October 19, 2004

#471

Joint Legislative Committee on PerformanceEvaluation and Expenditure Review (PEER)

Report tothe Mississippi Legislature

A Review of the Pearl River ValleyWater Supply District

The Pearl River Valley Water Supply District (PRVWSD) manages all aspects of theRoss Barnett Reservoir, including leasing of commercial and residential property andproviding recreational opportunities. PEER analyzed the district’s governance,authority, and responsibilities; how demands on the district have changed over time;and whether the district has exercised due diligence in managing its resources.

In 1985, the Hinds County Chancery Court issued an order requiring the districtto charge its residents additional fees (beyond their rental payments as lessees) forservices such as fire or police protection. Although circumstances that gave rise to theorder have changed and the number of residents and demand for services have greatlyincreased, the district’s board is limited by the court order in the types of services thatit can provide. Also, due to the composition of the district’s board and the method bywhich board members are appointed, the district is insulated from addressing residents’concerns and residents have a limited voice in the board’s decisionmaking processes.

Concerning management of the district’s resources, the PRVWSD’s Board ofDirectors has not exercised prudent stewardship of public funds because it:

• has approved expenditures of the district’s funds for items that may not benefitthe entire district or the public;

• has not fulfilled its responsibility as an employer to address the taxability of anemployee’s fringe benefits; and,

• does not have a policy limiting how often board members may be paid per diemand for what purposes.

Concerning the district’s process for developing the Lost Rabbit property, thePRVWSD Board of Directors’ lack of a policy restricting consultants from participating inor competing for development contracts creates an appearance that the process bywhich persons and firms compete for development contracts is not open andcompetitive.

PEER: The Mississippi Legislature’s Oversight Agency

The Mississippi Legislature created the Joint Legislative Committee onPerformance Evaluation and Expenditure Review (PEER Committee) by statute in 1973.A joint committee, the PEER Committee is composed of seven members of the House ofRepresentatives appointed by the Speaker and seven members of the Senate appointedby the Lieutenant Governor. Appointments are made for four-year terms with oneSenator and one Representative appointed from each of the U. S. CongressionalDistricts. Committee officers are elected by the membership with officers alternatingannually between the two houses. All Committee actions by statute require a majorityvote of four Representatives and four Senators voting in the affirmative.

Mississippi’s constitution gives the Legislature broad power to conductexaminations and investigations. PEER is authorized by law to review any public entity,including contractors supported in whole or in part by public funds, and to addressany issues that may require legislative action. PEER has statutory access to all stateand local records and has subpoena power to compel testimony or the production ofdocuments.

PEER provides a variety of services to the Legislature, including programevaluations, economy and efficiency reviews, financial audits, limited scopeevaluations, fiscal notes, special investigations, briefings to individual legislators,testimony, and other governmental research and assistance. The Committee identifiesinefficiency or ineffectiveness or a failure to accomplish legislative objectives, andmakes recommendations for redefinition, redirection, redistribution and/orrestructuring of Mississippi government. As directed by and subject to the priorapproval of the PEER Committee, the Committee’s professional staff executes audit andevaluation projects obtaining information and developing options for consideration bythe Committee. The PEER Committee releases reports to the Legislature, Governor,Lieutenant Governor, and the agency examined.

The Committee assigns top priority to written requests from individuallegislators and legislative committees. The Committee also considers PEER staffproposals and written requests from state officials and others.

PEER CommitteePost Office Box 1204Jackson, MS 39215-1204

(Tel.) 601-359-1226(Fax) 601-359-1420(Website) http://www.peer.state.ms.us

The Mississippi Legislature

Joint Committee on Performance Evaluation and Expenditure Review

PEER Committee

SENATORSLYNN POSEY

ChairMERLE FLOWERS

ROBERT (BUNKY) HUGGINSSAMPSON JACKSON

DEAN KIRBYEZELL LEE

RICHARD WHITE

TELEPHONE:(601) 359-1226

FAX:(601) 359-1457

Post Office Box 1204Jackson, Mississippi 39215-1204

www.peer.state.ms.us

Max K. Arinder, Ph.D.Executive Director

REPRESENTATIVESDIRK DEDEAUX

Vice ChairALYCE CLARKE

SecretaryWILLIE BAILEYJOEY HUDSONHARVEY MOSS

WALTER ROBINSONRAY ROGERS

OFFICES:Woolfolk Building

501 North West Street, Suite 301-AJackson, Mississippi 39201

October 19, 2004

Honorable Haley Barbour, GovernorHonorable Amy Tuck, Lieutenant GovernorHonorable Billy McCoy, Speaker of the HouseMembers of the Mississippi State Legislature

On October 19, 2004, the PEER Committee authorized release of the report entitled AReview of the Pearl River Valley Water Supply District.

Senator Lynn Posey, Chair

This report does not recommend increased funding or additional staff.

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PEER Report #471 iii

Table of Contents

Letter of Transmittal ........................................................................................................................ i

List of Exhibits ........................................................................................................................v

Executive Summary ..................................................................................................................... vii

Introduction ....................................................................................................................... 1

Authority ....................................................................................................................... 1Scope and Purpose.................................................................................................................... 1Method ....................................................................................................................... 1

Background ....................................................................................................................... 3

History and Description of the District ................................................................................ 3Composition of Board of Directors ....................................................................................... 4Authority and Responsibilities............................................................................................... 7Organization and Staffing..................................................................................................... 11Revenues and Expenditures.................................................................................................. 12

The District’s Accountability to Residents................................................................................... 15

Limits on the District’s Provision of Services to Residents ............................................ 15Residents’ Representation on the District’s Board of Directors .................................... 16Method of Appointing Members of the Board of Directors............................................ 17Terms of Office for Board Members.................................................................................... 18Lack of Performance Measure Reporting ........................................................................... 19

Limited Review of the District’s Expenditures ............................................................................ 21

Recent Renovations of the General Manager’s District-Owned Residence................................................................................................... 21Unnecessary Travel Expenditures........................................................................................ 22The Board’s Failure to Fulfill Its Responsibility as an Employer Regarding Taxability of Employee Benefits ..................................................................... 25Lack of a Policy Addressing Board Members’ Per Diem Payments................................ 34

The District’s Process for Developing the Lost Rabbit Property.............................................. 35

Initial Attempts to Develop Lost Rabbit Property ............................................................ 35Pursuing Development of Lost Rabbit as a Traditional Neighborhood Development ......................................................................... 35Chronology of Events............................................................................................................. 36The District’s Request for Proposals Process.................................................................... 38Relationship of the Consultant to the Firm Awarded the Contract.............................. 39Lack of a “Revolving Door” Policy ....................................................................................... 40

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Table of Contents (continued)

Recommendations ..................................................................................................................... 42

Appendix: Legal Analysis of the Taxability of the General Manager’s Use of theDistrict-Provided House and Vehicle..................................................................... 45

Agency Response ..................................................................................................................... 71

PEER Report #471 v

List of Exhibits

1. Location of Pearl River Valley Water Supply District andRoss Barnett Reservoir............................................................................................................. 5

2. PRVWSD Board of Directors (As of June 2004) ................................................................... 6

3. FY 2004 Organization Chart for Pearl River Valley Water Supply District .................. 13

4. PRVWSD’s Governmental Operations, FY 2000 through FY 2003: Revenues,Expenditures, and Cash Balances ........................................................................................ 14

5. Estimated Value of PRVWSD General Manager’sFY 2005 Compensation Package .......................................................................................... 26

6. Timeline of Events Regarding Hiring of Consultant andAwarding of Contract to The Neopolis Corporation forDevelopment of the Lost Rabbit Property.......................................................................... 37

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PEER Report #471 vii

A Review of the Pearl River ValleyWater Supply District

Executive Summary

Introduction

PEER analyzed the governance, authority, andresponsibilities of the Pearl River Valley Water SupplyDistrict (PRVWSD), how demands on the district havechanged over time, and whether the district has exerciseddue diligence in managing its resources. The reviewincluded analyses of accountability for the district’sresources, performance measurement, and contracting.The overall purpose was to identify areas for potentialimprovement in accountability systems and, wherenecessary, modification of law.

Background

The PRVWSD manages and controls the Ross BarnettReservoir, a forty-five-mile-long body of water nearJackson that widens to 3.5 miles at its broadest point andincludes 105 miles of shoreline. The district’s membercounties are Hinds, Madison, Rankin, Scott, and Leake.The district’s project area is defined as the physicallocation of the reservoir, dam, and related facilities andincludes an area of one-quarter mile from the shoreline ofthe reservoir at high water.

PRVWSD’s purposes include:

• providing a water supply for the City of Jackson and tothe district’s residents;

• maintaining the reservoir dam and monitoring waterquality;

• providing law enforcement patrol of the reservoir andits facilities;

• cooperating with other agencies to provide floodmitigation;

• managing over 12,400 acres of forest lands;

• leasing reservoir property for residential andcommercial development; and,

• providing recreational opportunities.

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The district’s fourteen-member board approves plans andprojects for the district. The board uses a committeesystem and a staff of 101 to manage its business.

The district is a special fund agency that does not receiveany state general funds. Its operations consist of bothgovernmental and business type operations. Thegovernmental operations, which encompass themanagement of the reservoir and district lands, are fundedprimarily though lease rentals (from residential andcommercial leaseholders), campground fees, and timbersales.

The District’s Accountability to Residents

The PRVWSD Board of Directors is limited in the types of services that it canprovide to residents by restrictions placed by the Hinds County Chancery Court in1985. Due to the composition of the district’s board and the method by whichboard members are appointed, the district is insulated from addressing residents’concerns and residents have a limited voice in the board’s decisionmakingprocesses. Also, the district does not require its divisions to report performancemeasurement data that could be used to set policy for the district and inform theresidents of progress toward measurable goals.

Limits on the District’s Provision of Services to Residents

In 1982, complainants in the case of Hinds County v. PearlRiver Valley Water Supply District objected to the district’sexpenditure of public funds derived from the City ofJackson and the district’s five member counties to financeservices to private residents leasing property from thedistrict. The court’s final order in 1985 required thedistrict to apply funds received from the ad valorem taxlevied on the district’s member counties solely to pay thecosts of the bonds issued for the reservoir. The orderprevents the district from providing services such aspolice and fire protection to residents unless residents paycharges or assessments other than their ordinary annuallease payments.

The bonds for the construction of the reservoir were paidin 1992 and the district no longer collects tax revenuefrom member counties. The number of residents living ondistrict property has grown to approximately 12,000 to15,000 people, resulting in a greater demand for servicesthan existed in 1982. However, under the confines of thecourt order, the board does not have an alternative toproviding services to the community other than to chargea fee for each additional service.

PEER Report #471 ix

Residents’ Representation on the District’s Board of Directors

Currently, the law provides for only one district residentto serve on the PRVWSD Board of Directors. While thedistrict’s board is accountable to all member counties ofthe district, those residents living near the reservoir aremore directly affected by the decisions of the board.However, there is little access to the decisionmakingprocess for those most affected by its outcome.

Method of Appointing Members of the Board of Directors

The process utilized to appoint members to the PRVWSDBoard of Directors allows only limited input fromresidents of the district. Under the current appointmentstructure, a resident aggrieved by the board’s actionscould petition the appointed membership or theirappointing authorities, but would not necessarily findamong these members a sufficient number of appointeeswho share similar interests regarding the needs of thereservoir’s residential community.

Terms of Office for Board Members

The district’s board members who are appointed bycounty boards of supervisors do not have clearly definedterms of office. This practice does not comply with statelaw, which sets terms of all officers not otherwiseprovided for in statute at four years. In the absence of aspecified term of appointment, board members can servefor extended periods without the county board ofsupervisors determining whether the appointee is servingin the best interest of the county.

Lack of Performance Measure Reporting

The district does not require its divisions to reportperformance measurement data that could be used to setpolicy for the district and inform the residents of progresstoward measurable goals. Although the district’s staffprovides reports to the board on a periodic basis to informthe board of the staff’s activity and service delivery, mostof the data provided to the board is descriptive and doesnot include analysis of how effective the district is inproviding programs and services.

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Limited Review of the District’s Expenditures

The PRVWSD Board of Directors has not exercised prudent stewardship of publicfunds because it:

• has approved expenditures of the district’s funds for items that may notbenefit the entire district or the public;

• has not fulfilled its responsibility as an employer to address the taxability ofan employee’s fringe benefits; and,

• does not have a policy limiting how often board members may be paid perdiem and for what purposes.

Recent Renovations of the General Manager’s District-OwnedResidence

Recent renovations of the General Manager’s district-owned house included $12,200 for ceramic and porcelaintile. The district also spent $925 for landscaping andhousehold items such as flower pots and a tape measure.

When public entities renovate public property, they shouldensure that renovation costs are reasonable and necessary.Residents of the PRVWSD might question whetherrenovations that include ceramic and porcelain tile at $17per square foot or purchasing landscaping and householditems (that should be the personal responsibility of theGeneral Manager) constitute reasonable and necessaryexpenditures of public funds.

Unnecessary Travel Expenditures

The district could have avoided at least $3,700 in travelexpenditures by requiring the General Manager to makemore economical choices regarding mode oftransportation and type of lodging for district businesstrips. This is money that could have been expended ondistrict projects that would benefit the entire district, itsresidents, and the public.

Failure to Fulfill Its Responsibility as an Employer RegardingTaxability of Employee Benefits

The Pearl River Valley Water Supply District provides itsGeneral Manager with a compensation package thatincludes use of a district-owned house, a vehicle, andutilities (including telephone, electricity, natural gas,garbage service, and lawn care). The PRVWSD’s General

PEER Report #471 xi

Manager’s estimated FY 2005 compensation package totals$136,228. Under Internal Revenue Service regulations,these benefits must meet certain tests in order to beexcluded from the individual’s taxable income.

Based on PEER’s interpretation of the Internal RevenueCode provisions and Treasury regulations, the housingthat PRVWSD provides to the General Manager does notmeet the tests set forth in 26 USC Section 119 to qualify asnon-taxable housing. Because PEER believes that the valueof the housing the district has provided to the GeneralManager is taxable and the district has not reported thisamount as income or withheld taxes on this amount, theGeneral Manager could be liable for unpaid taxes onunreported income and the district and General Managercould be subject to interest and penalties.

Also, based on PEER’s interpretation of Internal RevenueCode provisions and Treasury regulations, the vehicle thatPRVWSD provides to the General Manager does not qualifyas a non-personal use vehicle and would be a taxablefringe benefit under the Internal Revenue Code. BecausePEER believes that the value of the vehicle the district hasprovided to the General Manager is taxable and the districthas not reported this amount as income or withheld taxeson this amount, the General Manager could be liable forunpaid taxes on unreported income and the district andGeneral Manager could be subject to interest andpenalties.

Lack of a Policy Addressing Board Members’ Per Diem Payments

The district’s board does not have a policy addressing howoften the board and committees will meet and for whatpurposes. In addition to regularly scheduled and specialcalled meetings, members of the district’s board havemade frequent visits to the district’s office or property forwhich they have been paid per diem. As a result, thedistrict has incurred costs for per diem that might nothave been necessary, expending residents’ funds thatcould have been used to benefit the district’s residentsand the public.

The District’s Process for Developing the Lost Rabbit Property

The PRVWSD Board of Directors’ lack of a policy restricting consultants fromparticipating in or competing for development contracts creates an appearance thatthe process by which persons and firms compete for development contracts is notopen and competitive.

The Lost Rabbit property, approximately 260 acres locatedon the western shore of the reservoir in Madison County,is one of the few remaining large tracts of undevelopeddistrict land near the Jackson metro area. For many years

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the district received inquiries from developers interestedin the property as a residential development. The PRVWSDBoard decided not to develop the property as residential,but as an Executive Learning Center. 

After PRVWSD unsuccessfully attempted to develop theLost Rabbit property as an Executive Learning Center, theboard hired a consultant to acquire additional informationregarding the proposed project and to meet with localcollege representatives regarding their potentialinvolvement in developing the property as an ExecutiveLearning Center. The district later abandoned its initialdevelopment plan and pursued development of theproperty as a traditional neighborhood development.

The consultant hired by the district became involved withThe Neopolis Corporation, the firm ultimately selected bythe district to develop Lost Rabbit. While PEER is notcertain that the consultant used information obtainedwhile working for the district to assist Neopolis in thepreparation of its proposal, the possibility exists that suchoccurred. The PRVWSD Board did not have a policy inplace that would require that the district’s contractorsdisclose any interests they might have in developmentfirms or that they not become interested in any firm thatmight subsequently bid on matters that were the subjectsof the contractor’s work at PRVWSD.

Recommendations

1. In view of impending development opportunities, thePRVWSD should study its district-wide needs andreport to the Legislature and the PEER Committeehow it intends to improve both facilities and servicesused by residents of the district and the generalpublic. Considerations should include, but shouldnot be limited to, expanded services to residentssuch as garbage collection and mosquito control,improvements to recreational facilities, and otherinfrastructure the district would consider a prudentinvestment. Such report should be completed assoon as possible but no later than December 1, 2005.The Legislature should study the recommendationsand suggestions in the report and consider whetherto expand the district’s statutory authority to directadditional expenditures in these areas. In the eventthat the Legislature does not consider the proposalsto be prudent investments of resources, it shouldconsider requiring that all district revenue and fundbalances be deposited to the general fund of thestate, and that the PRVWSD operate as a general fundagency.

2. The Mississippi Legislature should amend MISS.CODE ANN. Section 51-9-1 (1972) concerning the

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Pearl River Industrial Commission to require that thethree names submitted by the board of supervisorsto the Governor be the names of persons who resideon and are holders of residential leases fromPRVWSD in Madison County. This would provideadditional representation for residents of thedistrict.

3. The Pearl River Valley Water Supply District shouldcreate and utilize an advisory board comprised ofdistrict residents. The board could includerepresentatives of homeowners’ associations fromneighborhoods located on district property. Theadvisory board could provide resident input tocommittees of the board of directors regardingdistrict development and other key issues affectingresidents.

4. The Legislature should amend MISS. CODE ANN.Section 51-9-107 (1972) to require that appointees ofthe boards of supervisors shall hold terms for fouryears.

5. The PRVWSD Board of Directors should require otherdivisions to follow the lead of the Parks andRecreation Division by reporting measures ofperformance and progress toward measurable goals.Program performance measures should demonstratewhat the service outputs are, what the expectedquality levels are for these outputs, and whatproductivity is expected from expended staffresources and funds.

6. In the future, when making improvements to district-owned residences, the PRVWSD should only expendfunds for fixtures.

7. The PRVWSD should review its practice of providingthe General Manager with both a vehicle andreimbursement for mileage and should provide onlythe most economical mode of transportation.

8. The PRVWSD should immediately begin reporting tothe Internal Revenue Service and the State TaxCommission all of the General Manager’s taxablecompensation as income and make appropriatewithholdings for income tax and FICA.

9. The PRVWSD Board of Directors should adopt apolicy restricting payment of per diem of boardmembers to attending regular and special calledmeetings or for services rendered by individuals foractivities that have been approved by the board as awhole.

10. The PRVWSD Board of Directors should refrain fromworking exclusively with one developer prior topublic advertisement of a request for proposals for

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the lease of district property or from developing anRFP incorporating the proposal of a specificdeveloper. The board should take steps including,but not limited to, openly advertising for developersor contacting multiple developers to whom the boardcan communicate its proposed vision for the use of aspecific parcel of property. The district shouldadvertise an RFP that is specific to the board’s visionfor the use of the property, but that does not favorone developer.

11. To safeguard against appearances of impropriety, thePRVWSD Board of Directors should establish a policyrequiring that its consultants disclose any intereststhey might have in development firms and furtherrequire that contractors agree not to becomeinterested in any firm that may subsequently bid onany matters that were the subjects of thecontractor’s work.

For More Information or Clarification, Contact:

PEER CommitteeP.O. Box 1204

Jackson, MS 39215-1204(601) 359-1226

http://www.peer.state.ms.us

Senator Lynn Posey, ChairUnion Church, MS 601-786-6339

Representative Dirk Dedeaux, Vice ChairGulfport, MS 228-255-6171

Representative Alyce Clarke, SecretaryJackson, MS 601-354-5453

PEER Report #471 1

A Review of the Pearl River ValleyWater Supply District

Introduction

Authority

The PEER Committee reviewed the Pearl River Valley WaterSupply District (PRVWSD). PEER conducted the reviewpursuant to the authority granted by MISS. CODE ANN.Section 5-3-57 et seq. (1972). This review is a “cyclereview,” which is not driven by specific complaints orallegations of misconduct.

Scope and Purpose

In conducting this review, PEER analyzed the governance,authority, and responsibilities of the PRVWSD, howdemands on the district have changed over time, andwhether the district has exercised due diligence inmanaging its resources. The review included analyses ofaccountability for the district’s resources, performancemeasurement, and contracting. The overall purpose wasto identify areas for potential improvement inaccountability systems and, where necessary, modificationof law.

Method

In conducting this review, PEER:

• reviewed state laws regarding PRVWSD and otherrelevant state laws and the board’s rules, regulations,policies, and procedures;

• reviewed certain provisions of the Internal RevenueCode and U. S. Treasury regulations;

• reviewed meeting minutes of the district’s board andits committees;

• interviewed the district’s board members andpersonnel;

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• interviewed U. S. Army Corps of Engineers personnel;

• surveyed area municipal and private water suppliersand the Mississippi Rural Water Association;

• interviewed personnel of the Mississippi Departmentof Environmental Quality’s Office of Pollution Control;

• interviewed personnel of the Mississippi Departmentof Health’s Division of Water Supply; and,

• analyzed the district’s records and financialinformation.

PEER Report #471 3

Background

History and Description of the District

In 1956, the Pearl River Industrial Commission, as definedin MISS. CODE ANN. Section 51-9-5 et seq. (1972), wasauthorized to:

. . .(survey) the region bordering the Pearl River, toinvestigate the possibilities of developing such areasfrom an industrial, irrigational, and recreationalstandpoint, to attract new industries, and toconserve available water for irrigational andindustrial purposes.

As directed in statute, the commission conducted apreliminary study to determine the feasibility ofconstructing a dam and reservoir in the basin of the PearlRiver.

Following the study, the commission, acting under thelegislative mandate of MISS. CODE ANN. Section 51-9-109through 51-9-119 (1972), petitioned the Chancery Courtfor the First Judicial District of Hinds County to organizeand establish the district in accordance with the provisionsof Chapter 197, Laws of 1958. This process was part of acomprehensive plan established by the Legislature fordetermining whether a need existed for creating a districtand empowering such to acquire the necessary land toestablish the reservoir. The court, after giving notice andjoining as parties the State Board of Water Commissionersand the boards of supervisors within the proposed district,as required by statute, heard evidence of the feasibility ofthe project and the public necessity for the project.Following a finding of public necessity, the court thenordered elections in each county within the proposeddistrict to allow the electorate the opportunity to approveor disapprove membership in the district. Ultimately, thecounties of Hinds, Madison, Rankin, Scott, and Leake optedto become members of the district. Thereby, the districtwas created in accordance with law.

Following its creation, the district was empowered toimpound the river and acquire land through negotiation orcondemnation necessary to carry out the legislativepurposes set out in the above-cited act.

Completed in 1965, the forty-five-mile-long Ross BarnettReservoir widens to 3.5 miles at its broadest point andincludes 105 miles of shoreline. The district’s project areais defined as the physical location of the reservoir, dam,

Hinds, Madison,Rankin, Scott, andLeake counties optedto become members ofthe Pearl River ValleyWater Supply District.

The reservoir is 45miles long, 3.5 mileswide at its broadestpoint, and includes105 miles of shoreline.

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and related facilities and includes an area within one milefrom the shoreline of the reservoir at high water. Exhibit1, page 5, shows a map of the district and the reservoir.

Currently the district provides a variety of services toresidents of the district, the City of Jackson, and thegeneral public, such as:

• provides a water supply for the City of Jackson and todistrict residents;

• maintains the reservoir dam and monitors waterquality;

• provides law enforcement patrol of the reservoir andits facilities;

• cooperates with other agencies to provide floodmitigation;

• manages over 12,400 acres of forest lands;

• leases reservoir property for residential andcommercial development; and,

• provides recreational opportunities.

Composition of Board of Directors

A board of directors approves plans and projects for thePearl River Valley Water Supply District. (See Exhibit 2,page 6, for a list of the current members of the district’sboard, their representation, and date of appointment.)

The board members represent the five counties that thedistrict serves in central Mississippi and four stateagencies. MISS. CODE ANN. Section 51-9-107 (1972)requires that the fourteen-member board be composed ofthe following:

• five members appointed by district member counties’boards of supervisors (Hinds, Leake, Madison, Rankin,and Scott counties each have one member);

• four members, one from each of the following stateagencies: Department of Environmental Quality;Forestry Commission; Department of Health; andDepartment of Wildlife, Fisheries, and Parks; and,

• five members of the Pearl River Industrial Commission,one from each of the five counties within the district.1

1 Members of the Pearl River Industrial Commission are appointed by the Governor from a list ofnominees submitted by the board of supervisors of each county. According to MISS. CODE ANN.Section 51-9-1 (1972), nominees submitted by Rankin County must reside on or hold a residentiallease from the district. Any member of the commission who represents a county that is a memberof the district also serves on the district’s board.

The district’s boardmembers representthe five counties thatthe district serves andfour state agencies.

PEER Report #471 5

Exhibit 1: Location of Pearl River Valley Water Supply District andRoss Barnett Reservoir

SOURCE: PRVWSD

The district’s board uses a committee system to manageits business, utilizing the following primary committees:

• Shoreline Development--manages issues related toresidential and commercial development on districtproperty;

• Parks Policy–-discusses issues related to the district’srecreation facilities and programs;

• Audit Committee--meets quarterly to review thedistrict’s finances; also sets fees and meets withauditors regarding annual audit; and,

• Executive--manages issues related to policy andprocedure of the board, staff, etc.

PEARL RIVER

6 PEER Report #471

Exhibit 2: PRVWSD Board of Directors (As of June 2004)

Board Member Representation Appointed By Date ofAppointment

Jim Carraway Rankin County Board of Supervisors April 2004Walter Crapps Scott County Board of Supervisors August 2000Phillip Crosby Leake County Board of Supervisors November 2003Samuel Mitchell Hinds County Board of Supervisors May 2004Charles Porter Madison County Board of Supervisors January 2004Billy Cook Pearl River Industrial

Commission (LeakeCounty)

Governor February 2001

W. C. Gorden Pearl River IndustrialCommission (HindsCounty)

Governor February 2001

Gene McGee Pearl River IndustrialCommission(Madison County)

Governor May 1996

Vernard Murrell Pearl River IndustrialCommission (ScottCounty)

Governor May 1992

Bill Stevens Pearl River IndustrialCommission (RankinCounty)

Governor March 1992

Stephen Adcock Department ofWildlife, Fisheries,and Parks

Executive Director(approved by Commissionon Wildlife, Fisheries, andParks)

September 2001

Charles Chisolm Department ofEnvironmentalQuality

Commission onEnvironmental Quality

May 2002

James Sledge, Jr. ForestryCommission

Forestry Commission September 1991

Mary Kim Smith Department ofHealth

Board of Health August 1999

SOURCE: PRVWSD

Typically, issues up for approval or consideration by theboard are presented to an appropriate committee forinitial discussion. The committee then makes arecommendation to the full board if it sees fit to do so.All business approved in committee is presented to thefull board for approval.

The Shoreline Development and Parks Policy committeeshandle the bulk of the work of the board and meet on amonthly basis. Other committees meet on an as-neededbasis.

PEER Report #471 7

Authority and Responsibilities

Statutory Powers and Purposes

MISS. CODE ANN. Section 51-9-103 (1972) defines thelegislative determination and declaration of policy for thedistrict:

It is hereby declared, as a matter oflegislative determination, that thewaterways and surface waters of the stateare among its basic resources, that theoverflow and surface waters of the statehave not heretofore been conserved torealize their full beneficial use, that thepreservation, conservation, storage, andcontrol of such waters are necessary toinsure an adequate, sanitary water supply atall times, to promote the balanced economicdevelopment of the state, and to aid in floodcontrol, conservation and development ofstate forests, irrigation of lands needingirrigation, and pollution abatement. It isfurther determined and declared that thepreservation, conservation, storage, andcontrol of the waters of the Pearl River andits tributaries and its overflow waters fordomestic, municipal, commercial, industrial,agricultural, and manufacturing purposes,for recreational uses, for flood control,timber development, irrigation, andpollution abatement are, as a matter ofpublic policy, for the general welfare of theentire people of the state.

Also, although not part of its original enabling legislation,the district received law enforcement authority from theLegislature in 1978 (MISS. CODE ANN. Section 51-9-175[1972]).

The following sections provide an overview of each ofthese powers and purposes.

Providing a Water Supply

The district is responsible for managing the Ross BarnettReservoir as a primary water supply source for thedistrict’s property and the City of Jackson. In order toensure the viability of the reservoir as a water supply, thedistrict maintains the reservoir dam and monitors waterquality in cooperation with the Department ofEnvironmental Quality and the Department of Health. Thedistrict operates four water distribution and wastewatercollection systems in Rankin and Madison counties. The

The district operatesfour water distributionand wastewatercollection systems inRankin and Madisoncounties.

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systems include eleven water supply wells, six storagetanks, sewer lift stations and water distribution andwastewater collection lines.

Managing Forestlands

The district has a Timber Management and MarketingAgreement with the Forestry Commission, through whichthe commission is vested with general supervision of allforested land. (MISS. CODE ANN. Section 49-19-3 [1972]mandates that the Mississippi Forestry Commissionmanage all state-owned forestland.) Through a joint effortwith the Forestry Commission, the district has developed acomprehensive Forest Resource Management Plan thataddresses management of over 12,400 acres of forestedland in Leake, Madison, Rankin, and Scott counties. In theplan, the Forestry Commission and the district consideredfactors such as water quality protection, wildlifeenhancement, outdoor recreation, and timber productionand scheduled activities designed to improve the district’sforestlands.

Providing Recreational Opportunities

The district operates eleven major recreation areas--sixparks and five campgrounds--located throughout thedistrict. Additional district recreation facilities includeboat launches, fishing piers, marinas, and a system ofwalking and biking trails. These facilities are generallydesigned to complement and provide access to thereservoir, which provides recreation to users from a largeservice area, in addition to those residents who live andwork in the immediate reservoir area.

The five campground areas--Coal Bluff, Goshen Springs,Timberlake, Leake County, and Low Head Dam--offerrecreational vehicle sites providing water, electricity, andsewer service and feature amenities such as swimmingpools, playgrounds, comfort stations, and laundryfacilities. The district has also developed six major parks:Brown’s Landing, Coal Bluff, Leake County Water Park,Lakeshore, Old Trace, and Pelahatchie Shore. These parksprovide picnic tables, grills, pavilions, playground areas,boat ramps, and comfort stations.

The district estimates that 2.5 million visitors utilize thereservoir and the district’s recreational facilities each year.The district has developed a Recreation Master Plan toaddress the recreation needs of the district area and thepopulation groups utilizing its recreation facilities. Thedistrict is using the plan to guide the growth and furtherdevelopment of recreation facilities.

The district hasdeveloped acomprehensive ForestResource ManagementPlan that addressesmanagement of over12,400 acres offorested land.

The district operatessix parks and fivecampgrounds, boatlaunches, fishing piers,marinas, and a systemof walking and bikingtrails.

The district estimatesthat 2.5 million visitorsutilize the reservoirand the district’srecreational facilitieseach year.

PEER Report #471 9

Utilizing Flood Mitigation Practices

Although MISS. CODE ANN. Section 51-9-121 (1972)empowers the district “to prevent or aid in the preventionof damage to person or property from the waters of thePearl River or any of its tributaries,” the Ross BarnettReservoir was not designed for flood control (see ConflictsAmong the District’s Purposes, page 10). Therefore,PRVWSD utilizes flood mitigation practices to reduceflooding downstream from the reservoir. PRVWSD partnerswith the United States Army Corps of Engineers, UnitedStates Geological Service, and the National Weather Serviceto monitor rainfall and water levels using a computermodel. The district utilizes information gathered fromdevices measuring rainfall and stream levels that thecomputer model analyzes to predict the inflow of waterinto the reservoir. The computer model allows PRVWSDstaff to determine whether the floodgates need to beopened or closed to ensure the proper water level at thereservoir.

The main obstacle that limits the reservoir’s use in floodcontrol is that the reservoir drainage area is much largerthan its storage area. The reservoir is only able to storeone inch of rainfall runoff before it reaches its maximumstorage level. Although the district periodically lowerswater levels to account for increases due to winter andspring rains, the district chooses not to lower water levelssignificantly because of the potential effect on residentialand commercial property and the negative impact onrecreational uses.

Promoting Economic Development

The district promotes economic development within thefive-county area primarily through leasing property forresidential or commercial development. To establish acontinuing revenue flow after discontinuance of advalorem taxes and to satisfy an agreement with the City ofJackson, the district began shoreline development andleasing of lands in 1964, when the district first leased landfor a private yacht club and two separate marina sites.The district began leasing land for shoreline residentialareas during 1965, with the first offerings being individualhome lots. Until 1979 the district handled thedevelopment aspects of the leases, such as the division ofparcels and installing utilities, streets, and otherinfrastructure. In 1979 the district began leasing tracts ofland, rather than individual residential lots, to private landdevelopers.

The Ross BarnettReservoir was notdesigned for floodcontrol, but utilizesflood mitigationpractices to reduceflooding downstream.

The district choosesnot to lower waterlevels significantlybecause of thepotential effect onresidential andcommercial propertyand the negativeimpact on recreationaluses.

The district promoteseconomic developmentwithin the five-countyarea primarily throughleasing property forresidential orcommercialdevelopment.

10 PEER Report #471

Enforcing Laws

As noted above, although law enforcement responsibilitieswere not included in the creation of the district, theLegislature authorized law enforcement through the PearlRiver Valley Water Supply District Reservoir Patrol OfficerLaw in 1978. MISS. CODE ANN. Section 51-9-175 (1972)empowers the district to appoint and commissionreservoir patrol officers who must meet all educationaland training requirements of the Mississippi LawEnforcement Officers’ Training Academy.

Reservoir patrol officers have the authority to enforce allmunicipal, county, district, and state laws on the district’sproperty. The primary function for the reservoir patrol isto provide law enforcement protection for district-operated recreation facilities, which include campgrounds,parks, boat launches, and fishing areas.

The reservoir patrol cooperates with local law enforcementagencies to provide law enforcement services on districtproperty. On commercial and residential leased property,counties and municipalities have jurisdictional preference.However, local law enforcement agencies defer to thereservoir patrol to respond to calls for service as needed.Patrol officers are also responsible for patrolling the RossBarnett Reservoir and work closely with the Department ofWildlife, Fisheries, and Parks to enforce boating andfishing regulations.

Conflicts Among the District’s Purposes

An issue that the district has faced in years since itscreation is the fact that its enabling legislation (Title 51,Chapter 9 of the MISSISSIPPI CODE) lists flood control asone of its multiple purposes (see Statutory Powers andPurposes, page 7). However, engineering documents forthe design and construction of the reservoir did notincorporate this directive and state that the reservoir wasbuilt for recreation and as a water supply source (two ofits other statutory purposes). Thus the reservoir was notdesigned for flood control.

The chief obstacle that limits the reservoir’s use in floodcontrol is that the reservoir drainage area is much largerthan its storage area. The district has chosen to maintainthe reservoir at 296 feet above sea level, which was thelevel specified in the original design. Maximum capacityfor the reservoir is 300 feet above sea level. The reservoiris only able to store one inch of rainfall runoff before itreaches its maximum storage level.

Over the years, due to increased residential andcommercial development and limitations with floodcontrol capabilities, PRVWSD has focused on recreational

The primary functionfor the reservoir patrolis to provide lawenforcementprotection for district-operated recreationfacilities.

The reservoir is onlyable to store one inchof rainfall runoffbefore it reaches itsmaximum storagelevel.

PEER Report #471 11

and water supply uses rather than flood control. Yet floodcontrol is a factor in the district’s residential, commercial,and recreational development because of how theseproperties are affected by the reservoir’s water level.Although the district periodically lowers the reservoir’swater levels to account for seasonal rains, the districtchooses not to lower water levels significantly because ofthe potential effect on residential and commercialproperty, and recreational uses. Yet heavy rains canquickly flood shoreline areas because of the reservoir’slimited storage capacity.

Because of the growth in residential and commercialdevelopment on the district’s property, the reservoir areais now a highly desirable residential and commerciallocation in the Jackson metro area. While residential andcommercial development of district property affects theamount of land available for forestlands and recreationalfacilities, it most significantly impacts the optionsavailable to utilize the reservoir for flood mitigation, dueto the district’s decision to maintain the water level at 296feet above sea level.

Organization and Staffing

The district accomplishes its responsibilities through anappointed General Manager who is responsible for thedistrict’s personnel. The General Manager oversees anadministrative assistant and ninety-nine other employeesin four divisions:

• The District Engineer Division is responsible for forestmanagement, water and sewer operations, buildinginspection, spillway control tower operation, andconstruction and maintenance functions. The DistrictEngineer Division staff consists of forty-threeemployees.

• The Parks and Recreation Division consists of parksoperations and horticulture and grounds management.The division, under the supervision of the ParksAdministrator, is responsible for the management ofthe district’s recreational facilities, wildlifepreservation efforts, landscaping, and general groundsbeautification. This division includes thirty-sevenemployees.

• The Reservoir Patrol Division is in charge of lawenforcement on the district’s property. The divisioncooperates with state and local law enforcementagencies in providing law enforcement and protectionservices. Eleven employees make up this division.

• The Bureau of Finance and Personnel is responsible forall financial and staffing functions for the district. Thedivision’s eight employees manage the district’s leases,

Flood control is afactor in the district’sresidential,commercial, andrecreationaldevelopment becauseof how theseproperties are affectedby the reservoir’swater level.

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lease changes, water payments, and plan and managethe district’s budget.

Exhibit 3, page 13, shows the current staff organization ofthe Pearl River Valley Water Supply District.

Revenues and Expenditures

The Pearl River Valley Water Supply District is a specialfund agency that does not receive any state general funds.The district’s operations consist of governmental andbusiness type operations.

The governmental operations are funded primarily thoughlease rentals (from residential and commercialleaseholders), campground fees, and timber sales (seeExhibit 4, page 14). The governmental operationsencompass the management of the reservoir and districtlands.

The district’s business type operations are primarilyfunded through water sales and sewer charges and relateto the operation and maintenance of the water and sewersystems.

The Pearl River ValleyWater Supply Districtis a special fundagency that does notreceive any stategeneral funds.

PEER Report #471 13

Exhibit 3: FY 2004 Organization Chart for Pearl River Valley WaterSupply District

General Manager

DistrictEngineer

Administrative Assistant

ReservoirPatrol

Finance &Personnel

Parks & Recreation

ForestManagement

EngineeringTech

BuildingInspection

Water &Sewer

Operations

SpillwayControl Tower

Operations

Construction/Maintenance

Personnel

Accounting &Purchasing

Data Processing &Network Admin

Campgrounds& Recreational

Facilities

Horticulture& Grounds

Maintenance

Board of Directors

SOURCE: PRVWSD

14 PEER Report #471

Exhibit 4: PRVWSD’s Governmental Operations, FY 2000 through FY2003: Revenues, Expenditures, and Cash Balances †

Category FY 2000 FY 2001 FY 2002 FY 2003RevenuesLease Rentals $2,696,504 $2,719,677 $2,888,810 $2,944,382CampgroundFees 967,063 1,042,597 1,161,497 1,160,940Other* 502,444 486,484 1,011,824^ 1,293,450^^

Total Revenues $4,166,011 $4,248,758 $5,062,131 $5,398,772

ExpendituresSalaries, Wages,Fringe Benefits $2,103,859 $2,171,153 $2,329,060 $2,561,484ContractualServices 1,237,080 1,455,862 1,633,076 1,844,083Other** 515,793 428,037 432,452 1,608,142#

Total TransfersandExpenditures $3,856,732 $4,055,052 $4,394,588 $6,013,709

RevenuesOver/(Under)Expenditures $309,279 $193,706 $667,543 ($614,937)

Fiscal Year-EndCash Balance# # $1,148,331 $1,111,379 $1,653,387 $1,256,855

† Excludes capital projects, debt service, and interfund transfers.* Includes timber sales, interest on investments, building permit fees, and recording fees.** Includes travel, commodities, and equipment.^ Includes $460,000 for land sold to Rankin County Schools for an elementary school buildingsite.^^ Includes $502,536 in proceeds from timber sales.# Increase was due to equipment purchases and special projects.# # Cash balances as reported on the district’s audited financial statements. Cash balance will notreconcile to the difference in revenues and expenditures due to accounting considerations.

SOURCE: PEER analysis of PRVWSD’s audited financial statements.

PEER Report #471 15

The District’s Accountability to Residents

The PRVWSD Board of Directors is limited in the types of services that it canprovide to residents by restrictions placed by the Hinds County Chancery Court in1985. Due to the composition of the district’s board and the method by whichboard members are appointed, the district is insulated from addressing residents’concerns and residents have a limited voice in the board’s decisionmakingprocesses. Also, the district does not require its divisions to report performancemeasurement data that could be used to set policy for the district and inform theresidents of progress toward measurable goals.

As a government entity, the Pearl River Valley WaterSupply District was created to provide a range of servicesto those counties included in the district. The district hasevolved into a distinct community functioning similarly toa municipality. However, the district has not been heldaccountable to a constituency.

Limits on the District’s Provision of Services to Residents

The PRVWSD Board of Directors is limited in the types of services that it canprovide to residents by restrictions placed by the Hinds County ChanceryCourt in 1985.

Operating under a final judgment issued by the HindsCounty Chancery Court, the district is limited in how it canprovide services to residents. Complainants in the case ofHinds County v. Pearl River Valley Water Supply Districtobjected to the district’s expenditure of public fundsderived from the City of Jackson and the district’s fivemember counties to finance services to private residentsleasing property from the district.

At the time of the case (1982), approximately 5,000residents were living on district property in subdivisionslocated in Rankin County and the district was providing awide range of services to these residents. To fund theseservices, the district was subsidizing water and sewerexpenses, constructing roads, providing trash collection,and providing police and fire protection services with apercentage of revenues derived from taxes collected to paythe bond debt associated with constructing the reservoir.The Hinds County Chancery Court found this practice tobe in violation of MISS. CODE ANN. Section 51-9-131(1972), requiring the district to apply the funds receivedfrom the two mill ad valorem tax levied on the district’smember counties solely to pay the principal, interest, andother costs of the bonds issued.

Complainants in thecase of Hinds Countyv. Pearl River ValleyWater Supply Districtobjected to thedistrict’s expenditureof public fundsderived from the Cityof Jackson and thedistrict’s five membercounties to financeservices to privateresidents leasingproperty from thedistrict.

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The final judgment in 1985 ordered the district to developand implement an accounting and budgetary system thatidentified all direct and indirect costs incurred by thedistrict in providing services to the lessees. The order alsostated that the district should terminate any services toresidential and commercial leaseholders unless the districthad implemented a method by which it could recover anddefray all costs associated with services that had beenpreviously provided such as police and fire protection,garbage collection, and road construction. The districtwas directed to recover associated costs through chargesor assessments to be paid by its residents, other than theirordinary annual lease payments, or from contributionsfrom other political subdivisions, not to include proceedsfrom any tax levy required by MISS. CODE ANN. Section51-9-131 or Section 51-9-139 (1972). The order preventsthe district from providing services such as police and fireprotection to residents at no additional cost above rentalpayments made by lessees to the district.

The bonds for the construction of the reservoir were paidin 1992 and the district no longer collects tax revenuefrom Hinds, Leake, Madison, Rankin, and Scott counties.Based on these facts, the original condition that waspresent when the suit was filed has changed. Currently,lease payments and payments for water services are theprimary sources of revenue for the district, funding allstatutorily directed activities (see Statutory Powers andPurposes, page 7).

The number of residents living on district property hasgrown to approximately 12,000 to 15,000 people, resultingin an established community and a greater demand forservices than existed in 1982. Under the current confinesof the court order, the board does not have an alternativeto providing services to the community other than tocharge a fee for each additional service.

Residents’ Representation on the District’s Board of Directors

The law provides for only one district resident to serve on the PRVWSDBoard of Directors.

The district’s property that is leased for commercial andresidential development is located in Madison and Rankincounties. There are approximately 5,000 residential andcommercial leaseholders located in these counties, with12,000 to 15,000 residents living on district property.While the board has fourteen members, MISS. CODE ANN.Section 51-9-1 (1972) requires that one Rankin Countyappointee be a leaseholder of or reside on the district’sproperty.

The court orderrequired the district toapply the fundsreceived from the twomill ad valorem taxlevied on the district’smember countiessolely to pay theprincipal, interest, andother costs of thebonds issued toconstruct thereservoir.

The bonds for theconstruction of thereservoir were paid in1992 and the districtno longer collects taxrevenue from thecounties.

Due to thecomposition of thePRVWSD Board ofDirectors, the Madisonand Rankin areas (withapproximately 12,000-15,000 residents) havea limited voice in theactions of the board.

PEER Report #471 17

While the district’s board of directors is accountable to allmember counties of the district, those residents livingnear the reservoir are more directly affected by thedecisions of the board. As a result of the district’sdevelopment strategy, the district has, in effect, created aunique community functioning similarly to anincorporated municipality. However, due to thecomposition of the board of directors, that community hasa severely limited voice in the actions of the board. Thereis little access to the decisionmaking process for thosemost affected by its outcome.

Method of Appointing Members of the Board of Directors

The process utilized to appoint members to the PRVWSD Board of Directorsallows only limited input from residents of the district.

As noted on page 4, MISS. CODE ANN. Section 51-9-107(1972) requires that the fourteen members of the district’sboard be appointed as follows:

• five members are appointed by county boards ofsupervisors (one member each from Hinds, Leake,Madison, Rankin, and Scott counties);

• four members are appointed by the governing boardsor executive director of the following state agencies:Department of Environmental Quality; ForestryCommission; Department of Health; and Departmentof Wildlife, Fisheries, and Parks; and,

• five members are the members of the Pearl RiverIndustrial Commission that represent the five countieswithin the district. Members of the Pearl RiverIndustrial Commission are appointed by the Governorfrom a list of nominees submitted by the board ofsupervisors of each county.

This membership structure, while technically accountableto the appointing authorities, may not be attuned to theconcerns of a growing constituency--the persons whoreside at the reservoir. Appointees who are not residentsof the district may not share the same concerns aboutdevelopment, traffic, safety, and other public concerns aswould individuals who reside within the boundaries of thedistrict.

Under the current appointment structure, a residentaggrieved by the board’s actions could petition theappointed membership or their appointing authorities, butwould not necessarily find among these members asufficient number of appointees who share similarinterests regarding the needs of the reservoir’s residentialcommunity.

Appointees who arenot residents of thedistrict may not sharethe same concernsabout development,traffic, and safety aswould individuals whoreside within theboundaries of thedistrict.

18 PEER Report #471

Although the district’s lease payments from residentscomprise a significant portion of its operating budget, theboard’s current structure limits the voice of residents inthe district’s operations and in decisions that directlyaffect residents’ quality of life.

Terms of Office for Board Members

The district’s board members who are appointed by county boards ofsupervisors do not have clearly defined terms of office. This practice doesnot comply with state law, which sets terms of all officers not otherwiseprovided for in statute at four years.

MISS. CODE ANN. Section 51-9-107 (1972), which specifiesthe composition and method of appointment of thePRVWSD Board’s membership, does not specify terms ofoffice for board members. The district’s practice has beenthat members appointed by the boards of supervisors haveserved at the will and pleasure of the respective board ofsupervisors, with no set term of office. However, thispractice does not comply with the state constitution orwith other provisions in the MISSISSIPPI CODE.

Section 20 of the MISSISSIPPI CONSTITUTION requireselected or appointed officials to serve for some specifiedperiod:

No person shall be elected or appointed tooffice in this state for life or during goodbehavior, but the term of all officers shall befor some specified period.

Additionally, MISS. CODE ANN. Section 25-1-1 (1972)provides that the term of office of all officers nototherwise provided for by law shall be four years and untila successor shall be duly qualified.

In the absence of a specified term of appointment,appointing authorities may fail to reevaluate appointeesand the service they are providing to the constituencyrepresented. This practice could result in board membersserving for extended periods without the county board ofsupervisors determining whether the appointee is servingin the best interest of the county. Also, under a definedterm of office, members might feel freer to actindependently to fulfill their duties without the prospectof arbitrary removal.

In the case of the PRVWSD Board, Hinds County appointeda board member in 1979 who continued to serve on theboard until May 2004. According to minutes of the HindsCounty Board of Supervisors, the board of supervisors hadnot brought up the board member’s reappointment forconsideration. By not reconsidering the board member’s

In the absence of aspecified term ofappointment,appointing authoritiesmay fail to reevaluateappointees and theservice they areproviding to theconstituencyrepresented.

PEER Report #471 19

appointment, an evaluation of the board member’s servicewas never addressed by the county. It should also benoted that failing to officially reappoint the board memberor reconsider the appointment prevented input of countyofficials that came into office due to turnover on the HindsCounty Board of Supervisors over the approximatelytwenty-five years since initial appointment.

Lack of Performance Measure Reporting

The district does not require its divisions to report performancemeasurement data that could be used to set policy for the district andinform the residents of progress toward measurable goals.

Although the district’s staff provides reports to the boardon a periodic basis to inform the board of the staff’sactivity and service delivery, most of the data provided tothe board is descriptive and does not include analysis ofhow effective the district is in providing programs andservices. For example, the Reservoir Patrol Divisionsubmits a monthly activity report to the board thatincludes a summary of general activity, the number ofhouseboat inspections, a list of crimes reported, and a listof tickets issued by patrol officers. These reports do notprovide any analysis of increases or decreases in activity,arrests, citations, or inspections over a given period, nordo they measure the level of patrol activity compared tothe previous year or quarter.

The exception to this type of reporting is a recentdocument prepared by the district’s Parks and RecreationDivision. For Fiscal Year 2004, the division completed acomprehensive performance report to the boardaddressing campground user fee revenues, campgroundoccupancy levels, and user survey data. The reportprovides analysis of collected data, tracking revenues andoccupancy over time and in comparison to performance inprevious years. This type of analysis could be useful inevaluating the use of district recreational facilities and indetermining where needs for expanded service exist, aswell as what facilities and programs are not being utilized.The survey data analyzed by staff also expresses to theboard the priorities and interests of facility users.

Performance measurement of a program should be basedon the relationship between program inputs, outputs,efficiency, and effectiveness. Program success isdelivering enough output of service at a sufficient level ofquality, with quality defined as responsiveness, timeliness,service availability, customer satisfaction, and absence oferror. Program performance measures shoulddemonstrate what the service outputs are, what theexpected quality levels are for these outputs, and whatproductivity is expected from expended staff resourcesand dollars. Well-designed performance measures would

By requiring the staffto utilize datacollected related towater service, leasemanagement, andreservoir patrol, thedistrict could measurehow effectively it isproviding services tocustomers andresidents.

20 PEER Report #471

also show whether continuous improvement is being madein terms of efficiency and effectiveness.

Although the district currently submits performanceindicators and measures to the Legislature as part of thebudget request process, the staff’s periodic reports to thedistrict’s board do not address many of these measures.By requiring the staff to utilize data collected related towater service, lease management, and reservoir patrol, thedistrict could measure how effectively it is providingservices to customers and residents. If the staff providedthe board with reports including analysis of the activityobserved over a specified period, the board could becomeaware of how effectively and efficiently the district’sbusiness is being managed. Reports of districtperformance could also be useful in communicating withresidents and customers on specific service areas.Providing performance information to the board andmaking that information available to the public wouldenhance the district’s relationship with residents.

Board members and district management should seek touse staff time and the district’s funds as efficiently aspossible to provide high quality services at reasonablecosts. Utilizing performance measurement data wouldhelp the district’s board members and staff make betterdecisions. It would also enable board members to knowwhere the district is headed and when it has reached itsgoals.

PEER Report #471 21

Limited Review of the District’s Expenditures

The PRVWSD Board of Directors has not exercised prudent stewardship of publicfunds because it:

• has approved expenditures of the district’s funds for items that may notbenefit the entire district or the public;

• has not fulfilled its responsibility as an employer to address the taxability ofan employee’s fringe benefits; and,

• does not have a policy limiting how often board members may be paid perdiem and for what purposes.

To evaluate the district’s use of its resources, PEERconducted a limited review of the district’s expendituresfor FY 2003 and FY 2004 (through April 2004), includingrenovations of district-owned residences, board members’per diem and travel, staff members’ travel, and the GeneralManager’s compensation.

PEER found that the district’s board has approvedexpenditures for items that may not benefit the entiredistrict or the public (e.g., at least $3,700 in unnecessarytravel expenditures), has not properly addressed thetaxability of one employee’s benefits, and has not issued apolicy regarding how often the board and its committeeswill meet and for what purposes.

Recent Renovations of the General Manager’s District-Owned Residence

Recent renovations of the General Manager’s district-owned house included$12,200 for ceramic and porcelain tile. The district also spent $925 forlandscaping and household items such as flower pots and a tape measure.

According to district officials, the General Manager’sdistrict-owned residence had not been renovated from thetime of its construction in 1981 until FY 2002. AlthoughPEER did not review FY 2002 renovation expenditures,during FY 2003 and through April of FY 2004, the districtspent approximately $31,000 on renovations of theGeneral Manager’s district-owned residence. The recentrenovation included paint, fixtures, mirrors, electricalsupplies, floor surface kits, air conditioning, plumbing,and ceramic and porcelain tile.

The district obtained two bids for the tile. One bid was$12,200 and the second bid was $13,627. A buildingconsultant hired by the district to review the tile purchasedescribed the tile chosen by the General Manager as“rather pricey” and suggested obtaining additional bids for

22 PEER Report #471

other tile that was available in a wide range of prices. Healso suggested two other companies from which thedistrict could obtain prices.

PEER attempted to contact the two companies that weresuggested by the consultant to inquire about prices forcomparable tile. Representatives at one of the companieswere not available for comment. Representatives at thesecond company quoted $6,750, including labor, for ahigh-quality ceramic tile for the same amount of squarefootage (750 square feet). However, the district chose topay $12,200 for ceramic and porcelain tile at a cost ofapproximately $17 per square foot.

Also during this period the district spent an additional$925 on the General Manager’s residence for landscapingand household items such as flowers, flower pots, pottingsoil, a garden hose, a tape measure, and an outsidegarbage can.

PEER did not evaluate the need for renovation of theGeneral Manager’s residence. However, when publicentities renovate public property, they should ensure thatrenovation costs are reasonable and necessary. Residentsof the PRVWSD might question whether renovations thatinclude ceramic and porcelain tile at $17 per square footor purchasing landscaping and household items (thatshould be the personal responsibility of the GeneralManager) constitute reasonable and necessaryexpenditures of public funds.

Unnecessary Travel Expenditures

The district could have avoided at least $3,700 in travel expenditures byrequiring the General Manager to make more economical choices regardingmode of transportation and type of lodging for district business trips.

During FY 2003 and through April of FY 2004, the GeneralManager made thirty-five trips related to district business.Twenty-nine of the trips were in the Jackson metro area,two trips were in-state trips, and four trips were outside ofMississippi and were related to touring projects inassociation with the planned Lost Rabbit development (seediscussion of Lost Rabbit on pages 35 through 41). PEERreviewed PRVWSD’s travel expenditures for this period anddetermined that the district could have avoided at least$3,700 in travel expenditures, while making the same tripsand accomplishing the same purposes, by requiring theGeneral Manager and then-president of the PRVWSD Boardto make more economical choices regarding mode oftransportation and type of lodging.

When public entitiesrenovate publicproperty, they shouldensure that renovationcosts are reasonableand necessary.

Because PRVWSD doesnot require boardmembers and staff tomake the mosteconomicaltransportation orlodging choices, thedistrict is notfollowing prudentfinancial managementprinciples inexpending publicfunds.

PEER Report #471 23

Use of Personal Vehicle for Business Travel vs. Use of District-Provided Vehicle

Although PRVWSD provides the General Manager with a vehicle, during FY2003 and through April of FY 2004, he frequently used his personalvehicle for out-of-state business trips, incurring approximately $2,500 inmileage reimbursement.

PRVWSD provides the General Manager with a vehicle touse for district business. However, during FY 2003 andthrough April of FY 2004, the General Manager frequentlyused his personal vehicle for district business, includingtrips to Tennessee, Florida, and North Carolina. For theperiod noted above, the General Manager received a totalof approximately $2,500 in mileage reimbursement fromthe district for approximately 7,000 miles driven in hispersonal vehicle. By requiring the General Manager to usethe district-owned vehicle and purchasing gasoline for thatvehicle, PRVWSD could have avoided approximately $400in travel costs. This is money that could have been usedto benefit the entire district, its residents, and the public.

Reasons for public bodies to purchase an agency vehicleinclude providing a more economical mode oftransportation and reducing wear and tear on staffmembers’ personal vehicles. By frequently using hispersonal vehicle for district business, the General Managercalls into question the need for PRVWSD to provide himwith a district-owned vehicle.

Traveling in Two Personal Vehicles and Receiving MileageReimbursement vs. Traveling in One Vehicle

On three occasions when both the General Manager and the districtboard’s president made the same business trip at the same time, theytraveled in two separate personal vehicles and both received mileagereimbursement.

On the following three business trips, the General Managerand then-president of the PRVWSD Board traveled to thesame location at the same time to tour projects similar tothe planned Lost Rabbit development. They traveled intwo personal vehicles, with both individuals receivingmileage reimbursement.

o In July 2002, both traveled to Birmingham,Alabama, and Seaside, Florida. Mileagereimbursement for the two vehicles totaled$693.43.

o Over the Labor Day weekend in 2002, both traveledto Asheville, North Carolina. Mileagereimbursement for the two vehicles totaled$982.21.

By frequently using hispersonal vehicle fordistrict business, theGeneral Manager callsinto question the needfor PRVWSD to providehim with a district-owned vehicle.

24 PEER Report #471

o From December 26, 2002, through December 31,2002, both traveled to Tallahassee, Celebration,and Naples, Florida. Mileage reimbursement for thetwo vehicles totaled $1,526.43.

If PRVWSD’s Board had required the General Manager andthe board’s President to travel in one personal vehicle or inthe district’s vehicle on these trips, the district could haveavoided from $1,600 to $1,800 in travel costs. This ismoney that could have been used to benefit the entiredistrict, its residents, and the public.

Staying in Luxury Hotels vs. Staying in Moderately PricedBusiness Hotels

On two of these three business trips, the General Manager and then-President of the PRVWSD Board chose to stay in luxury hotels with ratesfar exceeding those of nationally recognized business hotel chains.

While in Asheville, North Carolina, over Labor Dayweekend in 2002, the General Manager and then-Presidentof the PRVWSD Board stayed at the Inn on Biltmore Estate.The total bill for the two rooms for two nights was$1,483.25, an average of $370.81 per room per night. For acomparable period, nationally recognized business hotelchains in Asheville offered rooms ranging in price from$109.89 to $132.09, including tax.

While in Naples, Florida, over the Christmas/New Year’sDay holiday in 2002, the General Manager and then-President of the PRVWSD Board stayed at The Inn on Fifth.The total bill for the two rooms for two nights was$1,308.00, an average of $327.00 per room per night. For acomparable period, nationally recognized business hotelchains in Naples offered rooms ranging in price from$103.77 to $140.61.

By staying in more moderately priced business hotels, thedistrict could have avoided at least $1,700 in lodgingexpenditures for these two trips. This is money that couldhave been used to benefit the entire district, its residents,and the public.

Conclusion on Unnecessary Travel Expenditures

The situations listed above are not illegal. However,because PRVWSD does not require board members andstaff to use the most economical mode of transportationor to choose moderately priced lodging when traveling forbusiness purposes, the district is not following prudentfinancial management principles in expending publicfunds.

By staying in moremoderately pricedbusiness hotels, thedistrict could haveavoided at least $1,700in lodgingexpenditures for thesetwo trips.

PEER Report #471 25

By making more prudent choices for travel in the aboveexamples, the district could have saved at least $3,700 intravel expenditures while accomplishing the samepurposes. These travel expenditures represent fundsderived from residents’ lease payments to the district.These funds could have been better expended on districtprojects that would benefit the entire district, itsresidents, and the public.

The Board’s Failure to Fulfill Its Responsibility as an Employer Regarding Taxability

of Employee Benefits

PRVWSD’s Board of Directors has not properly addressed the taxability ofthe General Manager’s district-provided housing and vehicle. As a result,based on PEER’s interpretation of the Internal Revenue Code and Treasuryregulations, the General Manager could be liable for unpaid taxes onunreported income and the district’s board and the General Manager couldbe subject to interest and penalties.

As part of the evaluation of the district’s use of itsresources, PEER reviewed the compensation package thatthe Pearl River Valley Water Supply District provides to itsGeneral Manager.

The district provides its General Manager with acompensation package that includes use of a district-owned house (including recent renovations), vehicle, andutilities (including telephone, electricity, natural gas,garbage service, and lawn care). The PRVWSD’s GeneralManager’s estimated FY 2005 compensation package totalsapproximately $136,228, as shown in Exhibit 5, page 26.

The District’s Provision of Housing and a Vehicle to the GeneralManager

Housing

As shown in Exhibit 5, page 26, PRVWSD’s compensationpackage for the district’s General Manager includes aresidence. The district provides a house for the GeneralManager because, after the flood of 1979, the district’sboard thought that it would be prudent to have theGeneral Manager living in closer proximity to the district’sheadquarters at the reservoir. Thus on April 11, 1980, thePRVWSD board entered into its minutes that the GeneralManager was to be required to live in the district’sresidence in order to be more readily available.

In addition to enabling the General Manager to be morereadily available, by providing this housing the district’sboard provides a benefit that could serve as an incentive in

The PRVWSD’s GeneralManager’s estimatedFY 2005 compensationpackage totalsapproximately$136,228.

In April 1980, thePRVWSD board beganrequiring that theGeneral Manager livein the district’sresidence in order tobe more readilyavailable.

26 PEER Report #471

Exhibit 5: Estimated Value of PRVWSD General Manager’s FY 2005Compensation Package

Item FY 2005 Value

Salary@ $98,278

Housing* 24,000

Vehicle** 5,350

Utilities*** 5,000

Lawn Care 3,600

Total $136,228

@This salary amount does not include fringe benefits paid by theemployer, such as retirement, FICA, or health insurance.

* According to PRVWSD officials, the General Manager’s residencewas constructed in 1981, has approximately 2,800 square feet,and is insured for $275,000. PEER computed housing value basedon estimated rental value as determined by reservoir arearealtors for houses of similar size and age located in the reservoirarea. Area realtors estimated the fair rental value to be $2,000monthly.

** PEER computed vehicle value based on annual lease value asdetermined by using Internal Revenue Service Publication 15-Bbased on the vehicle’s state contract price. The district providesthe General Manager with a 2001 Ford Crown Victoria.

***PEER computed the value of the General Manager’s FY 2005utilities by averaging actual FY 2003 expenses and annualized FY2004 expenses for telephone service, electricity, natural gas, andwaste management charges.

SOURCE: PEER analysis of PRVWSD information and PEERresearch.

retaining the present General Manager or in recruitingindividuals for that position in the future should the needarise. The financial benefit to the General Manager issignificant, being approximately $24,000 in FY 2005 asexplained in Exhibit 5, page 26.

Vehicle

As noted in Exhibit 5, page 26, the district also providesthe General Manager with a 2001 Ford Crown Victoriaautomobile for business use. As explained in the exhibit,PEER estimates the annual financial benefit of the vehicleto the General Manager for FY 2005 to be $5,350.

PEER Report #471 27

The District’s Tax-Related Responsibilities as an Employer

Because the district provides housing and a vehicle to theGeneral Manager and these constitute a financial benefit tothat individual, as an employer it is the district’sresponsibility to either (a) ensure that the housing andvehicle meet requirements of the Internal Revenue Code asexcludable from taxation in order for their value to beexcludable from the General Manager’s taxable income; or(b) report the value of the housing and vehicle annually asincome and withhold taxes on that amount. However, thedistrict has done neither.

It is the General Manager’s responsibility as an employeeto know whether his benefits are taxable and whethersufficient taxes have been withheld.

Criteria for Exclusion of Employer-Provided Housing andVehicle from Taxable Income

Housing

Concerning the exclusion of employer-provided housingfrom taxation, 26 USC Section 119 and TreasuryRegulation Section 1.119 state:

The value of lodging furnished to an employee by theemployer shall be excluded from the employee’s grossincome if three tests are met:

1. The lodging is furnished on the businesspremises of the employer,

2. The lodging is furnished for the convenienceof the employer,

3. The employee is required to accept suchlodging as a condition of his employment.

[PEER emphasis added]

Regarding the definitions of the above terms, IRSPublication 15-B states that lodging furnished on thebusiness premises means the employee’s place of work.

Publication 15-B also states that lodging for theconvenience of the employer is satisfied if the lodging isprovided for a substantial business reason other than toprovide the employee with additional benefits. Conditionof employment is defined by Section 119 of 26 USC tomean that the employee is required to accept the lodgingin order to enable the employee to properly perform theduties of employment.

Section 119 of theInternal Revenue Coderequires that all threehousing tests besatisfied in order foremployer-providedhousing to be non-taxable.

28 PEER Report #471

26 USC Section 119 also requires that all three housingtests be satisfied in order for employer-provided housingto be non-taxable. Otherwise, such lodging is subject toemployment taxes and must be reported as income onForm W-2.

Vehicle

Treasury Regulation Section 1.61-21 sets conditions underwhich employer-provided vehicles are a taxable fringebenefit. Concerning the exclusion of employer-providedvehicles from taxation, IRS Publication 15-B notes thatqualified non-personal use vehicles are not taxable.Qualified non-personal use vehicles are vehicles that arenot likely to be used more than minimally for personalpurposes because of their design. Examples of qualifiednon-personal use vehicles include clearly marked policeand fire vehicles, ambulances, and school buses.

If not a qualified non-personal use vehicle, the fair marketvalue of the vehicle is taxable. IRS Publication 15-B liststhree potential methods for determining the amounttaxable for employer-provided vehicles:

• cents per mile rule;

• commuting rule; and,

• annual lease value.

To be able to utilize the cents per mile rule in determiningthe taxable amount, the vehicle in question must have afair market value of less than $15,400. Under thecommuting rule, the value of the vehicle is determined bymultiplying each one-way commute by $1.50. Under theannual lease value rule, the taxable amount is thevehicle’s annual lease value less the portion of thevehicle’s use that was related to business use of thevehicle.

The value of vehicles that are not “qualified non-personalvehicles” should be reported by the employer as taxableincome.

Examples of qualifiednon-personal usevehicles (i.e., that arenot taxable) includeclearly marked policeand fire vehicles,ambulances, andschool buses.

PEER Report #471 29

The District’s Failure to Comply with Laws Regarding Taxabilityof Certain Benefits

Housing

Based on PEER’s interpretation of Internal Revenue Code provisions andTreasury regulations, the housing that PRVWSD provides to the GeneralManager does not meet the tests set forth in 26 USC Section 119 toqualify as non-taxable housing.

As noted on page 27, all three tests cited from 26 USCSection 119 above must be properly satisfied for lodgingprovided to an employee to be excluded from incomereported to the IRS. Otherwise, such lodging is subject toemployment taxes and must be reported on Form W-2. Asshown below, PEER does not believe that the housing thatthe district provides to the General Manager meets thebusiness premises test necessary to qualify for exclusionfrom taxability.

• PEER does not believe that the General Manager’sdistrict-provided housing meets the legalrequirements for “on the business premises.”

To be on the business premises, the residencemust:

-- constitute an integral part of the businessproperty. See Bob Jones University, infra at 670F. 2d. 176;

-- be where the employee performs a significantportion of his duties. See Adams v. UnitedStates, infra; and,

-- be where the employer carries on a substantialportion of its business activities. See UnitedStates Junior Chamber of Commerce v. UnitedStates, 334 F. 2d 660 (Ct. Cl, 1964).

PEER contends that the General Manager’sresidence does not meet the “on the businesspremises” test because the manager does not carryout a substantial portion of the employer’sbusiness at the residence. Additionally, having anoffice in the residence or occasionally performingdistrict business in the residence would not causethe residence to be considered the GeneralManager’s place of work.

In contrast, the district also provides housing tothe managers of the Timberlake Campground andthe Goshen Springs Campground in Rankin County,Coal Bluff in Scott County, and Leake CountyCampground in Leake County. These managers’residences are located on the business premises

30 PEER Report #471

(the campgrounds) and therefore meet the “on thebusiness premises” test, as the personnel carry outa substantial portion of their work at these sites.

• Whether the General Manager’s district-providedhousing meets the tests of being provided at theconvenience of the employer and as a conditionof employment is debatable.

These two tests are essentially the same and aresatisfied if the employee is required to accept thehousing in order to enable him properly to performthe duties of his employment. (See IRS Rev. Rul68-354, 1968-2 CB, 80.)

While the district’s board requires the GeneralManager to live at the district-provided residence(as noted on page 25), it is possible that the IRScould question whether the housing is provided“for the convenience of the employer.” Accordingto 26 USC Section 119, housing provided “for theconvenience of the employer” means that thelodging is provided for a substantial businessreason other than to provide the employee withadditional benefits.

As noted above in the discussion of the businesspremises test, PEER has no basis to doubt that theprovision of housing to campground managersqualifies under 26 USC Section 119 as beingexcludable from income. Here again, it is clearthat the campground employees are required tolive on the grounds and the convenience of theemployer and that they must be available at thecampground to oversee the operations of thecampgrounds and to address any emergencies thatmight arise there.

As noted above, 26 USC Section 119 requires that all threehousing tests be satisfied in order for employer-providedhousing to be non-taxable. PEER contends that the factsand circumstances associated with the district-providedhousing do not satisfy the business premises test. Thus,based on PEER’s analysis, the General Manager’s district-provided housing could be taxable and should have beenreported to the IRS as taxable income. The district did notdo so.

An attorney representing the General Manager has offereda defense to PEER’s conclusion regarding the taxability ofthe General Manager’s district-provided housing andvehicle. (See the Appendix to this report, page 45, for theargument of the General Manager’s attorney and PEER’slegal analysis of the argument.) In his defense againstPEER’s conclusion that the value of his district-providedhousing is taxable, the General Manager’s attorney notes

PEER Report #471 31

that the residence meets the housing tests of 26 USCSection 119 in part because the General Manager’sresidence “is designed as a command and control centerfor PRVWSD the on the [sic] Rankin County side of thereservoir and is equipped with specialized equipmentnecessary for the Manager to fulfill his duties.” Asdiscussed in the Appendix (page 45), PEER could find noevidence that the house functions or was ever intended tofunction as a command and control facility for thereservoir and thus fails to meet the tests for being on theemployer’s premises.

Because PEER believes that the value of the housing the district hasprovided to the General Manager is taxable and the district has notreported this amount as income or withheld taxes on this amount, theGeneral Manager could be liable for unpaid taxes on unreported incomeand the district and General Manager could be subject to interest andpenalties.

PEER believes that the housing that the district provides tothe General Manager does not meet requirements of theInternal Revenue Code as non-taxable housing. The districthas not treated the General Manager’s housing as taxableincome for the last eleven years and therefore has notwithheld taxes from his compensation on this amount.Thus the district has exposed itself and the GeneralManager to possible tax liability.

The Internal Revenue Service could determine that thedistrict is subject to interest and penalties for notwithholding and remitting taxes on the General Manager’shousing benefit on a timely basis. The IRS could also findthe General Manager liable for federal and state taxes onthe value of the district-provided housing for the currentyear and previous years, as well as interest and penalties.Due to the unknown amount of taxes involved, the varyingannual interest rates, and the complicated methods usedby the Internal Revenue Service for calculating penalties,PEER cannot venture a reasonable estimate of the amountof interest and penalties that could be assessed by the IRSand the State Tax Commission against the district and theGeneral Manager. However, based on local realtors’estimates, the fair market rental value of the General’sManager’s district-provided housing since he beganemployment with the district in August 1993 until the endof FY 2004 is approximately $190,000. Absent of fraud,the IRS may assess taxes within three years of the date areturn is filed. Under this statute of limitations, PEERestimates the value of the housing for 2002 through 2004to be $68,000.

In addition to income taxes, the General Manager andPRVWSD could be liable for Social Security taxes at a 6.2%tax rate and Medicare taxes at a 1.45% tax rate on the valueof previous years’ housing. Because the General Manager’ssalary exceeds the 2004 annual Social Security wage base

PEER estimates thevalue of the GeneralManager’s housing for2002 through 2004 tobe $68,000.

32 PEER Report #471

of $87,000, the General Manager and PRVWSD would onlybe liable for the Medicare taxes for the value of thehousing in 2004.

PEER notes that the matters discussed above constitute areasoned analysis of the possible tax liability of thedistrict and General Manager. Ultimately, determinationsof liability are within the authority of the judiciary.

Vehicle

Based on PEER’s interpretation of Internal Revenue Code provisions andTreasury regulations (specifically, Treasury Regulation 1.61-21), thevehicle that PRVWSD provides to the General Manager does not qualify asa non-personal use vehicle and would be a taxable fringe benefit underthe Internal Revenue Code.

As noted previously, the General Manager has received thebenefit of a district-owned vehicle since August 1993through his position with the district. Under Treasuryregulations, this benefit must meet certain criteria in orderto be excluded from the individual’s taxable income.

The IRS requires that for the value of a publicly ownedvehicle not to be taxable, the vehicle must be a qualifiednon-personal use vehicle. The General Manager’s district-owned vehicle is a 2001 Ford Crown Victoria sedan withonly the minimum identifying markings required by lawand therefore does not fall within the definition of aqualified non-personal use vehicle as stated in IRSPublication 15-B.

Because PEER believes that the value of the vehicle the district hasprovided to the General Manager is taxable and the district has notreported this amount as income or withheld taxes on this amount, theGeneral Manager could be liable for unpaid taxes on unreported incomeand the district and General Manager could be subject to interest andpenalties.

PEER believes that the vehicle that the district provides tothe General Manager does not meet requirements of theInternal Revenue Code as being excludable from taxableincome. The district has not treated the General Manager’svehicle as taxable income for the last eleven years andtherefore has not withheld taxes from his compensationon this amount. Thus the district has exposed itself andthe General Manager to possible tax liability.

The Internal Revenue Service could determine that thedistrict is subject to interest and penalties for notwithholding and remitting taxes on the General Manager’sdistrict-provided vehicle on a timely basis. The IRS couldalso find the General Manager liable for taxes on the valueof the district-provided vehicle for the current year andprevious years, as well as interest and penalties.

PEER Report #471 33

Due to the unknown amount of taxes involved, the varyingannual interest rates, and the complicated methods usedby the Internal Revenue Service for calculating penalties,PEER cannot venture a reasonable estimate of the amountof interest and penalties that could by assessed by the IRSand the State Tax Commission against the district and theGeneral Manager. This is compounded by the fact that thedistrict has not maintained the necessary records withwhich to determine the taxable value of the GeneralManager’s district-provided vehicle. (See the threepotential methods for determining the amount taxable foremployer-provided vehicles, page 28.)

In the case of the General Manager’s district-ownedvehicle, the cents per mile rule would not be applicable inthe determination of the amount taxable because the valueof the vehicle exceeds the $15,400 ceiling established bythe IRS in order for the cents per mile rule to be utilized.

Therefore, the taxable value of the vehicle would bedetermined by either the commuting rule or the annuallease value rule. PEER could not calculate the taxablevalue of the General Manager’s vehicle under either ofthese rules because the district has not maintained thenecessary records with which to calculate the taxablevalue. Use of the commuting rule would requiremaintaining a log of the number of the General Manager’sone-way commutes and use of the annual lease value rulewould require maintaining travel logs relating to businessuse of the vehicle. The district has not maintained eithertype of record.

In reviewing the General Manager’s attorney’s letter (seeAppendix, page 45), PEER notes that he asserts that, atworst, the General Manager would be governed by thecommuting rule requiring that an amount of $1.50 perone-way commute be applied to the value of theautomobile. The argument hinges on the allegation thatthe house is part of the business premises of the district.As noted previously, PEER contends that the houseprovided by the district to the General Manager is not onthe business premises of the district and that the GeneralManager may be subject to taxes for the benefit of thevehicle for commuting.

In Treasury Regulation Section 1.61-21 (k), the InternalRevenue Service requires under the commuting rule thatthe employer establish a written policy under which theemployee does not use the vehicle for personal use, otherthan di minimis use. The district does not have such awritten policy.

Should the Internal Revenue Service wish to pursue thismatter, it would make the determination of how tocalculate the taxable amount in the absence of thenecessary records.

The district has notmaintained thenecessary records withwhich to determine thetaxable value of theGeneral Manager’sdistrict-providedvehicle.

34 PEER Report #471

Lack of a Policy Addressing Board Members’ Per Diem Payments

The district’s board does not have a policy addressing how often the boardand committees will meet and for what purposes.

According to MISS. CODE ANN. Section 51-9-107 (1972),members of the PRVWSD Board are to receive $40 per day(per diem) for meetings involving the district’s business.Typically, the full board meets once a month. TheShoreline Development and Parks Policy committeesnormally meet on a monthly basis and the Executive andAudit committees meet on an as-needed basis.

In addition to regularly scheduled and special calledmeetings, members of the district’s board have madefrequent visits to the district’s office or property for whichthey have been paid per diem. During FY 2003 andthrough April of FY 2004, PRVWSD paid the fourteenboard members a total of $37,400 in per diem. Within thisamount, two board members (the former President andcurrent President of the board) received $16,080 in perdiem, or 43% of total per diem payments. Each of thesetwo board members averaged nine “meetings” per monthduring this period, with monthly per diem paymentsaveraging $360. These figures do not include mileagereimbursement to attend meetings.

The reason for this situation is that the board does nothave a formal, written policy specifying the number ofdays board members may meet and receive per diem andmileage reimbursement. The effect is that board membershave been allowed to determine the number of meetingsand set their own compensation. The district has incurredcosts for per diem that might not have been necessary,expending residents’ funds that could have been used tobenefit the district’s residents and the public.

The PRVWSD Board makes legally binding decisions onlywhen acting as a body speaking through its minutes, notthrough the actions of individual board members. PEERunderstands that the district board’s president may havemore detailed involvement in the affairs of the districtthan do other board members. However, a board ofdirectors functions in a policymaking capacity and is notmeant to be involved in day-to-day management activity.The frequency of meetings by board presidents suggeststhat their involvement in district affairs is on a daily basis.While the board’s oversight of staff is a proper, advisableboard activity, it should be conducted through regularboard meetings and not through ad hoc visits byindividual board members. As the agent of the board, thedistrict’s General Manager should be responsible for day-to-day management of staff and district operations.

In addition to regularlyscheduled and specialcalled meetings,members of thedistrict’s board havemade frequent visitsto the district’s officeor property for whichthey have been paidper diem.

During FY 2003 andthrough April of FY2004, two boardmembers received atotal of $16,080 in perdiem.

The district hasincurred costs for perdiem that might nothave been necessary,expending residents’funds that could havebeen used to benefitthe district’s residentsand the public.

PEER Report #471 35

The District’s Process for Developing the LostRabbit Property

The PRVWSD Board of Directors’ lack of a policy restricting consultants fromparticipating in or competing for development contracts creates an appearance thatthe process by which persons and firms compete for development contracts is notopen and competitive.

Initial Attempts to Develop Lost Rabbit Property

After PRVWSD unsuccessfully attempted to develop the Lost Rabbit propertyas an Executive Learning Center, the board hired a consultant to acquireadditional information regarding the proposed project and to meet withlocal college representatives regarding their potential involvement indeveloping the property as an Executive Learning Center.

The Lost Rabbit property, approximately 260 acres locatedon the western shore of the reservoir in Madison County,is one of the few remaining large tracts of undevelopeddistrict land near the Jackson metro area. In 1986, thePRVWSD Board decided to develop the property as anExecutive Learning Center. 

After unsuccessfully attempting to locate a developer forthe property as an Executive Learning Center, the boarddecided to hire a consultant to acquire specificinformation regarding the development of the property(see page 36).

Pursuing Development of Lost Rabbit as a Traditional Neighborhood Development

The district abandoned its initial development plan and pursueddevelopment of the property as a traditional neighborhood development.

Because a developer was not located for the property as anExecutive Learning Center, the PRVWSD Board and staffbegan to discuss the concept of making Lost Rabbit atraditional neighborhood development. A traditionalneighborhood development (TND), a community with adiverse range of housing and jobs, generally includes aninterconnected network of streets and blocks, aneighborhood center, a mix of uses and housing types, anda compact form of pedestrian-oriented design with anemphasis on quality civic spaces.

Lost Rabbit includesapproximately 260acres located on thewestern shore of thereservoir in MadisonCounty.

36 PEER Report #471

The General Manager presented the concept of thetraditional neighborhood development to the ShorelineDevelopment Committee and the board and describedwhat was being done in traditional neighborhooddevelopments such as Seaside, Florida, and Mt. Laurel,Alabama. The committee and board approved the conceptand decided to proceed with developing the property as atraditional neighborhood development. Members of theboard and staff traveled to traditional neighborhooddevelopments in Florida, Alabama, and North Carolina toresearch the design and development concept.

Chronology of Events

Exhibit 6, page 37, contains a timeline of the eventssurrounding the hiring of the district’s consultant and theawarding of the contract to a firm to develop the LostRabbit property as a traditional neighborhooddevelopment.

The district hired a consultant to acquire information onbehalf of the district in order to assist the district inlocating a developer for the property in March 2001. Thedistrict paid the consultant a total of $6,891 for hisservices in assisting the district in finding a developer forthe Lost Rabbit property.

The district did not secure a potential developer for theproperty as an Executive Learning Center between March2001 and February 2002, prior to the board’s decision tochange its vision for the development of the Lost Rabbitproperty. In February 2002, through an informalconversation between the consultant and a local utilityinfrastructure investor and developer who was consideringpossible locations for a traditional neighborhooddevelopment, the idea of developing Lost Rabbit as a TNDbegan to evolve. Following the consultant’s conversationswith the developer regarding the Lost Rabbit property, theconsultant introduced the developer to PRVWSD’s staff.The developer then presented the traditionalneighborhood development concept to the district’s staffand the board for consideration.

In March 2002, the developer, introduced to the district’sstaff as being interested in developing Lost Rabbit as aTND, formed the Neopolis Corporation. Beginning in April2002, the consultant coordinated and facilitated meetingsbetween the district staff and representatives of TheNeopolis Corporation.

In a letter dated August 1, 2002, the consultant notifiedthe district that the need for his services had concludedand submitted a final billing statement for servicesrendered. At this time the consultant also notified thedistrict that The Neopolis Corporation had “requested his

Exhibit 6: Timeline of Events Regarding Hiring of Consultant and Awarding of Contract to The NeopolisCorporation for Development of the Lost Rabbit Property

PRVWSD hiredconsultant

12 meetingswere heldbetweenconsultant andPRVWSD todiscuss thedevelopment ofLost Rabbit

The NeopolisCorporationwas created

10 meetings orconferences wereheld betweenconsultant andPRVWSD and/orNeopolisCorporation

Consultantcompletesservices forPRVWSD

The NeopolisCorporationpresentsdevelopmentproposal toShorelineCommittee

RFPadvertisedfor thelease of theLost Rabbitproperty

Mar

ch 2

0,

20

01

Mar

ch 5

, 2

00

2

Mar

ch 2

, 2

00

1

Mar

ch 2

9,

20

02

Apri

l 1

, 2

00

2

May

28

, 2

00

2

August

1,

20

02

Septe

mber

12

, 2

00

2

Febru

ary

19

, 2

00

3

Apri

l 2

4,

20

03

Apri

l 2

5,

20

03

Bidproposalsopened byPRVWSDboard

RFP closed

SOURCE: PEER analysis of PRVWSD records.

38 PEER Report #471

services in connection with the contemplated developmentat Lost Rabbit” and that he had agreed to represent thedevelopers if the district had no objection. The districtstaff communicated to the consultant that the board hadno objection.

In February 2003, the district advertised the request forproposals for the lease of the Lost Rabbit property.

In April 2003 the Neopolis Corporation created Lost RabbitDevelopment, LLC, for the purpose of developing the LostRabbit property. The Neopolis Corporation held 100percent ownership of Lost Rabbit Development, LLC, at thetime it was created and when the bid proposal wassubmitted to PRVWSD. In documents submitted to thePRVWSD Board of Directors for consideration with LostRabbit Development’s proposal for lease of the Lost Rabbitproperty, the consultant is listed as a 20.315% owner ofThe Neopolis Corporation, which wholly owned LostRabbit Development, LLC, at the time the bid proposal wassubmitted.

In a letter to PEER, the board’s president stated that hewas not aware of the consultant’s ownership interest inThe Neopolis Corporation and Lost Rabbit Development,LLC, prior to the submittal of the bid proposal.

The request for proposals (RFP) was published on February19, 2003, and closed on April 24, 2003. The RFP was opento the public for a period of approximately nine weeks.

The District’s Request for Proposals Process

Because the PRVWSD board and staff considered one firm’s developmentproposal for the Lost Rabbit property, then wrote the RFP to incorporate theplans presented by that firm, the district’s request for proposals processwas not fair to all potential developers.

According to district staff, in most cases when the districtadvertises an RFP for a property lease, a developer hasalready approached the district regarding a specific parcelof land and proposed that the land be used for a specificcommercial or residential function. Through this process,the board determines whether the proposed land usemeets the board’s vision and land use requirements; if so,the board advertises the request for proposals for a sixty-day period. District staff have stated that, in many cases,once the board is receptive to a developer’s proposal, theRFP is written to incorporate the plans presented by thedeveloper. In most cases, only the original interesteddeveloper (and, on occasion, one other developer) submitsa conforming bid. Once bid(s) are submitted, the boardapproves the bid proposal and both parties sign a leaseagreement for the property.

PEER Report #471 39

In the case of the Lost Rabbit development, district staffand board members had first met with the eventualdevelopers of Lost Rabbit in February 2002. A yearlongprocess of planning and architectural design meetingsoccurred before the project was opened to bid in February2003, during which time The Neopolis Corporation alsomade a presentation to the Shoreline DevelopmentCommittee. By making an informal proposal to thecommittee, the firm was able to incorporate the district’sconceptual plan for developing Lost Rabbit in the designof the proposal.

By advertising the RFP and opening the bid process foronly nine weeks, potential developers other than LostRabbit Development were significantly handicapped insubmitting a conforming bid for the lease on the LostRabbit property. As evidenced by the numerous meetingsheld between The Neopolis Corporation and the district, itis an unrealistic prospect that any other developer couldhave prepared and submitted a conforming bid within thenine-week period. Lost Rabbit Development was the onlydeveloper to submit a bid for the property.

PEER believes that the district’s custom of meeting with adeveloper prior to writing an RFP, then tailoring the RFP toincorporate the plans presented by the developer, weakensthe validity of the request for proposals process and givesan unfair advantage to a single firm. The intent of such aprocess should be to provide an opportunity for severalfirms to propose developments that could meet thedistrict’s needs at the highest and best use of the property.The method used by PRVWSD to select a developer and theperiod of time that the bid process was open in effectexcluded any other firms from the process.

Relationship of the Consultant to the Firm Awarded the Contract

The consultant hired by the district became involved with The NeopolisCorporation, the firm ultimately selected by the district to develop LostRabbit.

During his service as a contractor to the PRVWSD, aconsultant provided services regarding the development ofthe Lost Rabbit property. Subsequent to his termination ofhis relationship with the district, the bid proposalsubmitted by Lost Rabbit Development, LLC, for thedevelopment of the Lost Rabbit property listed theconsultant as a 20.315% owner of The NeopolisCorporation. The Neopolis Corporation held 100 percentownership of Lost Rabbit Development, LLC, the firm thatultimately won the contract to develop Lost Rabbit.According to the consultant, he acquired ownershipinterest in The Neopolis Corporation in March 2003, seven

By advertising the RFPand opening the bidprocess for only nineweeks, potentialdevelopers other thanLost RabbitDevelopment weresignificantlyhandicapped insubmitting aconforming bid for thelease on the LostRabbit property.

The method used byPRVWSD to select adeveloper and theperiod of time that thebid process was openin effect excluded anyother firms from theprocess.

40 PEER Report #471

months after completing his services as a contractor forthe PRVWSD in August 2002.

While PEER has no evidence that he used informationobtained while working for the district to assist Neopolisin the preparation of its proposal, the possibility existsthat such could occur. As discussed in the followingsection, the PRVWSD Board did not have a policy in placethat would require that the district’s contractors discloseany interests they might have in development firms or thatthey not become interested in any firm that mightsubsequently bid on matters that were the subjects of thecontractor’s work at PRVWSD.

Lack of a “Revolving Door” Policy

The board’s lack of a “revolving door” policy creates an appearance that thedistrict’s process of contractor selection is not open and competitive.

“Revolving door” policies protect the interests of theagency and the public at large by providing assurancesthat persons will not leave the service of a public entityand take valuable inside information on the needs andexpectations of an agency to a private firm, thereby givingthat firm an advantage over competitors.

In Mississippi, state law would clearly bar public officersor employees from certain post-employment or serviceactivities that would create advantage for a new employer.MISS. CODE ANN. Section 25-4-105 (3) (e) (1972) provides:

(3) No public servant shall. . . 

(e) Perform any service for anycompensation for any person or businessafter termination of his office oremployment in relation to any case, decision,proceeding or application with respect towhich he was directly concerned or in whichhe personally participated during the periodof his service or employment. 

Further, Section 25-4-105 (5) also places restrictions onpersons who are employees of public bodies. This sub-section provides:

(5)  No person may intentionally use ordisclose information gained in the course ofor by reason of his official position oremployment as a public servant in any waythat could result in pecuniary benefit forhimself, any relative, or any other person, if

While PEER has noevidence that he usedinformation obtainedwhile working for thedistrict to assistNeopolis in thepreparation of itsproposal, thepossibility exists thatsuch could occur.

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the information has not been communicatedto the public or is not public information. 

These provisions make clear the state’s policy that itsofficers or employees may not use information they obtainin the course of working on particular matters in publicservice in private employment after conclusion of theirpublic service.

PEER notes that the consultant was a contractor whoseactivities fall outside the scope of these provisions. Butwhile the activities of the consultant are not within thescope of the above-cited provisions, the activities of acontractor could also raise concerns about the opennessand competitiveness of processes just as could theactivities of an employee or officer.

To safeguard against appearances of impropriety, publicagencies should establish policies that safeguard theintegrity of processes by which public entities do businesswith the general public. Regarding contractors, thesepolicies should require that consultants disclose anyinterests they might have in development firms andfurther require that contractors agree not to becomeinterested in any firm that may subsequently bid on anymatters that were the subjects of the contractor’s work.Further, such entities should make clear that any contractentered into in violation of such a policy would be void.

To safeguard againstappearances ofimpropriety, publicagencies shouldestablish policies thatsafeguard the integrityof processes by whichpublic entities dobusiness with thegeneral public.

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Recommendations

1. In view of impending development opportunities, thePRVWSD should study its district-wide needs andreport to the Legislature and the PEER Committeehow it intends to improve both facilities and servicesused by residents of the district and the generalpublic. Considerations should include, but shouldnot be limited to, expanded services to residentssuch as garbage collection and mosquito control,improvements to recreational facilities, and otherinfrastructure the district would consider a prudentinvestment. Such report should be completed assoon as possible but no later than December 1, 2005.The Legislature should study the recommendationsand suggestions in the report and consider whetherto expand the district’s statutory authority to directadditional expenditures in these areas. In the eventthat the Legislature does not consider the proposalsto be prudent investments of resources, it shouldconsider requiring that all district revenue and fundbalances be deposited to the general fund of thestate, and that the PRVWSD operate as a general fundagency.

2. The Mississippi Legislature should amend MISS.CODE ANN. Section 51-9-1 (1972) concerning thePearl River Industrial Commission to require that thethree names submitted by the board of supervisorsto the Governor be the names of persons who resideon and are holders of residential leases fromPRVWSD in Madison County. This would provideadditional representation for residents of thedistrict.

3. The Pearl River Valley Water Supply District shouldcreate and utilize an advisory board comprised ofdistrict residents. The board could includerepresentatives of homeowners’ associations fromneighborhoods located on district property. Theadvisory board could provide resident input tocommittees of the board of directors regardingdistrict development and other key issues affectingresidents.

4. The Legislature should amend MISS. CODE ANN.Section 51-9-107 (1972) to require that appointees ofthe boards of supervisors shall hold terms for fouryears.

5. The PRVWSD Board of Directors should require otherdivisions to follow the lead of the Parks and

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Recreation Division by reporting measures ofperformance and progress toward measurable goals.Program performance measures should demonstratewhat the service outputs are, what the expectedquality levels are for these outputs, and whatproductivity is expected from expended staffresources and funds.

6. In the future, when making improvements to district-owned residences, the PRVWSD should only expendfunds for fixtures.

7. The PRVWSD should review its practice of providingthe General Manager with both a vehicle andreimbursement for mileage and should provide onlythe most economical mode of transportation.

8. The PRVWSD should immediately begin reporting tothe Internal Revenue Service and the State TaxCommission all of the General Manager’s taxablecompensation as income and make appropriatewithholdings for income tax and FICA.

9. The PRVWSD Board of Directors should adopt apolicy restricting payment of per diem of boardmembers to attending regular and special calledmeetings or for services rendered by individuals foractivities that have been approved by the board as awhole.

10. The PRVWSD Board of Directors should refrain fromworking exclusively with one developer prior topublic advertisement of a request for proposals forthe lease of district property or from developing anRFP incorporating the proposal of a specificdeveloper. The board should take steps including,but not limited to, openly advertising for developersor contacting multiple developers to whom the boardcan communicate its proposed vision for the use of aspecific parcel of property. The district shouldadvertise an RFP that is specific to the board’s visionfor the use of the property, but that does not favorone developer.

11. To safeguard against appearances of impropriety, thePRVWSD Board of Directors should establish a policyrequiring that its consultants disclose any intereststhey might have in development firms and furtherrequire that contractors agree not to becomeinterested in any firm that may subsequently bid onany matters that were the subjects of thecontractor’s work.

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Appendix: Legal Analysis of the Taxability of theGeneral Manager’s Use of the District-ProvidedHouse and Vehicle

On August 31, 2004, an attorney representing the GeneralManager of the Pearl River Valley Water Supply Districtprovided PEER with a document offering a defense toPEER’s conclusion regarding the taxability of the GeneralManager’s agency-provided housing and automobile. (Seepages 25 through 33 of this report.)

The attorney noted that the housing was not taxablebecause the district required the General Manager to liveon its premises, the decision to require the GeneralManager to live there was at the convenience of theemployer, and the residence was on the premises of theemployer. The attorney also noted that the vehicle wouldat most constitute a tax liability of the manager of $1.50per one-way commute for personal usage under Treasuryregulations.

The first section of this appendix contains the completeargument of the General Manager’s attorney in the letter toPEER dated August 31, 2004. The second section of theappendix contains PEER’s legal analysis of the GeneralManager’s position as stated in the letter.

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PEER’s Legal Analysis of General Manager’s Position

Taxability of the General Manager’s Housing

The General Manager’s Reasoning

PEER staff concurs with the General Manager’s attorney’srecitation of applicable law. As noted on page 27 of thisreport, for employer-provided housing to be excludablefrom the employee’s income, the housing must meet thefollowing standards:

• the employee must be required to reside in theprovided housing;

• the requirement must be for the convenience of theemployer; and,

• the residence must be on the employer’s businesspremises.

In contending that the General Manager complies withthese requirements, the General Manager’s attorney notedthe following in his letter to PEER dated August 31, 2004(page 49 of this report):

The manager’s residence is designed as acommand and control center for the PRVWSDthe on the [sic] Rankin County side of thereservoir and is equipped with specializedequipment necessary for the manager to fulfillhis duties. . . .

PEER sought information to test the accuracy of thiscontention. Obviously if the facility were planned andused as a command post for the reservoir, the GeneralManager’s position would carry some weight with respectto the issue of income taxation of the residence’s value.

PEER’s Analysis of the General Manager’s Contentions

In evaluating the accuracy of the above-quoted statement,PEER sought the following information:

• copies of plans established by the district tooperate all or part of the reservoir from theGeneral Manager’s home in cases of emergency orother conditions;

• copies of inventory lists of specialized equipmentthat might be housed at the General Manager’sresidence to enable him to manage the affairs ofthe reservoir;

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• evidence of computer acquisitions that would allowthe General Manager to operate the reservoir gatesfrom a site other than the control tower;

• copies of blueprints of the house that couldestablish if, in fact, any design features were builtinto the house that might support the position thatthe house was “designed as a command and controlcenter;” and,

• evidence of the district’s original purpose inproviding the General Manager with housing.

Plans to Operate the Reservoir from the Residence--OnSeptember 1, 2004, PEER requested information from thedistrict’s office regarding any plans the district might havedeveloped for operating the district from the GeneralManager’s house. Undoubtedly, an agency would havedevised such plans in the event that it ever intended thehouse to be a command and control center to supplementor substitute for other facilities commonly used for suchpurposes. The district’s staff PEER consulted noted thatthere was no such plan. The district does have a watersystems emergency plan. This plan makes no reference tothe General Manager’s house as a command and controlcenter for the district or any part thereof. Additionally,the district’s staff informed PEER that the GeneralManager’s house has not been used as a site for staffmeetings or functions. Years ago, some politicalgatherings occurred there, but none have been recentlyhosted at the house.

Specialized Equipment for Command/Control Capability--On September 1, 2004, PEER also sought inventoryinformation from the district and the State Auditor’sOffice to determine what specialized equipment mighthave been purchased to achieve the end of making theresidence a command and control center. PEERdetermined that there is a radio system allocated to thehouse; however, no emergency generator is assigned to thehouse. This would tend to limit severely the utility of thehouse to function as a command and control center forany portion of the reservoir.

Computer Systems for Command/Control Capability--OnSeptember 3, 2004, PEER obtained information oncomputer systems maintained at the General Manager’shouse. In theory, a system could be installed that couldcontrol the operations of the spillway from the house. Indiscussing this matter with the district’s staff, PEERlearned that while the General Manager could log in to thecomputer at the control tower to control operations at thespillway, personnel at the control tower would have toallow such control to take place. (Three other PRVWSDstaff members in addition to the General Manager alsohave the capability to log in and request permission totake control of spillway operations.) If a fire or otheraccident occurred at the control tower, the General

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Manager could not regulate the flow of water from hishouse. Such a condition is at odds with any contentionthat the house is a command center for the reservoir.Additionally, PEER learned that until four years ago, thehouse provided to the General Manager lacked a computerterminal, a contention that is at odds with the assertionthat the house was designed to be a command center forthe reservoir.

Blueprints Showing Design Features for Command/ControlCapability--On September 3, 2004, PEER obtained copies ofthe blueprints for the house provided to the GeneralManager to determine whether any special features werebuilt in that would support the argument that the housewas designed as a command facility. PEER notes that thehouse does contain a 13’ X 15’ room designated as anoffice; however, such would not make the office thereservoir’s command center as alleged in the GeneralManager’s argument.

Original Purpose in Providing Housing--In conductingfieldwork on this project, PEER learned that the board’soriginal decision to house the director in a district-ownedhouse was to place the General Manager’s residence closerto the offices of the reservoir. At the time of thisdecision, no mention was made of using the house as acommand center for the reservoir. This decision wasmade subsequent to the 1979 flood when the district’sboard thought that it would be prudent to have theGeneral Manager living in closer proximity to the district’sheadquarters.

PEER’s Conclusion Regarding Taxability of the General Manager’sHousing

PEER notes that the determination of tax liability in thesecases hinges on the peculiar facts presented by each case.The following explains why PEER believes that theassertion made by the General Manager’s attorney is notcorrect and that the General Manager’s housing is likely tobe subject to taxation.

PEER believes that the housing fails to meet therequirement that the housing be on the business premisesof the employer; see 26 USC Section 119. The GeneralManager’s attorney correctly notes that the requirementpermits an employee to live in employer-provided housingwithout tax liability so long as the employer provides itand a substantial portion of the work done by theemployee is conducted at the residence. Business premisesissues hinge on the facts of each given case and require acommon-sense approach; see Adams v. United States 585F. 2d. 1060 (CtCl, 1978). See also Bob Jones University v.United States, 670 f. 2d 167 (Ct Cl, 1982) and Winchell v.United States, 564 F. Supp 161 (D. Neb, 1983) Aff’d 725 F.2d 689 8 Cir, 1983). In general, courts apply a test with the

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following elements to determine whether a house is on theemployer’s business premises. To pass the test, aresidence must:

• constitute an integral part of the businessproperty; see Bob Jones University, supra at 670 F.2d. 176.

• be where the employee performs a significantportion of his duties; see Adams, supra.

• be where the employer carries on a substantialportion of its business activities; see United StatesJunior Chamber of Commerce v. United States, 334F. 2d 660 (Ct.Cl, 1964).

As noted above, PEER found no evidence that the employeecarries out a significant portion of his duties at the houseor that a substantial part of the employer’s business iseven contemplated to be carried out at the house. Thediscussion above shows that the district has never plannedfor use of the house as a command center and carries outno staff activities there. Further, the technology installedin the house would not be able to control the operations ofthe reservoir in the event of an emergency necessitatingcontrol over the flow of water if the spillway tower were insome way disabled. The lack of a generator assigned tothe house makes clear that in the event of a power failure,the most the General Manager could do would be operateany battery-operated equipment on hand until thebatteries went dead.

For such reasons, PEER staff believes that the GeneralManager’s house was never intended to be a commandfacility for the reservoir, does not function as a commandfacility for the reservoir, and fails to meet the tests forbeing on the employer’s premises. While it is entirelypossible that the General Manager occasionally takes workhome or conducts telephone business at his in-houseoffice, such activities do not promote the employer-provided house to the level of being on the businesspremises of the employer. (See Winchell v. United States,supra.)

Taxability of the General Manager’s Vehicle

In reviewing the General Manager’s attorney’s letter, PEERnotes that he asserts that, at worst, the General Managerwould be governed by the commuting rule requiring thatan amount of $1.50 per one-way commute be applied tothe value of the automobile. The argument hinges on theallegation that the house is part of the business premisesof the district. As noted previously, PEER contends thatthe house provided by the district to the General Manageris not on the business premises of the district and that the

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General Manager may be subject to taxes for the benefit ofthe vehicle for commuting.

The Internal Revenue Service requires under thecommuting rule that the employer establishes a writtenpolicy under which the employee does not use the vehiclefor personal use, other than di minimis use; see TreasuryRegulation Section 1.61-21 (k). The district does not havesuch a written policy. If the district continues to provideits General Manager with an automobile, it should considerapplying stringent rules to the use of the vehicle. Suchwould go far toward ensuring better accountability.

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PEER Committee Staff

Max Arinder, Executive DirectorJames Barber, Deputy DirectorTed Booth, General Counsel

Evaluation Editing and RecordsDavid Pray, Division Manager Ava Welborn, Editor and Records CoordinatorLinda Triplett, Division Manager Tracy BoboLarry Whiting, Division Manager Sandra HallerAntwyn BrownPamela O. Carter AdministrationKim Cummins Mary McNeill, Accounting and Office ManagerBarbara Hamilton Terry LittlefieldKelly Kuyrkendall Gale TaylorKaren LandSara Miller Data ProcessingJoyce McCants Larry Landrum, Systems AnalystCharles H. MooreJohn Pearce Corrections AuditBrad Rowland Louwill Davis, Corrections AuditorSara WatsonCandice Whitfield