Tuesday, December 18, 2012

SAO Report on HLP Board Health Benefits

The Utah State Auditor has reported on the citizens' complaint about the retroactive health benefits.  (highlights added)

December 17, 2012

Board of Directors
Heber Light & Power Co.
31 South 100 West
Heber City, Utah 84032

Dear Board of Directors:

We appreciate the response from Mr. Joseph Dunbeck to our inquiry regarding the allegations at Heber Light & Power. Specifically, it is alleged that Board members: a) planned, prepared, instituted, and accepted compensation for themselves in lieu of a health insurance benefit, and b) received stipends for attendance of meetings, both in state and out of state.

We have determined the following:
  1. Heber Light & Power is subject to the laws regulating its government members.
The Attorney General’s Office considered in its Informal Opinion No. 87-31 what laws apply to an Interlocal Cooperation Act entity, specifically, whether the requirements of the Uniform Fiscal Procedures Act for Utah Cities applied to the Tri-City Golf Course Committee, an Entity created by agreement among American Fork City, Pleasant Grove City, and Lehi City.

The Attorney General’s Informal Opinion considered first the Utah Supreme Court case, CP National Corporation v. Pubic Service Commission, 638 P.2d 519 (1981), which addressed not the “negative” application of the laws, i.e., what laws apply to regulate an interlocal entity, but the “positive” application, i.e., what powers an interlocal entity has. The Court held that “the intent of the act [Interlocal Cooperation Act] appears to be to allow municipalities collectively to exercise powers which they already possess individually.” Id. at 521.

Based on the above court case, the Attorney General’s Informal Opinion indicated that the Interlocal Cooperation Act similarly applies to the “negative” or regulatory laws to which an interlocal entity is subject, stating that “[i]t is clear…that an entity created under the Inter-local Co-Operation Act cannot exercise powers in excess of those possessed by its creators….[C]ities may not grant powers to an interlocal agency which they do not possess themselves individually. It necessarily follows that cities have no power or authority to act in contravention to the requirements of the Fiscal Procedures Act and they cannot endow their interlocal progeny with such power or authority.” Opinion at p. 2.

Given this authority, the State Auditor’s Office has always held that interlocal agreements should be subject to the same regulatory environment as the creating entities. However, it is one thing to say laws applying to a municipality shall also apply to the interlocal entity, and another to actually apply them. In attempting to apply municipal statutes related to employee benefits, including compensation, we encounter some legal quandaries, addressed below.
  1. We cannot answer the question whether the compensation in lieu of health benefits violates the Municipal Code, and suggest seeking a legal opinion from the appropriate authority.
In regards to whether a municipal officer, regulated by the provisions of Utah Code 10-3-818 with regard to salary, can receive any compensation from the interlocal entity, or whether that result in an inappropriate increase in salary under 10-3-818, or an inappropriate economic privilege under Utah Code 10-3-1304, note the following:

Utah Code 10-3-818 provides specifically:

(1) The elective and statutory officers of municipalities shall receive such compensation for their services as the governing body may fix by ordinance adopting compensation or compensation schedules enacted after public hearing.

(2) Upon its own motion the governing body may review or consider the compensation of any officer or officers of the municipality…for the purpose of determining whether or not it should be adopted, changed, or amended. In the event that the governing body decides that the compensation or compensation schedules should be adopted, changed, or amended, it shall set a time and place for a public hearing at which all interested persons shall be given an opportunity to be heard.

And, the Municipal Officers’ and Employees’ Ethics Act (Utah Code 10-3-1304) provides that:

(2) It is an offense for an elected or appointed officer…to:
(b) Use or attempt to use the officer’s or employee’s official position to:
(i) further substantially the officer’s or employee’s personal economic interest; or
(ii) secure special privileges for the officer or employee or for others….

In conjunction with these two sections are the instructions provided in the Interlocal Cooperation Act (Utah Code 11-13-222) that:

(1) Each officer and employee performing services for two or more public agencies under an agreement under this chapter shall be considered to be:

(a) an officer or employee of the public agency employing the officer or employee’s services even though the officer or employee performs those functions outside of the territorial limits of any one of the contracting public agencies;
(3) All of the privileges, immunities from liability, exemptions from laws, ordinances, and rules, pensions and relief, disability, workers compensation, and other benefits that apply to an officer, agent, or employee of a public agency apply to the same degree and extent when the officer, agent, or employee performs functions or duties under the agreement outside the territorial limits of that public agency.

Utah Code 11-13-222 of the Interlocal Cooperation Act seems to support the Attorney General’s Informal Opinion specifically with reference to matters like compensation of officers and employees, underscoring the fact that the employing municipality’s regulations are controlling.

The question of interpretation remains. We know, of course, that the officers already receive compensation, and the question being asked is simply whether the additional compensation is appropriate. That is a legal question that we do not have the authority to answer.
  1. At the very least, a hearing should have been held to allow public input as required by the Municipal Code.
If it is determined that a municipal officer may receive compensation as an officer of an interlocal entity, it seems clear to us that the provisions of Utah Code 10-3-818 requiring a municipality to hold a public hearing would apply to the interlocal entity. Based on Mr. Dunbeck’s response, it appears that a public hearing was not held regarding compensation of board members until two months after the board approved the budget which included the increased compensation.

In conclusion, we believe that both the Attorney General’s Informal Opinion and Utah Code 11-13-222 make Utah Code 10-3-818 and 10-3-1404 applicable to Heber Light & Power. However, we recommend that you contact the Attorney General’s Office and/or seek clarification of the laws through legislation.

We can say that to the extent it is determined appropriate for municipal officers/board members to receive compensation for their services to Heber Light & Power, a public hearing should have been held to vet the decision by the board to participate in the entity’s health insurance plan. Because it was not, the policy should be voided until the appropriate procedures have been followed.

We appreciate the courtesy and assistance extended to us by the personnel of Heber Light & Power during the course of the investigation. If you have any questions, please contact Ryan Roberts, Audit Supervisor, at (801) 538-1721.


Auston G. Johnson, CPA
Utah State Auditor

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