As they pay their rising water bills, customers in the Fallbrook Public Utility District have funded some interesting employee recognition gifts — a Playstation 4, an Elton John concert ticket, even a Dalmatian puppy.

The district’s “employees of the quarter” were reimbursed $100 toward their purchase of each of those perks (the puppy cost $1,430).

What do you make of these gifts? Wise way to retain workers 58% (122) Inappropriate give-away of public funds 42% (88) 210 total votes.

Other employees got entire purchases covered, according to district records. When one engineering technician hit 25 years of service last year, he bought himself a Big Agnes Copper Spur Tent for $499.95 from REI, and the utility district covered the whole expense — and threw in a nickel for an even $500.

Fallbrook Public Utility District is an independent public agency, often called a “special district,” that provides water to some 35,000 people. The district has about 65 employees and a $44 million budget and is governed by a board of five elected directors.

The gifts are part of the district’s Employee Recognition Program, which rewards workers for a variety of achievements, including outstanding performance, and for serving the district and meeting safety goals for specified lengths of time.

According to district policy, the awards range from $25 to $500. Some are cash awards subject to income tax, some gift certificates, and some are “gifts” paid for by the employee and reimbursed by the district. Because the gifts are treated like business expenses, the reimbursements are not reported as income to the IRS .

Records show the district reimbursed at least $4,920 for service, performance and retirement gifts to 14 employees during the fiscal year that ended June 30, 2015. District officials said total expenditures on all employee recognition awards and celebrations for the year were $15,094.

District officials say the gifts are a smart and responsible use of public money.

“We are not concerned that ratepayers will perceive these awards as excessive,” said district spokeswoman Noelle Denke, who purchased the puppy and named it Sophie.

“The Recognition Program clearly provides employees with motivation to excel, since the program is performance based. Our Recognition Program policy is public record, approved by the board of directors in open session.”

The district’s Employee Recognition Program dates back to 1988, when the district lost 10 employees in a single year to another agency, Denke said. It was designed to be a “viable vehicle to celebrate and retain employees who perform well.”

“The turnover of just one good employee costs the district thousands of dollars in recruitment costs, pre-employee testing and medical exams, lost productivity, overtime pay and training costs,” Denke said.

Giving gifts and delivering the gifts as reimbursements also benefits ratepayers because it saves time manager might spend selecting or ordering watches or plaques, according to district officials.

“The reason the district gives gifts instead of cash or gift certificates is so that we don’t run into the tax issue,” Denke said. “Over the years, it has become easier and takes significantly less staff time having employees purchase their own Years of Service, Employee of the Quarter and retirement gifts themselves, and then we reimburse them up to the limit allowable for the occasion.”

Some public policy and ethics experts say the district’s recognition program is unusual. Ratepayers could easily perceive the awards as illegal gifts of public funds, whether they are or not, said Kathay Feng, director of the good government group California Common Cause.

“One has to ask, even if it’s technically allowed, if it’s something that public agencies should do, because it violates the public’s confidence as an ethical matter,” Feng said. “We need to be able to trust that a water district is doing things in a way that respects people’s interests, and not mistrust public officials because of small or big things they’re doing that seem to be just for their personal interests.”

Delivering the recognition gifts in such an unusual way — reimbursed like business expenses — could also arouse suspicion, Feng said. Business expenses are typically reimbursed to pay back actual and necessary business expense that an employee has incurred in the process of carrying out his or her job. Also, the item purchased is typically kept by the business, not the employee.

“You don’t get to walk away with a tent or a dog that you get to keep for personal use,” Feng said.

The difference between legitimate spending and gifts of public funds can be a gray area, but the law gives leeway to a local agency to set its own policy.

“There’s no real standard,” said Mike Martello, a retired city attorney who works with the Institute for Local Government, a nonprofit group that promotes good public policy. “But generally, if they have a set policy and it’s not a really ridiculous gift, it’s not considered a gift of public funds.”

According to an advice article the Institute for Local Government published in 2009, courts look to the judgment of the local agency’s governing body. If the agency makes a determination that the gifts serve a public purpose, then the courts would probably allow it. Agency officials said the most recent review and approval took place on Jan. 12.

The Institute for Local Government paper advises community leaders to consider public sentiment.

“The public’s perception of expending funds to celebrate a retiring employee’s public service may be very different than that of the employee’s colleagues, and public officials,” the paper said.

The gifts may have tax implications as well. Four professors of tax law interviewed by the Union-Tribune said the program raises some interesting questions. None would agree to be quoted, but all agreed on certain rules that come into play here.

Federal tax law considers most “gifts” from employers to employees to be a reward for past performance or to provide incentive for future performance, and so they generally must be reported as taxable income.

The professors said the law excludes from income tax employee achievement awards, but only when they meet certain criteria.

One of the criteria is that the gifts be awards for length-of-service or safety achievements. The professors agreed that a gift of measurable value for an “Employee of the Quarter” would almost certainly be taxable wages because the award is for performance, not length of service or safety achievements.

District officials said staff had considered the law and determined that the practice was legal.

Denke said outside finance experts have never questioned the recognition awards during thorough and complete annual audits of the district’s financial practices and expenditures. She said the results of annual audits have found the district compliant and meeting or exceeding standards.