12/30/2017 A Voice From the Gallery-Part II

    Issue

          Does Mayor Tom Glas and the Alcester City Council have the authority to ignore, disregard or flout city ordinance establishing a restrictive penny sales tax in order to purchase, direct and obligate second penny sales tax income toward  loans and payment of equipment not associated with Capital Improvement?

    History

          In or around 2005 Alcester City Councilmember with the aid of Alcester City Attorney Charles Haugland, authored, directed and provided for specific, restrictive language in a 2005 Ordinance (Exhibit A2)  establishing a second penny sales tax. Please note additional Exhibits A1 and A3 relating to Exhibit A2, during the same time period were included and provided to the South Dakota Department of Revenue (Sales Tax Division)

This ordinance was brought as the result of a community-wide assessment program organized and promoted by Alcester community leaders, Alcester civic groups and Alcester residents using the expertise of advisors from South Dakota State government, SECOG and South Dakota Municipal League.  This assessment established the need for imminent upgrades and future updates of Alcester infrastructure which include streets and underlying utilities, a new community building with upgraded, accessible city offices as well as other long term capital improvements in the city of Alcester to encourage growth of the community.  The concept behind the establishment of a restricted second penny sales tax provided for a long term interest bearing savings-type fund, consistent income for capital improvements eliminating the need for loans and the accompanying interest and fees involved with those loans.

As you can see from Exhibit A1, Alcester Ordinance 1984-3, amended August 21, 2003, was further amended as of August 1, 2005, to fully comply with South Dakota state law as suggested by South Dakota Municipal League (Exhibit A3).  On August 15, 2005, (Exhibit A2)  Ordinance 1984-3 with August 1, 2005, amendment was once again amended adding a restricted second penny sales tax to be specifically,   “…earmarked, set aside, and restricted to the funding of Capital Improvements…”.

Once this amendment was put into place, pre-determined amounts (I believe approximately $20,000.00 per annum upon motion by Alcester City Councilman and unanimously affirmed by the Council prior to 2011) of collected second penny sales tax funds were to be placed into a separate account specifically earmarked for the community building/city offices project.  In 2013-2014 the community building project account contained an aging balance of $30,000.00 derived from the restricted second penny sales tax.  Second penny sales tax moneys collected above and beyond the pre-determined annual contribution to the community building fund project were directed to capital improvements such as the Lincoln Drive repair from First street to Jefferson Drive, Lee Drive construction, and municipal golf course development.

Sometime in 2012-2013, Mayor Peter Larsen with City Attorney Charles Haugland, SECOG representative Toby Brown and council ordinance revision committee initiated a review of city ordinances for the express purpose to update, up-grade and institute new city ordinances to better reflect the direction Alcester city government and Alcester residents wanted to take the city.  This review continued until May of 2013 when Rick Johnson took over as mayor and a new revision committee was formed.

On June 2, 2014, a draft of revised municipal ordinances for the City of Alcester, South Dakota, was produced and prepared by the South Eastern Council of Governments.  Final Revised Municipal Ordinances for the City of Alcester, Ordinance 2014-2 was globally approved with an effective date of August 6, 2014.

Argument

          Since 2013 and more recently, Mayor Tom Glas and the city of Alcester have failed to appropriate and place the pre-determined annual contributions of second penny sales tax moneys for the community building into the special account.  In addition Mayor Glas and Finance Officer Jurrens have failed to follow the restrictions of the second penny sales tax as set out in the 2005-2006 ordinance in that they allowed non- capital improvement expenses to be paid out of the second penny sales tax.

The 2005 ordinance states (Exhibit A2),

“…The second one percent (1%) shall be earmarked, set aside, and restricted to the funding of Capital Improvements within and for the City of Alcester, Union county, South Dakota…”

           Prior to the December 4, 2017, regular Alcester City Council meeting, I spoke one-on-one telephonically with Alcester City Attorney Charles Haugland voicing my concerns the city was violating the 2005 second penny sales tax restriction.  On December 4, 2017, and before the meeting was called to order, I presented the council with copies of the August 15, 2005, ordinance which restricted the use of the second penny sales tax for any purpose other than Capital Improvements with that section highlighted.  In addition I provided a definition of Capital Improvement as follows,

“A capital improvement is defined by contract and varying state and federal laws, but generally is defined as a non-recurring expenditure or any expenditure for physical improvements, including costs for: acquisition of existing buildings, land, or interests in land; construction of new buildings or other structures, including additions and major alterations; construction of streets and highways or utility lines; acquisition of fixed equipment; landscaping; and similar expenditures. It may mean any change, alteration, rearrangement or addition to existing facilities. It is also new construction, acquisition or improvements to sites, buildings, or service systems.”[1]

Capital Improvement can have fixed equipment that is attached to the building/asset becoming realty but, should not be confused with capital equipment which among other definitions is mobile, not fixed to real property and produces a commodity.

When the Alcester City Council Agenda (Exhibit C1) item 6 (a)(ii)(a) and (b)-Equipment bond was called in the December 4, 2017, regular meeting, the council having read the document I provided them prior to the meeting discussed how the second penny sales tax restriction would affect the equipment bond.  Alcester Finance officer Pat Jurrens offered an opinion the equipment was capital improvement using the local accounting office as her legal source  after which Alcester City Attorney Charles Haugland specifically discussed how the revised 2014 municipal ordinances repealed the 2005 restrictive ordinance in 2014 ordinance revision under, Title 10, chapter 10.01 Municipal Sales and Service Tax and Use Tax, item 10.0102-Effective date,

“…From and after the first day of January, 2006, there is hereby imposed as a municipal retail occupational sales and service tax upon the privilege of engaging in business a tax measured by Two Percent (2%) on the gross receipts of all persons engaged in business within the jurisdiction of the Municipality of Alcester, Union County, South Dakota, who are subject to the South Dakota Retail Occupational Sales and Service Tax, SDCL 10-45 and acts amendatory thereto.”[2]

and under Title 11, Chapter 11.01 Penalties and Repealing Clause, item 11.0102-Conflicting Ordinances Repealed,

“...All former ordinances or parts of former ordinances in conflict with the provisions of this ordinance or relating to the subject matter of this ordinance, except as stated in this chapter, are hereby repealed; provided  however, that nothing herein shall be construed as repealing any special ordinances, appropriation ordinances, franchise ordinances establishing fees and charges, levy ordinances for the issuance of bonds, or special ordinances of like character, nor shall this ordinance repeal or modify the provisions of any zoning ordinances or any other ordinances requiring a special method of adoption, nor shall this ordinance repeal or modify the provisions of any resolution heretofore adopted by the City of Alcester unless the provisions of this ordinances either, modify, repeal, or amend such resolutions; and all such ordinances and resolutions shall remain in full force and effect…”[3] (Exhibit B1and B2)  

Upon the conclusion of  Mr. Haugland’s comments, I asked Mayor Glas for time to defend my stance.  Mayor Glas refused to allow me the floor for rebuttal saying, “I could make my remarks during my two minute Public Input time” to which I responded, “Public Input would be after the council vote on the equipment.”  Mayor Glas retorted, “We are talking city business!” and I responded to this comment, “I am taking city business!”  This is not the first time Mayor Glas has refused me agenda item access to discuss city business.  In fact, Mayor Glas moved Public Input from item number four or five to second to the last item before adjournment in response to my opinion and discussion of any agenda items which followed Public Input when it was still on the front end of the agenda. (Exhibit C1, C2 and C3)

In response to my remarks, the council decided to delay any action on using second penny sales tax to fund the equipment of a new pick up and a dump truck.   With all due respect to Alcester City Attorney Haugland, I respectfully disagree with his stance the Revised Municipal Ordinances, City of Alcester, South Dakota, Ordinance 2014-2, Effective date August 6, 2014, in Chapter 10.01, section 10.0102 repeals Section 2-Effective Date and Enactment of Tax, Ordinance 2005 dated August 15, 2005.

In the 2014-2 Revised Ordinances, section 10.0102 confirms and continues the two percent (2%) city sales tax on municipal retail occupational sales and service upon the privilege of engaging in business within the jurisdiction of the Municipality of Alcester and is silent and mute on any intended, specific repeal of previous restrictions placed upon the second penny sales tax.

Nor does the 2014-2 Revised Ordinances, section 11.0102 Conflicting Ordinances Repealed apply since 2014-2 is in agreement with the August 15, 2005, ordinance establishing a second penny sales tax.  In addition the 2014-2 Revised Ordinance further states,

“…that nothing herein shall be construed as repealing any special ordinances, appropriation ordinances…or special ordinances of like character…and all such ordinances and resolutions shall remain in full force and effect…”[4]

Section 2 of the August 15, 2005, (Exhibit A2) ordinance provides for a special restricted funding of Capital Improvements from the second penny sales tax which has the same effect as an appropriation ordinance for a specific purpose and can only be dispersed for Capital Improvements.  In addition and in line with statute, the motion made by the Alcester Councilman to set-aside approximately $20,000.00 per annum from the second penny sales tax to fund the construction of a community building was unanimously ratified by the Alcester City Council and remains in full force and effect as provided by the clause, “…special ordinances, appropriation ordinances…or special ordinances of like character…”

As a direct result of the Mayor and Finance Officer Jurren’s failure to follow Alcester City Ordinance as it relates to the second penny sales tax restrictive ordinance, the city has failed to maintain ordinance generated Capital Improvement funding causing a catastrophic shortfall in street maintenance.  As a direct, punitive result of this failure on the part of the city to follow ordinance, the city council has passed Resolution 2017-09 (Exhibit D) which allows the city to extort an annual maintenance fee for the repairs and maintenance of street surfaces of lots fronting and abutting a public street.

Conclusion

          Over the past months Alcester Mayor Tom Glas along with the Alcester City Council have spent almost $500,000.00 on equipment purchases through loans which debt service coverage obligation is from Alcester’s municipal second penny sales tax.

Based upon my research and reading of Alcester municipal ordinance, equipment purchases such as pick-up trucks, dump trucks, street sweepers and skid loaders cannot be funded in part or entirety from the restricted Alcester municipal second penny sales tax moneys.

It is my opinion Mayor Glas and Finance Officer Pat Jurrens have over-reached and violated Alcester’s Sales Tax ordinance, specifically but not limited to the Capital Improvement restriction placed upon the second penny sales tax.

I request the Office of Legislative Audit investigate this matter and based upon facts I have presented in this complaint, find the city has indeed violated its own sales tax ordinance.  I respectfully request the Office of Legislative Audit direct Mayor Glas and the City of Alcester cease all non-Capital Improvement purchases using the Alcester Municipal second penny restricted sales tax moneys as payment and void all past and present equipment payment obligations from the Alcester restricted second penny sales tax.

_____________________________

Vickie A. Larsen

[1] USLegal.com, definitions, USLegal.com/c/capital-improvement, 1997-2016

[2] Revised Municipal Ordinances City of Alcester, South Dakota, Ordinance No. 2014-2, August 6, 2014, Page 77, prepared by the South Eastern Council of Governments.

[3] Ibid., 79

[4] Ibid., 79

 

NOTE:  Exhibits have not been included