Although council members followed city advice at the time and have violated no laws, City Controller Annise Parker has shut down 11 special bank accounts as a precaution.

The accounts, some dating back to 2001, were set up to raise donations for community events sponsored by several council members.

"Record-keeping resided with the Office of the Mayor Pro Tem and has been spotty at best," the controller said. "From the limited paperwork available for review, it appears that required city oversight of the money was lacking and the activities did not relate to the business of city government."

No laws broken

"As long as they are not violating campaign finance laws, it is perfectly acceptable for elected officials to solicit donations for groups and events not organized by city government, but we cannot have those donations routed through city bank accounts," Parker said.

She advised council members to identify an appropriate 501 (c)(3) non-profit organization to receive such event-related donations.

Parker said that any funds deposited with the city must be in accordance with city budget policies and state laws on disbursements, procurements and contracts. These accounts operated, in effect, "as non-profits under the sole control of individual council members," she said.

City Council was notified of the account closures in a joint memo from Mayor White and the controller. The Controller's Office is working with the city Legal Department on disposition of the remaining funds.

Controller's Office audit staff discovered the accounts while assisting Harris County District Attorney Chuck Rosenthal with the ongoing investigation into bonuses and other activity in the Mayor Pro Tem's Office.

Non-profit supporters

If someone wishes to give money to the city for a particular purpose in support of city activities, a number of 501 (c)(3) organizations accept contributions on the city's behalf. The Controller's Office has compiled a comprehensive list of non-profits that accept donations on behalf of the city. It is available at www.houstontx.gov/controller/sourceofcharitablefundingupdatemarch2006.pd

Houston City Council has referred the controversial internet travel site suit back to the administration in pursuit of a more experienced law firm to handle the suit.

The controversy heightened last week when City Controller Annise Parker sent council a memo stating that staff research indicates "no clear, irrefutable basis" for the suit.

Parker's memo notes that the Controller's Office performed a strategic review of hotel occupancy taxes (HOT taxes), internet travel sites and the status of current litigation to determine the city’s ability to recover HOT taxes collected by internet travel sites. She did not offer a legal opinion on the merits of the suit.

"After an extensive review of available research on the subject... and a meeting with attorneys from Hughes, Luce LLP, which is representing the Internet travel sites, it is my belief that there is no clear, irrefutable basis for pursuing this issue further at this time," the memo noted.

She said If council chooses to proceed, a contingent fee contract is the prudent choice to limit the city’s financial exposure.

As the memo states, the allegation is that Internet sites such as Expedia, Travelocity and Priceline should collect tax on the full amount they collect from the consumer. The hotel pays tax to cities on the “wholesale” price it charges sites such as Expedia, but such internet travel sites pay no tax on the “retail price” it charges customers. This untaxed “spread” has caught the attention of cities across the country. While a number of cities have chosen to sue or intend to sue, many cities have decided not to litigate.

"A reading of applicable Texas law and our own city ordinance seems to indicate that the tax should apply to the actual cost of the room, not the markup applied by the Internet sites. It also indicates that the sole responsibility for collecting the taxes rests with the hotel owners, operators and managers," Parker's memo reads.

The Interactive Travel Services Association, which represents online travel companies, takes the position that the service and fees of the travel companies are not subject to occupancy taxes.

The city's current unfunded pension liability is estimated to be more than $2 billion and growing, with almost half of the shortfall attributed to the municipal pension system.

The city's pension costs for the past three years total $789.8 million. The city's actual contribution for the past three years totals $426 million, leaving $363 million worth of unfunded costs.

City Controller Annise Parker reminded city council that the city's contribution the past three years includes $120 million in pension obligation bonds. Another $60 million in pension obligation bonds is anticipated in FY07.

"Although pragmatic for the short-term, the city should not continue to rely on long-term financing to cover what are really day-to-day payroll expenses," she said. "We are paying less than required and borrowing money to do so. Think of it as paying a minimum on your credit card and borrowing to do so."

Parker noted that the new Houston Firefighter Fund number did not make the pension report. It is $341.9 million or $75 million greater than an earlier estimate.

According to the offering statement for the 2006 Pension Obligation Bonds, the unfunded actuarial accrued liability will continue to increase, perhaps substantially, if the city continues to make contributions that are less than the actuarially determined amounts.

Parker commended the mayor for dramatically reducing the unfunded liability in 2004. Although she understands the administration's desire to see the impact of those changes over time, "there is still a very large long-term funding gap that must be closed. I urge council to keep this in mind as it begins the budget process for Fiscal Year 2007."