In the spirit of the Russian proverb “Trust, but verify,” I checked last week to see whether funding the Iowa Utilities Board promised before Thanksgiving to release had reached energy centers housed at Iowa’s state universities.
Good news: the Iowa Energy Center at Iowa State University and the Center for Global and Regional Environmental Research at the University of Iowa have both received all of the remittances the IUB collected on their behalf from gas and electric utilities. The centers do not appear to have in hand all of the interest payments to which they are entitled under Iowa Code, but IUB spokesperson Don Tormey assured me the agency “will forward the additional interest funds” to the energy centers, if any more interest accrues.
Strange news: the IUB chose an unusual way to send this year’s funding to the energy centers, and I don’t fully understand why. I’ve enclosed what I learned below, along with details on the money sent to the Iowa Energy Center and the Center for Global and Regional Environmental Research so far, and what may yet be owed to them.
HOW MUCH MONEY WENT TO THE ENERGY CENTERS
Like most Iowans, I knew nothing about the IUB’s role as a middleman in funding the energy research centers until board chair Geri Huser decided to use the money as leverage to obtain more detailed financial reporting from the Iowa Energy Center in Ames. Ryan Foley broke this story for the Associated Press and followed up here and here. Bleeding Heartland included additional background and supporting documents in posts analyzing Huser’s power play and subsequent retreat.
Iowa Code 476.10A calls for the energy centers to be financed as follows:
The [Iowa Utilities] board shall direct all gas and electric utilities to remit to the treasurer of state one-tenth of one percent of the total gross operating revenues during the last calendar year derived from their intrastate public utility operations.
Deputy Treasurer Stefanie Devin of the State Treasurer’s office explained the process to me via e-mail:
IUB bills the utilities. The utilities send their checks to IUB. IUB prepares deposits and accounting documents to record the receipts. Checks are deposited into a treasury bank account. Treasury verifies the deposits and reconciles bank account to state accounting records.
According to the IUB’s Tormey, the board bills gas and electric utilities for this purpose once a year, collecting the money in July. Under Iowa law, 85 percent of those remittances go to the Iowa Energy Center and the remaining 15 percent to the Center for Global and Regional Environmental Research. Tormey provided this document on December 2, showing how the IUB calculated the amount to send to each energy center.
Note that the amounts transmitted differ slightly from the figures announced in a November 23 IUB press release ($4,375,566 to the IEC and $772,159 to the CGRER, respectively). That’s because the IUB added $144.50 to $5,147,725 before figuring out how much each energy center should receive.
Iowa Code makes clear that the energy centers are also entitled to any interest earned on the applicable remittances from the gas and electric utilities. Tormey explained that Revenue Code 0425 (a line item on the above document) refers to remittances from the utility companies, while Revenue Code 0410 shows interest accrued. He referred further questions about the interest income to Devin at the Treasurer’s office. She confirmed on December 4 that $143.92 refers to interest accrued to this fund during the month of October, and $144.50 refers to combined interest accrued during the months of September and October. Devin added,
The balance of Fund 0003 was brought down to zero in September 2014. Since that time, $2,722.46 in interest has been credited to the fund. IUB has deposited $5,147,725 into the fund. That brings the current balance of fund 0003 to $5,150,447.46.
I’m no financial expert, but $144.50 seemed like an impossibly low amount of interest for more than $5.1 million to earn during the months of September and October. For that matter, I didn’t understand how a fund with more than $5.1 million in assets could have earned only $2,722.46 in interest between July (when the IUB started depositing this year’s remittances from utility companies) and the end of November, when the IUB disbursed the funds to the energy centers.
After a few false starts via e-mail, Devin patiently explained to me by phone yesterday that the fund holding money for the energy centers “doesn’t function like a bank account.” Interest credited to the fund in one month doesn’t correspond to what was earned during that same month. Rather, “there’s a lag” of a few months. The extremely low accruals of interest in September and October–totaling just $144.50–reflect the period when Fund 0003’s balance was near zero, before the IUB started depositing remittances for the current fiscal year. Devin acknowledged that this and similar funds held by the state treasury earn low interest rates (currently less than 1 percent annually), because they are required to have 100 percent liquidity. But “I guarantee you that it’s getting the right amount of interest,” she said.
Alert Bleeding Heartland readers may have noticed that Devin said $5,150,447.46 was in the account earmarked for the energy centers, while the form enclosed above indicates that the IUB distributed $5,147,869.50. When I asked Tormey about the discrepancy, he explained that IUB “ran the report for the current month of the current fiscal year.” He had told me last week that the checks to Iowa State University and the University of Iowa “were mailed on Monday, November 30.” I infer that only the September and October interest credits would have been on the form the IUB ran before the close of November, whereas Devin was looking at the fund balance during the first week of December–which would include interest credited to the account at the end of November.
$2,722.46 in interest credited to this fund since September 2014 (according to Devin) minus $144.50 (interest credited during September and October 2015) equals $2,577.96. That should be the amount of interest credited in November–higher than the previous month’s because of that time lag Devin mentioned. I assume that even though the IUB has disbursed to the universities the full Fund 0003 account balance as of November 30, thousands more dollars in interest will accrue to the fund over the next few months, reflecting the period from August through November, when more than $5.1 million was sitting in the account.
Tormey confirmed that the IUB will forward any additional interest funds to the energy centers. I will follow up in March or April 2016 to find out how much extra money each center received.
HOW THE MONEY REACHED THE ENERGY CENTERS
On the morning of December 2, Tormey confirmed that the IUB had released funds to the universities for the energy centers, but Iowa State University spokesperson John McCarroll indicated that ISU had not received the Iowa Energy Center’s funding yet. Confused, I asked Tormey to clarify when the funds had been disbursed, and he replied that checks went into the mail on November 30. On the afternoon of December 2, McCarroll confirmed that ISU had received a check for $4,375,689.08 in that day’s mail. According to University of Iowa spokesperson Jeneane Beck, a check from the IUB in the amount of $772,180.43 arrived in the mail on December 3.
I’ve never heard of such a large sum being sent through the mail, so I asked McCarroll whether that method of transfer was typical. He replied, “In recent years funds from the IUB have been transferred by wire to ISU.” Asked why the funds would have been mailed this year, he said, “We have no indication from the IUB why they chose this method.” When I asked about any special security measures taken with the check–such as sending by registered mail or certified mail with return receipt requested–McCarroll said, “The check arrived by regular post, not by registered mail.” Beck similarly confirmed that last year’s funding for CGRER came to the University of Iowa by wire transfer, not by check.
I turned to Tormey again for an explanation. “The Board determined that funds would be sent by warrant (or check) so that the sending entity and purpose of the funds would be clear to the recipients. The Board wanted affirmation that the warrants (checks) were issued and sent. […] Registered mail, or return receipt was not utilized.” That prompted me to ask whether anyone at the IUB had reason to think the purpose of the funds had not been clear in the past, when money was transferred by wire. On December 2, Tormey replied, “Historically, the University of Iowa has called the IUB Accounting team to ask why the University had received the funds.” He speculated that since the university is a “large entity,” the wire transfer “may have been difficult for the university to trace for this one time per year funding.”
It seems like a “heads up” e-mail or phone call to let university staff know money for the CGRER was on the way could prevent that problem without introducing the additional risks of sending money through the regular post. Then again, other factors could be in play. I sought comment from Deputy Treasurer Devin on whether it’s typical for transfers from state funds in the hundreds of thousands or millions of dollars to happen via electronic transfer rather than via a warrant (check on paper) sent through the mail. She replied,
The decision whether to make payments by warrant or electronic fund transfer (EFT) is made by the agency that controls the fund from which the payment is made. We see more and more payments are being made electronically by state agencies.
Asked to describe the pros and cons of transferring funds via a mailed warrant rather than electronic transfer, Devin responded,
Using warrants allows the state to keep the money invested until the warrant is redeemed; however this is not much of an advantage when interest rates are very low. Paying electronically is cheaper, faster, and safer. That said, warrants do have their place especially for one-time payments, for payees that do not want [to] supply their banking information, and for people that do not have bank accounts.
That’s what I figured–a wire transfer would be faster and safer than sending a large check in the mail, particularly if registered mail is not used. I asked Devin to describe the procedure for indicating the intended destination of money transferred electronically from a state fund to an entity such as a large university, to make sure funds don’t get lost in the shuffle or added to the wrong account at the university.
The description on all state EFTs is generic. The state accounting system does generate a paper advice which describes the payment that agencies can [send] to payees. In addition, payees can use the internet to access the state “Vendor Portal” to look up payments.
Knowing that context, I’m baffled the IUB opted to send money earmarked for the energy centers through the regular mail this year. But the money did arrive at both universities, so arguably, all’s well that ends well.
One more point may interest those following this saga. From the first day the public learned Huser had decided to withhold funding from the energy centers, messaging from the IUB has focused on allegedly inadequate audits and financial reports from the IEC at ISU. Yet funding for energy center at the University of Iowa was held up too, which got me wondering: was the IUB chair also dissatisfied with the financial reporting provided by the CGRER, or was it simply infeasible to disburse funds to one energy center without sending them to the other? I put that question to Tormey, who replied, “Regarding CGRER, the funds have always been released at the same time.”
I infer that the CGRER funding headache this fall was just “collateral damage” in Huser’s battle to assert more authority over the IEC. Though for what it’s worth, the IUB chair did request a detailed report from CGRER Executive Director Greg Carmichael on the same day she asked IEC Executive Director Mark Petri to do so, using virtually identical wording in her letters to the two directors. According to Tormey, the IUB has not scheduled a date to hear those presentations by Petri and Carmichael.
Any relevant comments are welcome in this thread.