It is not a decision city commissioners are asked to make everyday: Should the city tax itself?

Commissioners at their Tuesday evening meeting will consider approving a new policy that essentially calls for the city to begin charging its own water and sewer utility an amount roughly equal to what it would pay in city property taxes, if it were a private business.

“This is about trying to fairly distribute the costs of the service to our customers,” said Mayor Bob Schumm. “We feel like we need a policy so anybody could read it and understand what is going on here.”

Thus far, that hasn’t always been the case. The city has been making large dollar transfers out of the water/sewer fund, the solid waste fund, and the storm water fund for several decades. The rate dollars — in 2012, the total is expected to be about $3.6 million — are moved from the special accounts reserved for the city-owned utilities and moved into the city’s general operating fund, which pays for everything from police to parks and recreation.

The city auditor for the past several years has raised concerns the city doesn’t have a policy detailing for what purposes the transfers can be made. The proposed policy hasn’t alleviated all concerns.

“A lack of transparency is still our biggest concern,” said Bobbie Flory, executive director of the Lawrence Home Builders Association. The proposed policy spells out three reasons for a transfer of rate dollars into the city’s general fund:

• To compensate other city departments for the services it provides the utility. For example, the city’s legal department handles all legal issues for the water and sewer utility. The utility should compensate the legal department for its time and services, the new policy states. The city estimates there are at least a half-dozen departments that provide direct services to the water/sewer, solid waste and storm water utilities.

• To make a payment that represents a franchise fee to compensate the city for use of its right-of-way. Private utilities, such as gas, electric and telephone companies, pay the city a franchise fee to use the city’s rights-of-way to bury lines and infrastructure. City-owned utilities aren’t required to make a franchise fee payment, but city staff members argue they should because the city spends many dollars repairing street rights-of-ways damaged by broken water lines and such.

• To make a payment that represents the amount the city-owned utility would pay in city property taxes, if it were a private, for-profit utility. The policy notes the city-owned utilities indirectly benefit from police, fire, parks and recreation and other services that are funded through property taxes. State law, however, does not require a city-owned utility to pay any property taxes.

The payment-in-lieu of property taxes would treat the city-owned utilities more like private businesses, but only to a point. The city is not proposing to make a payment-in-lieu of property taxes to either the county or the school district, even though a private utility company would be required to pay those taxes.

The city’s water/sewer department also does not charge city departments, including large users like the golf course, for their water usage. The new policy would not change that.

City Manager David Corliss, however, said the new policy isn’t meant to treat the city utility departments exactly like private businesses. Instead, he said the new policy is meant to justify the amount of transfers from ratepayer funds to the general fund is appropriate.

“The city always has had this transfer,” Corliss said. “In the past, we haven’t always highlighted it well, but with a policy I think everybody will have an appropriate recognition of what is going on.”

The transfers long have been a part of the city’s budget, but the size of the transfers increased significantly during the first few years after Corliss took over as city manager in 2007. A 2008 city audit also found that Lawrence transferred a larger percentage of its rate dollars to its general fund than 16 other comparable university communities studied by the auditor.

In 2012, about 10 percent of the city’s water and sewer rate dollars are scheduled to be transferred to the general fund.

Corliss has pledged that he will not recommend an increase in the total amount of transfers for at least the next five years.

Opponents — who, in addition to the home builders, include the Lawrence Board of Realtors — argue the proposed policy is too broad and could allow the city to justify almost any size of transfer to help boost the city’s general operating fund.

“We want the city to work toward a way of figuring out what their true expenses are,” Flory said. “Right now, there is really no way to know that the amount of money being transferred is really being applied to the expenses they claim.”

City commissioners will consider the policy at their 6:35 p.m. meeting Tuesday at City Hall.