August 17th, 2011
Kyle asks DA to investigate financial woes

by BRAD ROLLINS

The Kyle City Council voted on Tuesday to ask Hays County District Attorney Sherri Tibbe to investigate whether any laws were broken when previous city management appears to have used fund balances and money borrowed through general obligation bonds to pay for day-to-day expenses of running the city.

City Manager Lanny Lambert and finance director Perwez Moheet, both of whom were hired at about the same time late last year, have said they are alarmed at the extent to which funds were shuffled between city accounts to meet obligations, allegedly without city council oversight or approval. Current city staff is quick to note they have seen no evidence that taxpayer money was embezzled or stolen; instead, it appears creative accounting was employed to pay the city’s bills when development (and property tax revenue) did not meet expectations, city officials said.

“It looks to me like we had a lot of money five years ago and we’re broke today,” Lambert said. “Maybe it was just an accident but it’s so much money that I think we have to look at it.”

The city maintained fund balances totaling $10-15 million as recently as 2006, Lambert said, but today many major city funds are projected to be in the hole by the end of the current fiscal year. The utility fund is projected to be $627,970 in the red this year. The transportation fund is $151,315 short and the economic development fund is negative $87,363. A pool of money set up to pay for road and other infrastructure built to serve the Kyle Crossing shopping center has $42 left in it.

To cover the gaps, city staff has proposed a tax rate next fiscal year of 48.45 cents per $100 in property value, an increase of 6.9 cents over the current tax rate of 41.54 cents. The council’s budget deliberations continue with meeting and public hearing scheduled for 7 p.m. today.

Lambert and Moheet did not immediately make available a summary of budgetary issues they say they have identified. However, they and Mayor Lucy Johnson offered a few examples.

In one instance, the city paid debt on infrastructure built for the Kyle Crossing shopping center out of the general fund balance. The debt was supposed to be repaid through property tax revenue generated by the development in an arrangement called a tax increment reinvestment zone. But when banks virtually stopped lending money to anyone in 2008, businesses like City Lights movie theater backed out of building in the center and property tax receipts fell below projections. Apparently without authorization from the council, city staff at the time paid the note using funds not allocated for the purpose, current city staff says.

In another example, money borrowed through general obligation bonds approved by voters in 2008 for specific public works projects was used to pay operation expenses for the Hays Caldwell Public Utility Agency, of which Kyle is a member.

“It makes me angry as a mayor and as a member of this council to know that we had no control of the expenditure of these funds despite supposedly having ultimate authority over these expenditures. I want to know how this happened and I know the taxpayers want to know how this happened,” Johnson said.

It is not clear if Tibbe will accept the case. The state comptroller and Attorney General’s Office have declined to get involved thus far, Lambert said, without specific evidence of a crime.