In a word, yes!

Preface: Before we begin, we suggest the reader familiarize him/herself with the District’s Fund Structure. For purposes of this discussion we feel the reader needs understand the District’s Community Services¹ and Beach² Funds³. So with that said,

History/Change in Fund Types: Until fiscal year 2016 the District’s Community Services and Beach Funds were both designated as Enterprise Funds⁴. In spite of ¶67 of GASB⁵ Statement No. 34 which instructs an enterprise fund may be used to report any activity for which a fee is charged to external users for goods or services, at the Board’s May 21, 2015 meeting⁶ it adopted Resolution No. 1838 which formally converted “the (District’s)…Community Services and Beach (Enterprise) Funds (to)…Special Revenue⁷, (Special Revenue) Capital Projects and (Special Revenue) Debt Service Funds.” In other words, a change from Proprietary⁸ to Governmental⁹ Funds. This change had particular relevance to the District because where a government’s financial reporting incorporates special revenue funds, there’s an implicit admission that the activities which generate the revenue assigned to those funds are “taxes, intergovernmental revenues, and other non-exchange” type revenues¹⁰. In other words, once the RFF/BFF are reported in special revenue funds, there’s an implicit admission they are taxes!

GASB Statement No. 34: “The objective of this Statement is to enhance the usefulness of fund balance information by providing clearer fund balance classifications that can be more consistently applied…(Thus) this Statement establishes fund balance classifications that comprise a hierarchy based primarily on the extent to which a government is bound to observe constraints imposed upon the use of the resources (i.e., revenues) reported in governmental funds…The definitions of…general fund, special revenue fund type, capital projects fund type, debt service fund type, and permanent fund type are (all) clarified by the provisions in this Statement. Thus

“Special revenue funds are used to account for and report the proceeds of specific revenue sources that are restricted or committed to expenditure for specified purposes other than debt service or capital projects.”¹¹

What is a Special Revenue Fund? Accordingly, in Nevada, NRS 354.570 defines a “Special Revenue Fund” as:

One “used to account for specific revenue sources, other than sources for major capital projects, which are restricted by law to expenditure for specified purposes.”

According to the State of California’s Controller,

“These are government accounting tools used to track proceeds from specific revenue sources that are legally restricted or committed to expenditure for specified purposes, excluding major capital projects or debt service. They ensure earmarked funds are used solely for designated purposes, such as parks, libraries, or transportation, rather than for general government operations.”¹²

This description has been applied in the Nevada per page 2 of the Department of Taxation’s Guidance Letter 15-002 which instructs that:

“Based on the definitions of Proprietary Fund⁸…in NRS 354.553 and…Special Revenue Fund found (in) 354.570¹³, as well as GASB Statement No. 34, a Special Revenue Fund is a type of Governmental Fund, whereas an Enterprise Fund is a type of Proprietary Fund…A Governmental Fund, such as a Special Revenue Fund, generally has activities which are financed through taxes, intergovernmental revenues, and other non-exchange revenues.”

GASB Statement No. 33¹⁴ instructs that,

“In order to qualify for Special Revenue Fund accounting, a substantial portion of the fund’s revenues must come from nonexchange transactions…involving financial or capital resources” (for example, most taxes, grants, and private donations).

Thus The Attributes of Special Revenue Funds: can be summarized as follows:

1. The term “proceeds of specific revenue sources” in GASB Statement No. 34 means “that one or more specific restricted or committed revenue source(s)¹⁵ should be the foundation for any special revenue fund;”¹⁶

2. Thus the resources (i.e., sources of revenue) reported therein “are limited to a particular purpose by a government that cannot be used for any other purpose unless the government removes or changes the limitation by taking the same action it employed to impose the limitation, or by taking a higher authority action;”¹⁷

3. “Other than debt service or capital project” purposes¹⁸; and,

4. Although 100% of the inflows assigned to a special revenue fund need not be derived from restricted or committed revenue sources¹⁶, a substantial portion must¹⁹.

The Impropriety of The District‘s Conversion of Its Community Services and Beach Funds From Enterprise to Special Revenue Type: for the following reasons:

1. The RFF/BFF deposited into these funds are not restricted to the expenditure for specified purposes²⁰. Rather as we’ve demonstrated, they cover the financial shortfall between budgeted revenues and intentional overspending of all kinds assigned to the District’s Community Services and Beach Fund, respectively;

2. Including general operations because they fund transfers to the District’s General Fund under the guise of central services cost transfers;

3. Moreover, the RFF/BFF are expressly used to pay for major capital projects and debt service whose costs are assigned to the Community Services and Beach Funds, respectively. Even though as the reader will see below,

4. According to MossAdams²¹, “Enterprise Funds are required when outstanding debt is backed solely by user fees and charges;”²²

5. Since ‘most general governmental activities are financed primarily with taxes, grants and entitlements, and other similar non-exchange revenue sources (which)…lack…a direct connection between the value of the goods and services provided and the revenues received to finance them,”²³ and the RFF/BFF are the product of nonexchange transactions²⁴, they must be taxes; and,

6. Since “capital assets, long-term debt, and depreciation are not financial elements reported within Governmental Fund financial statements that use the modified accrual basis of accounting…the determination of whether the financial condition of such activities is improving or declining over time requires a measurement of the wear and tear from the use of capital assets through the recording of depreciation among the operating expenses that is accomplished through the bases of accounting used by Enterprise”²⁵ rather than Special Revenue Funds.

MossAdams Report: In 2020 accountancy consultant MossAdams²⁶ was engaged to review the District’s Punch Card Accounting and provide a report summarizing its observations and recommendations. During this engagement, review was expanded to incorporate how annual Facility Fees should be properly classified and reported in the District’s financial statements. On January 14, 2021 MossAdams issued a Report which for many of the reasons highlighted above, recommended:

“The District report its recreational activities for Community Services and Beach in respective enterprise funds.”²⁷

District Staff‘s Refusal to Implement MossAdams‘ Recommendations: At the District’s Audit Committee’s June 1, 2022 meeting, in response to MossAdams‘ recommendations, District Staff announced they disagreed and refused to implement the changes recommended. Which harkens us back to the May 2, 2022 written comments (below) submitted by local resident John Ciacchella²⁸ to the IVGID Board at its May 11, 2022 meeting²⁹:

“Back in late 2020/early 2021 MossAdams made specific recommendations to the Audit Committee…Th(os)e recommendations were presented and accepted…The Audit Committee then sent these recommendations to the Board of Trustees where the Board accepted all the recommendations made…IVGID Management was then instructed…to adopt all of the recommendations…Not only has IVGID Management failed to implement all (of) the MossAdams recommendations…IVGID Management (on their own) decided to hire…an outside auditor (DavisFarr)…at additional cost to IVGID…to review and comment on the Moss Adams recommendations and the direction…received (from) the Board…IVGID Management was not asked to secure this ‘second opinion’ and further has failed to follow all (of) the recommendations as instructed by the Board of Trustees. The Board needs to hold IVGID Management accountable (and) to follow…through on its instruction to (staff)…Not doing so is exposing the IVGID community to downstream financial risks and is not being transparent with the community on the true financial state of IVGID. Not to mention this is also a breakdown in governance between the Board of Trustees and IVGID management…Sincerely, John Ciacchella, Retired Partner – Deloitte.”

Wow! This kind of says it all, doesn’t it? Exactly who is driving this bus we know as IVGID?

The Real Reason Why IVGID Staff Refused to Implement The Fund Type Changes Directed by The Board: Not that it explains why the change in financial reporting represents an admission the RFF/BFF are taxes, we thought the reader might want to know the truth. Although staff misrepresented to a largely ignorant Board that the aforesaid fund conversions would

“Result in…more disclosure of functional level expenditures (and)…clarity…from producing schedules based on sources and uses,”³⁰

their real purpose was nefarious. In other words, nothing short of circumventing the protective enterprise fund transfer provisions of NRS 354.613(1)³¹. Because now there was nothing illegal about transferring monies from Special Revenue Funds³². So after passage of Resolution No. 1838, staff were free to transfer all monies of their choosing out of the Community Services and Beach Special Revenue Funds! Paving the way for the massive increase [over 350% in ten (10) short years] in alleged central services cost transfers³³ from the District’s former Community Services, Beach and Utility Enterprise Funds to its General Fund. Resulting in the massive increase [by nearly 680% in ten (10) short years] in the General Fund balance from $886,664 on July 1, 2014 to $6,013,261 on June 30, 2023³⁴. We describe this phenomena as nothing short of creation of a de facto “slush fund” available to be spent on future unidentified, unbudgeted, and unappropriated pet projects (such as a new Administration Building financed by the RFF/BFF³⁵).

Post Mortem: Not that it explains why the change in financial reporting represents an admission the RFF/BFF are taxes, we thought the reader might want to know that effective with fiscal year 2021-22, the District transitioned back to enterprise fund accounting for its Community Services and Beach Funds.

“On May 27, 2020 the Board adopted Resolution No. 1880 establishing the District’s intent to initiate the process of transitioning back to Enterprise Fund accounting beginning with the District’s fiscal year 2021/22 Budget.”³⁶

Because “use of Proprietary Fund Type Enterprise Funds for (the District’s) Community Services and Beach Funds (wa)s consistent with the desired intent of the (District’s) business-like operations.”³⁷

Conclusion: Sometimes actions have unintended consequences. And that’s what has happened here. District staff didn’t realize at the time they pushed to change financial reporting fund types they were admitting (by means of conduct) that the RFF/BFF are taxes! In fact, invalid taxes³⁸. Given GASB instructs that taxes and not fees are reported in Special Revenue Funds, the RFF/BFF cannot be and are not fees³⁹, Doesn’t the Hawaii Supreme Court’s decision in Medeiros instruct that where a monetary exaction exhibits the criteria therein identified it’s a fee⁴⁰? And where it doesn’t, it’s a tax⁴¹? Given GASB instructs that monetary exactions deposited into Special Revenue Funds do not exhibit the first prong of the criteria identified in Medeiros for fees⁴², we have our answer to the question whether the RFF/BFF deposited into Special Revenue Funds are taxes. Don’t we?

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1. The District fund where the RFF is assigned and reported.
2. The District fund where the BFF is assigned and reported.
3. This discussion and analysis serve as an introduction to the District’s basic financial statements which is explained in more detail in our Understanding The District’s Funds Structure discussion.
4. NRS 354.517(1) defines an enterprise fund as one “established to account for operations which are financed and conducted in a manner similar to the operations of private business enterprises, where the intent of the governing body is to have the expenses (including depreciation) of providing goods or services on a continuing basis to the general public, financed or recovered primarily through charges to the users.”
5. The Government Accounting Standards Board aka “GASB” is an “independent, private-sector organization…that establishes accounting and financial reporting standards for U.S. State and local governments (like Nevada’s) that follow Generally Accepted Accounting Principles” (GAAP). Accordingly, it “establishes financial reporting standards for state and local governments, including states, cities, towns, villages, and special-purpose governments such as school districts…public utilities” and of course, GIDs.
6. The Board livestreams its meetings. And the livestream of its May 21, 2015 meeting where this action was taken appears at https://livestream.com/ivgid/events/4067570 (“the 5/21/2015 livestream”).
7. See NRS 354.570 which defines “Special revenue fund (to) mean…a fund used to account for specific revenue sources, other than sources for major capital projects, which are restricted by law to expenditure for specified purposes.”
8. An “internal service…or enterprise fund” (see NRS 354.553).
9. Governmental funds are where most governmental functions such as general administration, judicial, public safety, public works, transportation, health and welfare and culture and recreation are financed” (go to https://stories.opengov.com/bullochcounty/published/h5TeA_j4_).
10. See the City of Columbus, Ohio’s Auditor’s Glossary of Terms for governmental activities, and the State of Washington Office of Financial Management’s Definition of Fund Types.
11. See ¶30 of GASB Statement No. 34.
12. Go to https://www.sco.ca.gov/Files-ARD/CAFR/1999_10.pdf.
13. “A fund used to account for specific revenue sources, other than sources for major capital projects, which are restricted by law to expenditure for specified purposes.”
14. “Accounting and Financial Reporting for Nonexchange Transactions”
15. In other words, proceeds from nonexchange transactions.
16. See ¶116 of GASB Statement No. 34.
17. See ¶69 of GASB Statement No. 34.
18. See ¶138 of GASB Statement No. 34.
19. Meaning that if the government no longer expects that will be the case, it should discontinue reporting a special revenue fund, and instead, report the fund’s remaining resources in the General Fund¹⁸.
20. In fact, at page 12 of the MossAdams Report their “review of state law, bond agreements, and other documents provided…did not (reveal) any externally imposed restrictions on the revenue sources reported within Community Services and Beach as provided in GAAP.”
21. See page 9 of the MossAdams Report.
22. Which is precisely the case here.
23. See page 10 of the MossAdams Report.
24. See our RFF/BFF Must be Taxes Because They’re The Product of Nonexchange Transactions discussion.
25. See page 13 of the MossAdams Report.
26. MossAdams is “composed of government auditors (CPAs) and tax specialists” (go to https://www.mossadams.com/industries/government-services).
27. See page 13 of the MossAdams Report.
28. Mr. Ciacchella knows a little bit about what he’s talking about, inasmuch as he is a retired partner in the powerhouse accounting firm Deloittle.
29. See pages 193-194 of the packet of materials prepared by staff in anticipation of the Board’s June 8, 2022 meeting (“the 6/8/2022 Board packet“).
30. See Gerry Eick’s (our previous Finance Director) disingenuous arguments in support of this fund conversion as well as members’ of the public’s opposition, which appear collectively at 32:27-50:33 of Part 3 of 6 of the 5/21/2015 livestream.
31. See NAC 354.8668 and 354.867.
32. NRS 354.626(1) makes it unlawful for “any officer or employee of a local government (to) willfully violate…NRS 354.470 to 354.626, inclusive.” NRS 354.613(1) prohibits “the governing body of a local government (to)…loan or transfer money from an enterprise fund…except as otherwise provided.”
33. $1,068,996 for fiscal year 2014 [see page 23 of the 2014 Comprehensive Annual Financial Report (“the 2014 CAFR“)] to $3,742,044 for fiscal year 2024 [see the Supplemental Item G.3.B page to the packet of materials prepared by staff in anticipation of the Board’s May 31, 2024 meeting (“the 5/31/2024 Board packet“)].
34. See page 7 of Schedule B(9) to the 2024 Budget.
35. For a facility which has nothing to do with the availability of public recreation facilities.
36. See that December 1, 2020 letter and enclosures from then chairperson of the IVGID Board, Tim Callicrate, and then Finance Director, Paul Navazio, to Kelly Langley, Supervisor in the Nevada Department of Taxation’s Local Government Division.
37. See that recital of fact in Resolution No. 1880.
38. See our Are The District’s RFF/BFF The “Service And Standby Service Charges” Staff And Past Boards Represent/Have Represented discussion.
39. See State of Hawaii v. Medeiros, 89 Haw. 361, 973 P.2d 736, 742-745 (1999)
40. See Medeiros, Id.
41. See Clean Water Coalition v. M Resort, 127 Nev. 301, 315, 255 P.3d 247 (2011); 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).
42. “The charge (doesn’t) appl(y) to the direct beneficiary of a particular service” (it’s the product of nonexchange transactions).