District’s General Fund(‘s) primary function is to provide administrative support for (its) Proprietary Funds (and) the General Fund incurs costs for Executive Management, Accounting, Information Technology, Human Resources, Risk Management and other activities(,) these costs, net of other revenues received by the General Fund, are recovered through an allocation plan that results in maintaining a static fund balance for the General Fund.”⁵⁸

And now you know!

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1. See NAC 354.8668(7)(a).
2. See NAC 354.8654 which defines that plan as “documentation of a local government that identifies, accumulates, allocates or develops billing rates for the allocation of the cost(s) of services and property provided by the local government on a centralized basis to its departments, agencies and enterprise funds.”
3. See pages 43-44 of the packet of materials prepared by staff in anticipation of the Board’s May 26, 2022 meeting (“the 5/26/2022 Board packet“).
4. Which today prohibit these transfers but for a handful of exceptions.
5. ¶1.1 of Board Policy No. 6.1.0 mandates adoption of a balanced operating budget.
6. See page page 44 to the District’s 2004-05 CAFR, page 43 to its 2005-06 CAFR, page 42 to its 2006-07 CAFR, page 38 to its 2007-08 CAFR, page 43 to its 2008-09 and 2009-10 CAFRs, and page 42 to its 2010-11 CAFR.
7. Isn’t this an admission staff used these transfers to plug the financial shortfall between budgeted revenues and intentional overspending just as we have represented?
8. See page 17 of the District’s 2004-05 CAFR.
9. In other words, to “maintain” intentional overspending while keeping the General Fund fund balance static. And if the fund balance remained static, year after year, weren’t the transfers to the General Fund intended to cover the shortfall between budgeted revenues and intentional overspending? Exactly what we’ve represented!
10. Just like when Jesse James was asked why he robbed banks, we answer “because that’s where the money is.”
11. Because that’s where local parcel owners’ Recreation Facility Fees (“RFFs”) were assigned.
13. Because that’s where local parcel owners’ public water and sewer rates and charges were assigned). And they were arbitrarily fixed in the ratio: 50% from the District’s Community Services Fund, and 50% from its Utility Fund.¹²See pages 23, 25 and 26 of the District’s 2007-08 CAFR.
14. See Note 12 at page 42 of the 2010-11 CAFR.
15. In 1964 IVGID was forcing its solid waste collector to pay a twenty-percent (20%) fee (i.e., a “franchise fee”) in consideration of a ten (10) year franchise because the District needed money to pay for other intentional overspending [see Whiston v. McDonald, 85 Nev. 508, 512, 458 P.2d 10 (1969)]. Given that fee was passed through to rate payers, solid waste disposal customers were in essence indirectly paying the fee.
16. There “the City of Ely (had) requested a (solid waste) rate increase and transferred the funding to (its) General Fund. When asked how they could increase the rates for trash pickup and then deposit the money into the general fund, Ely officials indicated (because) the law does not say they cannot” (see page 39 of Marilyn Kirkpatric’s May 11, 2011 testimony). In other words, the ends justified the means.
17. See pages 39-40 of the minutes of the May 11, 2011 public hearing session for AB471 before that Committee.
18. That is, recreation other than the beaches.
19. The only sources available from which revenues were and currently are consistently generated.
20. The precursors to today’s central services cost transfers.
21. In Nevada’s jurisprudence, the Nevada Supreme Court has adopted the Rule[see Tucker v. Mayor and Bd. of Alderman, 4 Nev. 20, 26 (1868); State ex rel. Rosenstock v. Swift, 11 Nev. 128 (1876)].
22. See Waltz v. Ormsby County, 1 Nev. 370, 377 (1865). In fact to cement the case Dillon’s Rule is the mainstay in Nevada, it has been formally embodied into the NRS [see NRS 244.137(2) and 268.001(2)].
23. See NRS 244.137(3) and NRS 268.001(3).
24. “The absence of cases involving…application (of Dillon’s Rule to) special districts…most probably…stems from the fact that such districts are created to carry out relatively narrow, statutorily specified purposes with the method of financing those activities also prescribed by the underlying statute. This is far different from the situation Nevada cities and counties face: an increasing myriad of functions imposed by the state or federal governments, with a taxing regime almost fully centralized and controlled by the state government” (see page 7 of the June 2013 edition of the Nevada Lawyer magazine, Dillon’s Rule in Nevada).
25. See page 26 of The District’s 2004-05 CAFR.
26. See page 24 of The District’s 2005-06 CAFR.
27. See page 25 of The District’s 2006-07 CAFR.
28. For 2006-07 staff retained its description of these transfers (see Note 12 under “Transfers” at page 42 of the 2006-07 CAFR). However, it expanded their purpose to “increase the District’s governmental fund balance…accomplished through ‘Residual Fund Equity Transfers’ (as)…part of the financial plan to provide coverage in (the) General Fund if an extraordinary event occurred” (see page 17 of the 2006-07 CAFR). Thus resulting in an increase in the amount required to balance the District’s General Fund by $200,000.
29. See page 23 of The District’s 2007-08 CAFR.
30. See page 23 of The District’s 2008-09 CAFR.
31. See pages 23 and 24 of The District’s 2009-10 CAFR.
32. The reason for the increase over 2008-09 was $450,907 of one time capital expenditures.
33. See pages 23 and 24 of The District’s 2010-11 CAFR.
34. This deficiency was covered by the gain on the sale of assets.
35. That is, user fees.
36. See NAC 354.867(1) which mandates these costs adhere to this requirement.
37. See NAC 354.867(2)(a) which mandates these costs adhere to this requirement.
38. See NAC 354.8668(5)(a) which mandates these costs adhere to this requirement.
39. See NAC 354.867(1)(a) which mandates these costs adhere to this requirement.
40. See NAC 354.8668(5)(b) which mandates these costs adhere to this requirement.
41. “Indirect costs mean…costs incurred for a common or joint purpose that benefits more than one cost objective, such as, without limitation, general overhead costs that are not directly linked to a specific program” (see NAC 354.866).
42. See NAC 354.8668(2) which mandates these costs adhere to this requirement.
43. See NAC 354.867(2)(b) which mandates these costs adhere to this requirement.
44. See NAC 354.867(1)(c) which mandates that these costs adhere to this requirement.
45. See NAC 354.867(2)(b) which mandates these costs evidence “an arm’s length transaction.”
46. See NAC 354.867(2)(c) which mandates these costs not exceed these prices.
47. See NAC 354.867(1)(d) which mandates these costs be adequately documented for independent verification.
48. See NAC 354.867(2)(d) which mandates these costs adhere to these requirements.
49. According to NAC 354.8654, “documentation of a local government that identifies, accumulates, allocates or develops billing rates for the allocation of the cost of services and property provided by the local government on a centralized basis to its departments, agencies and enterprise funds.”
50. NRS 354.613(1)(c) instructs that “except as otherwise provided in this section, the governing body of a local government may, on or after July 1, 2011, loan or transfer money from an enterprise fund, money collected from fees imposed for the purpose for which an enterprise fund was created or any income or interest earned on money in an enterprise fund…for a cost allocation for employees, equipment or other resources related to the purpose of the enterprise fund… only if the loan or transfer…is approved by the governing body under a nonconsent item that is separately listed on the agenda for a regular meeting of the governing body.”
51. See NAC 354.8668(8).
52. See NAC 354.8654 which describes this term as “the documentation of a local government that identifies, accumulates, allocates or develops billing rates for the allocation of the cost of services and property provided by the local government on a centralized basis to its departments, agencies and enterprise funds.”
53. See page 520 of the packet of materials prepared by staff in anticipation of the Board’s May 25, 2023 meeting (“the 5/25/2023 Board packet“).
54. See Note 12 at page 42 of the 2010-11 CAFR.
55. See Note P at page 33 of the District’s 2011-12 CAFR.
56. Although this description has slightly changed in the last nearly fifteen (15) years, today it essentially reads the same (see Note S at page 34 of the District’s 2022-23 CAFR).
57. See Rider v. County of San Diego, 1 Cal.4th 1, 15, 820 P.2d 10 (1991) for evidence of similar behavior.
58. In other words, another way of saying a subsidy to plug the financial deficiency between revenues and expenses assigned to the General Fund.