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What Are The District’s “Central Services” (According to Staff)?

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Because central services cost transfers represent such a large percentage of the revenues assigned to the District’s General Fund1, we believe it important to understand exactly what this monetary exactment represents. And in the pages which follow, against what/whom they are levied. Because especially as we have explained elsewhere, general improvement districts (“GIDs”) are limited purpose forms of local government with very little means of generating revenue. So when their Boards incur costs assigned to the General Fund that are beyond their District’s financial means (such as bloated administrative personnel costs), they require comparable revenue sources to financially support these functions. Not to worry though. As you the reader will learn, our little Incline Village General Improvement District (“IVGID”) is up to the task! And the way it meets this challenge insofar as its General Fund2 is concerned, is by assessing the District’s revenue generating (i.e., its Utility, Community Services and Beach) funds “central services costs”3 for the services the General Fund allegedly furnishes to other District departments. And that’s exactly what District staff have done.

Since central services cost transfers are expressly permitted by NRS 354.613(1)(c) for “a cost allocation for employees, equipment or other resources related to the purpose of the enterprise fund (assessed) which 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,” is it any wonder then that District staff have proclaimed that the purpose for these central services cost transfers is to pay for “general, overhead and administrative costs incurred by the District’s General Fund?”4 And for 2021-22. you the reader will discover that the IVGID Board budgeted a whopping $2,362,441 in central services costs, and $1,887,589 in central services cost transfers/revenues5, to cover a like amount of overspending assigned to the District’s General Fund.

Conclusion: So there you go! Now you the reader know what central services are, and how they they are allocated.

What is a Central Services Cost Allocation Plan? According to NAC 354.8654 it “means 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.”

What is Included in the District’s Central Services Cost Allocation Plan? According to District Staff, “eighty percent (80%) of the eligible costs of the Accounting budget is allocated based on each…Department(‘s)/Division(‘s)/Activity’s percentage of District-wide non-personnel costs, exclusive of capital, debt and transfers” and the combination of “one-hundred (100%) of (the) costs of the Human Resources budget plus twenty percent (20%) of the eligible costs of the Accounting budget are allocated based on each…Department(‘s)/Division(‘s)/Activity’s average percentage of District-wide full-time equivalent (‘FTE’) positions, wages and benefits.”4

What Must be Included in a Central Service Cost Allocation Plan? According to NAC 354.8668

To get a flavor of what this charge really represents, let us provide a real world example. For decades revenues and expenses associated with the District’s parks and athletic fields have been assigned to its “Parks” Fund6, a sub-fund of the District’s Community Services Fund. For fiscal year 2023-24 the Board has decided to transfer “Parks” meager revenues and assigning “Parks” out-of-control expenses to the District’s General Fund. The reason being that the District’s parks are “public” facilities available to be accessed and used by the general public as a whole, without assessment of user fees. There is the belief (one in which we agree by-the-way) that facilities and services provided to the general public should be paid from general revenues (such as taxes) rather than assessing local parcels/dwelling units for the alleged “availability” to access and use the same. But this means there is now a shortage of approximately $1.2 million in the District’s General Fund7. So how do staff propose covering this shortfall? Staff’s “preferred means (which really tells it all) is to (create) budget capacity in (the) General Fund” by disingenuously increasing the amount of central services cost transfers. The alleged justification for this increase is “adding Information Technology to (the District’s) Central Services Overhead Allocation Plan.”8 In other words, rather than making $2,362,441 in central services cost transfers from the District’s Utility, Community Services and Beach Funds, staff propose increasing those transfers by a whopping 50.8% to $3,562,441 or even more!

The District’s Funds Structure: As indicated above, District central services costs are directly allocated between its Utility, Community Services and Beach Funds. And they are indirectly included in those expenses assigned to the District’s Internal Services Fund9. If the reader is not already familiar with the District’s reporting funds structure, we refer you our Financial Funds Structure web page.

What is a Central Services Cost Allocation Plan? According to NAC 354.8654 it “means 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.”

The District’s Allocated Central Services Costs Plan: As indicated above, “the amount allocated…to cover the cost of services provided by the General Fund under” Board Policy 18.1.0 mandates that each year the District adopt a Central Services Cost Plan. According to staff the stated purpose of this Plan is to allocate an “equitable distribution of general, overhead, administrative and similar costs (assigned by staff to the)…District’s General Fund10…in conformity with…Nevada Revised Statute Section(s) 354.107(1)11 and 354.613(1)(c)12. The history of how this Plan came about, and its disingenuous labeling and allocations13 is another of the many studies in staff wrongdoing.

Therefore each year when the District’s Board approves a budget and facility fees for the forthcoming year, it also approves a central services cost plan. The reader can see this at page 030 of “the 5/26/2022 Board packet“ where staff agendized, “under a non-consent item that (wa)s separately listed,” “Approval of the Central Services Cost Allocation Plan for Fiscal Year 2022-2023.”

Where the Money Comes From to Pay For Central Services Costs: Okay. So we see that central services costs are allegedly directly allocated between the District’s Utility, Community Services and Beach Funds. So how does this physically take place? And where do the monies in these latter funds come from? Let’s answer the latter question first.

Take another look at the Plan for the Fiscal Year Ending June 30, 20232. There the reader will see where virtual transfers to the General Fund have been budgeted to take place from lesser budgetary units. Therefore, $568,189 was budgeted to be transferred from the District’s Utility Fund to its General Fund. And $1,178,206 was budgeted to be transferred from the District’s Community Services Fund to its General Fund. And $141,194 was budgeted to be transferred from the District’s Beach Fund to its General Fund. And on-and-on.

Where have the revenues in the District’s Utility Fund come from so transfers can be made therefrom to the General Fund? Since the water14 and sewer15 services all local parcels must pay/guaranty are assigned to the District’s Utility Fund, central services transfers from that fund are paid by the water and sewer rates and charges local parcel owners pay/guaranty.

Where have the revenues in the District’s Community Services Fund come from so transfers can be made therefrom to the General Fund? Returning to the 2022-23 Budget, schedule B-12 at page 10 instructs that if Recreation Facility Fee (“RFF”) revenue is deducted from the remainder of revenues budgeted to the Community Services Fund, the District budgeted $12,763,932 of recreation but for the beaches revenue. But on schedule B-13 at page 11 we see that the District has budgeted to spend $15,966,799 on expenses assigned by staff to this fund. That’s a deficiency of $3,202,867. Therefore, essentially all of it ($3,386,376) comes from the RFF16.

Where have the revenues in the District’s Beach Fund come from so transfers can be made therefrom to the General Fund? Again returning to the 2022-23 Budget, schedule B-14 at page 12 instructs that if Beach Facility Fee (“BFF”) revenue is deducted from the remainder of revenues budgeted to the Beach Fund, the District budgeted $840,040 of beach revenues. But on the same page we see that the District has budgeted to spend $1,700,422 on expenses assigned by staff to this fund. That’s a deficiency of $860,382 and $648,974 of the deficiency (75.43%) is paid from the BFF13. The remainder is paid from a portion of the Beach Fund’s excess balance created by previous years’ excessive BFFs.

Therefore the simple answer to the question of where the money comes from to pay for the District’s asserted central services costs, is local parcel/dwelling unit owners!

Now let’s answer the former question. How The District’s Central Services Cost Transfers Physically Take Place: There is no physical transfer. It is all virtual. And these transfers are evidenced by the District’s allocated center services cost plan2.

The Propriety of the District’s Allocated Central Services Cost Plan: Do we know whether the costs assigned to the Plan are “of a type generally recognized as ordinary and necessary for the operation of the…fund(s)”17 from which they have been transferred? Or that they are “necessary…for the proper and efficient administration and performance of th(os)e…fund(s)?”18 Or that they have they been properly “assignable or chargeable to the cost objective(s) of th(os)e…fund(s)” from which they have been transferred19? Or are they “reasonable?”20 Or is their expenditure “consistent with sound business practices?”21 Or have the proposed costs been “determined in accordance with generally accepted accounting principles”22 (“GAAP”)? Or are they an “indicia of an arm’s length transaction?”23 Or do they exceed “market prices for comparable services or property?”24 Or are they and their allocation “documented adequately for independent verification”25 Or have staff “acted with prudence under the circumstances considering their responsibilities to each pertinent governmental unit (they have assessed)…its employees, and…(we) the general public?”26 Given the foregoing queries are all mandatory, the subject inquiry and how the Plan meets those requirements is not as straightforward as one might expect at first blush.

Conclusion: According to District staff, allocated central services cost transfers represent “an equitable distribution of (IVGID’s) general, overhead, administrative and similar costs.”7 So now that you know the mechanics of the Plan and how it is funded, hopefully you can evaluate for yourself whether the Plan meets its representations.

  1. Putting aside the fact history demonstrates that the public cannot rely upon the accuracy of the financial information IVGID staff report to the public, yet accepting this information as fact for purposes of argument, for 2022-23 the IVGID Board adopted a final budget whereby the subsidy of central services cost transfers represented 31.44% of all revenue [see pages 045 and 114 of the packet of materials prepared by staff in anticipation of the Board’s May 26, 2022 meeting (“the 5/26/2022 Board packet“). The reader will have to add the $1,887,589 of central services cost transfers to $4,117,002 of total budgeted revenues, and then apply the central services cost revenue as a percentage.].
  2. According to staff this is the only fund which furnishes central services to the District’s other departments.
  3. If one examines IVGID staff’s accounting glossary within the budget the Board adopts each year, one will find the following definition for the term central services cost allocation: “The amount allocated between the Utility, Community Services and Beach Funds to cover the cost of services provided by the General Fund under Board policy” (see page 157 of the 2019-20 Budget). The relevant “Board Policy” is Policy 18.1.0 which provides for “Adoption of (a) Central Service Cost Allocation Plan” (“the Plan”).
  4. 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“).
  5. See page 045 of the packet of materials prepared by staff in anticipation of the Board’s May 26, 2022 meeting (“the 5/26/2022 Board packet“).
  6. For fiscal year 2022-23 the reader can examine staff’s financial reporting of this sub-fund at pages 160-163 of the packet of materials prepared by staff in anticipation of the Board’s May 26, 2022 meeting (“the 5/26/2022 Board packet“).
  7. See pages 150-151 of the packet of materials prepared by staff in anticipation of the Board’s February 22, 2023 meeting (“the 2/22/2023 Board packet“).
  8. See page 150 of the 2/22/2023 Board packet.
  9. The District’s “Internal Services Fund is used to account for…goods and services provided by one department to other departments”1 [doesn’t this sound eerily similar to what central services costs purport to be? In fact, in our What Are “Internal Services” discussion we will make the case that internal services cost transfers are really structurally the same as central services cost transfers. Thus allowing staff to take “two bites at the (same) apple” simply by assigning different labels to the same revenue source!].
  10. See NAC 354.8668(5)(a) which mandates these costs adhere to this requirement.
  11. Which instructs that “the Committee on Local Government Finance (“CLGF”)…adopt…regulations as are necessary for the administration of this chapter.”
  12. Which 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, only if the loan or transfer is made…for a cost allocation for employees, equipment or other resources related to the purpose of the enterprise fund which is approved by the governing body under a non-consent item that is separately listed on the agenda for a regular meeting of the governing body.”
  13. See our “Are IVGID’s Central Services Cost Transfers Permissible‘” web page.
  14. The District has adopted a water Ordinance No. 4. According to ¶14.01, “no person shall construct, extend, or connect to any Public Water System without first obtaining a written permit from (the) District and paying all fees and connection charges and furnishing bonds as required.” And according to ¶9.06, “all charges, fees and amounts due and payable shall be billed to the owner of the premises, whether or not the owner is also the occupant.”
  15. The District has adopted a sewer Ordinance No. 2. According to ¶3.03, “it shall be unlawful for any person to connect to, construct or install or provide, maintain or use any other means of wastewater disposal from any building in the District except by connection to (the District’s) public sewer.” And according to ¶14.05, “all charges, fees and amounts due and payable shall be billed to the owner of the premises, whether or not the owner is also the occupant.”
  16. See our “What Are IVGID’s Recreation and Beach Facility Fees” web page.
  17. See NAC 354.867(2)(a) which mandates these costs adhere to this requirement.
  18. See NAC 354.867(1)(a) which mandates these costs adhere to this requirement.
  19. See NAC 354.8668(5)(b) which mandates these costs adhere to this requirement.
  20. See NAC 354.867(1) which mandates these costs adhere to this requirement.
  21. See NAC 354.867(2)(b) which mandates these costs adhere to this requirement.
  22. See NAC 354.867(1)(c) which mandates that these costs adhere to this requirement.
  23. See NAC 354.867(2)(b) which mandates these costs evidence “an arm’s length transaction.”
  24. See NAC 354.867(2)(c) which mandates these costs not exceed these prices.
  25. See NAC 354.867(1)(d) which mandates these costs be adequately documented for independent verification.
  26. See NAC 354.867(2)(d) which mandates these costs adhere to these requirements.

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