Prevent Utility Companies from Billing State Government Before Service is Provided

State government should require that utility billings to the state be made once the service is provided and not before.


Background
In contrast to most state payment practices, telephone companies bill the state in advance for certain telephone services. Telephone companies bill the state for usage-related charges (long distance and other charges based on the volume of service) after t he service is provi ded, but bill the state in advance for flat charges (basic monthly service). This practice has been a long-standing tradition that was in existence prior to the formation of the Public Utility Commission (PUC) in 1975. At that time, it was incorporated for mally into PUC s tariffs. Notwithstanding this billing custom for most customers, telephone companies have billed the federal government after the services are received as federal law has demanded.

As a general rule, however, state government does not pay for goods or services in advance. Payment vouchers require an agency representative to affirm that the good or service has been received and the amount to be paid is correct. In addition, state government does not allow agencies to pay for goods or servic es for a subsequent fiscal year or biennium with current funds. The only exception is a provision in an appropriations rider allowing advance payments for newspaper or periodical subscriptions. 1

This general rule ensures that government pays only when a g ood or service has been delivered and conforms to the contract. The Prompt Payment Act, passed in 1985 to speed up payments to businesses, requires agencies to pay their vendors within 30 days of receiving either the goods or services or the invoice, which ever is later. 2 The General Service Act requires payments for supplies, materials, equipment or services to be made through an invoice, which can only be completed after receipt of the contracted item. 3 Although another section excludes public utility services from the definition of services in this statute, the payment practices of all agencies, including those exempted from General Services Commission (GSC) authority, are based on this statute. 4

The Comptroller has interpreted the Prompt Payment Act to apply to all invoices, even those not under GSC authority, including utility services. In addition, it could be argued that advance payment is a lending of credit or a grant of public money and thus violates the Texas Constitution. 5


Recommendation
The Legislature should require utility companies to bill state government, effective September 1, 1993, in accordance with general state payment practices.


Fiscal Impact
Telecommunications charges billed in advance during fiscal 1992 totalled more than $20.5 million. If this recommendation is adopted, and assuming monthly charges remain at fiscal 1992 levels, a one-time savings of $1.7 million would occur in the biennium d uring which the provision takes effect. Fiscal 1994 would have only 11 months of basic se rvice charges, since the first month would be shifted forward. This estimate does not include any savings to higher education institutions that pay monthly charges from local funds. There would also be an insignificant gain in interest to the state that is not included in this estimate. In order to achieve these savings, the Legislature must reduce agencies appropriations by the amounts indicated below.

Fiscal Gain to the General Gain to Other Dedicated Gain to Change
Year Revenue Fund 001 Accounts or Funds All Funds in FTEs

1994 $896,000 $816,000 $1,712,000 0
1995 0 0 0 0
1996 0 0 0 0
1997 0 0 0 0
1998 0 0 0 0



Endnotes
1 General Appropriations Act, art. V, sec. 106.
2 Tex. Rev. Civ. Stat. Ann., art. 601f, sec. 3(a).
3 Tex. Rev. Civ. Stat. Ann., art. 601b, sec. 3.15(b).
4 Tex. Rev. Civ. Stat. Ann., art. 601b, sec. 3.01(c)(4).
5 Tex. Constitution, art. 3, secs. 50 and 51.