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Council asks corporation counsel to review legality after $400K in water/sewer charges shifted off general fund
Summary
Finance staff removed about $400,000 in water and sewer indirect charges from general fund departments for FY2026 as a one-time measure; councilors questioned whether that creates an improper cross-subsidy and asked the law department to review Emerson v. Boston–style tests for CSO/utility charges.
Finance staff told the City Council Committee on Finance on June 11 that the FY2026 appropriation removes roughly $400,000 in water and sewer charges that general-fund departments would normally pay into the Water & Sewer enterprise funds.
Interim Finance Director Emily Arp said the change is a one-time measure to ease the general fund while the administration and the enterprise funds reconcile indirect-cost allocations. “The goal is to have it just be…it’s a one-time stop-gap measure for this year while we work through the indirect charges with water sewer,” Arp said. She said her office discussed the change with Water & Sewer officials, who expect to absorb the one-time cost by using stronger-than-expected FY2025 revenues and some capital timing adjustments.
Several councilors pushed back on the authority and fairness of the change. Councilor Dean asked whether removing those departmental charges would create an illegal tax or cross-subsidy under Massachusetts precedent, referencing Emerson v. Boston and noting the three-pronged legal tests that are sometimes applied to municipal utility and CSO charges. “If the municipality is not paying for it, then it becomes an illegal tax because then you’ve got a group that’s not paying for it,” Dean said.
Arp said the practice of not charging other municipal departments for water and sewer is not unique and that some municipalities do not bill internal departments. She told the committee the administration would ask corporation counsel to confirm that the accounting change does not violate legal constraints on CSO or utility charges. “Check and make sure — corporation counsel is gonna look into that and make sure that we are not in violation of anything,” she said.
Councilors also sought assurance the enterprise funds would not run deficits because of the shift. Arp said Water & Sewer projects it can manage the one-time reduction using available capital and stronger-than-expected revenues, and she stressed the change was not a permanent policy decision.
Next steps: the committee directed staff to get a legal opinion from corporation counsel on whether moving those charges into the enterprise funds without an intra-municipal charge violates state law or creates an improper subsidy; staff also said they will bring back reconciliation details and the proposed plan for next fiscal year as part of follow-up budget materials.
