Illegal Water Tax Not Quite Dead

Ending the illegal 10% water tax is only part of the solution

It shouldn't come as a surprise to anyone that the end of Fullerton's decades-old water tax will not mean the end of Fullerton's financial woes.

As far as anyone can remember only a handful of Fullerton employees fill out time sheets and account for their time spent on specific tasks or projects.

This was the case in 1970 when the City Council voted to tax the Water Fund 10% of the gross water sales.  The blanket application of a percentage-based tax instead of the actual specific costs for service is indicative of poor management from people who had no idea just how much time and effort their employees spent working on water projects and tasks.

The City Manager has placed the elimination of the water tax on Tuesday's City Council agenda citing legal reasons, not economic reasons.  He has very few economic reasons to support any tax because he has no proof of the time and effort spent by employees working on the system except for certain water system employees and engineering employees.

That being the case, how did the City and their consultant, Municipal & Financial Services Group, produce this chart?

Somehow city staff and the consultant concluded these figures and presented them to the Water Rate Study Ad Hoc Committee as facts for consideration when determining just how much water rates should be increased.

If we take a leap of faith that these numbers are remotely accurate, then there are no other costs.  Therefor, any newly discovered "costs" are truly fabricated from thin air.

And then there is yet another problem.

Tuesday's City Council agenda contains a resolution which will, in essence, stop the water tax for May and June of 2012 and from then on.  However, the 1970 resolution states that the 10% tax will be applied at the conclusion of the fiscal year.  In other words, NO MONEY SHALL BE TRANSFERRED until June 30.  Somehow, the City Manager has taken it upon himself to transfer funds BEFORE June 30.  That's illegal.

Read the resolution for yourself, in particular the last paragraph:

Also, the agenda includes a rate hike to cover the "pass-through" increases from Metropolitan Water District and the Orange County Water District.  The problem I have is that MWD will not be raising rates on Fullerton until January while the rate hike to you and I goes into affect on July 1.  

The bottom line is that you, the ratepayer, must attend the City Council meeting on April 17, 2012 at 6:30PM (303 W. Commonwealth Ave.) and speak out on the continued gross financial mismanagement.

Water Rate Study Ad Hoc Committee Calls On Council to Rescind Water Tax

Last night the Water Rate Study Ad Hoc Committee voted unanimously to recommend to the Fullerton city Council that the "in-lieu" franchise fee, or "water tax" as it has become known as, should be suspended indefinitely.

Another motion was made to recommend an audit of the Water Fund.  The motion failed 5-5.

Some members stated they had enough reports and felt spending more money would not provide any answers.  One member even said that no matter what is discovered in the audit, it would not be enough for some.

Others, like myself, feel it is a disservice to the public to not account for the misappropriated funds.  As we look to answer the question of how much was overcharged to ratepayers, we realize we cannot arrive at a fact-based answer.  Instead, the city's staff will have the Ad Hoc Committee look at what could or perhaps should be charged to the Water Fund.  That may be an appropriate step going forward but without an audit we will never know where our money went.

Water System Manager Dave Schickling offered up the City's Comprehensive Annual Financial Report as an audit that covered the Water Fund.  Unfortunately, the CAFR does not look at the Water Fund in any detail.  Instead, the accounting consultant was provided total dollars into and out of the Water Fund.  This may show that the Fund is operating in the black but does nothing to ensure that the transfers were legal or that the funds were used in support of water projects and system management.

I asked the Director of Engineering, Don Hoppe, and the Water System Manager, Dave Schickling, about how Maintenance Services bills their time to repair water leaks and the street that they dig up.  They said the time is all billed to the General Fund.  At the May 23, 2011 meeting the Water Rate Study showed that Maintenance Service accounted for 21% of the operations and maintenance of the water system.  This created some confusion, at least for me, because the Rate Study showed these maintenance costs as being part of the allocation from the Water Fund and not part of the franchise fee.  In the end, I am left to guess where at least $22.5-million was spent.

The chart below shows that Maintenance Services expenses accounted for 21% of the O&M expenses, "Other Expenses" as 2% (read the footnote on the chart to see what "other" refers to), and then the Franchise Charge at 11%.  According to the City, this chart represents all of the costs and expenses necessary to operate the Water System and consequently the Water Fund.

City Manager Joe Felz will be compiling what he believes to be a list a various "costs" to bring back before the Ad Hoc Committee.  The purpose would be for the Ad Hoc Committee to determine what "costs" are appropriately associated with and billed back to the Water Fund.

The Ad Hoc committee seemed somewhat unified in a desire to have only the actual costs billed to the Water Fund, but as we have seen, those "costs" are subject to staff interpretation.

Since last night's meeting, many members have expressed their concern over the way the entire Water Rate Study has been handled.

I think a large part of the problem has been the business-as-usual approach by staff to have a committee rubber stamp studies, reports, and recommendations all at the behest of city staff.

That's not to say the process yielded no results.  In fact, early in 2011 I made it my goal to end the water tax.  Last night, the first milestone was reached with the Ad Hoc Committee's recommendation.

As a final thought on water rates and the City's handling of this issue, I want to draw your attention to the City's Budget Study Session tomorrow.  The purpose of the meeting is for the City Manager and department managers to present their respective budgets.  This is where we find out how much of our money the City would like to spend and where they will spend it.  Even though the Ad Hoc Committee recommended that the City Council end the water tax completely, the City Manager, Joe Felz, intends to move the budget forward on the assumption that the General Fund will continue to receive a percentage of the Water Funds revenue.  So you see it is business as usual at the Fullerton City Hall.

Business as usual left us with an $8-million budget gap in the two-year budget for 2011/2012 and 2012/2013.    The proposed budget for 2012/2013 & 2013/2014 will have a $5-million deficit with the ending of the water tax and the official plan is to ignore it.

Water Rate Study Ad Hoc Committee Meeting Tonight

Water Rate Study Ad Hoc Committee meeting tonight

City Yard (1580 W. Commonwealth Ave.)

6:00PM 

Park in the gated employee parking lot

Please bring your neighbors and speak up.

Double taxation: Water Fund is City Hall's Go-To Cash Cow

How would you feel if money you paid for your water bill was used for something other than production and delivery of water?  Would it bother you that the City wasn't investing it in the water system?  It should.

August 18, 1998, the Fullerton City Council voted unanimously to transfer $250,506 from the Water Fund to pay for 1/3 of the City's portion of the total cost to seismically retrofit the PD and City Hall.  

Plenty of people raised valid questions and yet the resolution passed after Administrative Services Director Meyer noted that the Water Department uses office space at City Hall.

This transfer was in addition to the 10% water tax of $1,408,961 for FY1997-1998!  


But wait!  Wasn't the franchise fee supposed to cover costs associated with the Water Department's use of office space at City Hall?  


We just got taxed twice.  

Why Didn't Norby Speak Up On Fullerton's Water Tax? He did.

Back on May 6, 1997 a resident named Tom O'Neill told the City Council that he opposed the practice of transferring money from the Water Fund to the General Fund.  O'Neill said it's deceptive and builds mistrust in elected officials.  Then Mayor Chris Norby noted that the City attorney was reviewing this issue and would report on it at a future meeting.

Click image for full screen.

Then, in September of 1997, the Water Fund issue rises again as the priorities for Hill Crest Park were being considered.  The Water Fund and Redevelopment Fund were being eyed as the primary funding source.

The City's consultant tried to explain why these funds could be used.  His logic?  If a new waterline and reservoir were to be installed, many of the other park improvements could be logically tied to the water work.

Marie Whaling and Barbara Marr asked questions about the use of Redevelopment Funds and Water Funds for the park.

Mayor Norby explained that Redevelopment Funds were to be used for alleviating blight.  He went on to say that the concerns expressed regarding funding sources are legitimate and that Water Fund monies are for water purposes and expenditures must be related to water and its delivery.

Click image for full screen.

Click image for full screen.

Fast Facts About Fullerton

Here are a few fast facts about Fullerton:

400 - the number of years it will take to replace that water line in the street (current replacement cycle should be 6 miles per year on 50-year cycle)
547.6 - millions of dollars of pension liability (CAFR 2011, page 69)
657.9 - millions of dollars of Redevelopment Agency liability (March 20, 2011 agenda item 6: "PROPOSED THIRD AMENDMENT TO ENFORCEABLE OBLIGATION PAYMENT")
91 - the percentage of increase in water rates proposed by City of Fullerton May 23, 2011
2,000 - approximate dollars paid per month in daily stipends to Councilman Bankhead as a Director on the Orange County Water District Board (City Council Agenda Item 12, April 3, 2012)
27 - millions of dollars skimmed since 1997 from the Water Fund to pay for salaries and benefits of employees not associated with the water department  (Public Records Request data from Julia James, Administrative Services Director, City of Fullerton)
2.7 - millions of dollars the City plans to skim June 2012 (Based on Adopted Budget FY2011-2012)
64 - days left for you to decide if you want to change any of these numbers (Recall Election June 5, 2012)

MARK YOUR CALENDAR - More meetings...

The Citizens Infrastructure Review Committee (CIRC) is scheduled to meet on Wednesday, April 4, at 6pm in the City Council Conference Room.  This is a PUBLIC meeting and PUBLIC COMMENTS are encouraged.

What does the CIRC do?  As the name implies, the committee reviews the City's infrastructure program also known as the Capital Improvement Program.  We look at prioritizing projects, funding sources, and act as the ears for the City Council.  The committee serves as an advisory body and has no authority to do anything accept approve previous meeting minutes and make recommendations to the City Council.

The Water Rate Study Ad Hoc Committee is scheduled to meet on Monday, April 9, at 6pm in the Main Branch Library.   This is a PUBLIC meeting and PUBLIC COMMENTS are encouraged.  

The Ad Hoc was formed to vet the initial water rate study which was conducted in 2010 and reviewed by the committee in 2011.  As part of the study, the committee asked questions about the in-lieu franchise fee ($2.7-million water tax).

The Ad Hoc is made up of two committees, CIRC and the Energy and Resource Management Committee (E&RC), as well as 5 community members.  Many of the CIRC and E&RC members have chosen not to participate for personal reasons such as scheduling and the depth of commitment necessary.

MARK YOUR CALENDAR - Water Rate Ad Hoc Meeting April 9th at 6PM, City Yard

Where is your money going?

The next Water Rate Study Ad Hoc Committee meeting is scheduled for Monday, April 9th at 6PM at the City Yard (Basque & Commonwealth).

Please attend this important meeting and speak up.  If you have ever wondered why Fullerton was in this mess it is because too often we all sit back and expect someone else to do all of the work.  Please do your part and engage in the discussion.

Do you think using your water rates to pay for "rent" of city-owned property is a bad idea?  Do you want a refund of the money you were over charged?  Do you want the City to actually use ALL of the money they collect from water sales do be spent on the Water System?  Are you upset that the Water System has been neglected?  Are you fearful the City will try other tricks and accounting gimmicks to take more of your money and provide fewer services?

Please mark your calendar and bring your neighbors.  Fullerton is YOUR city.  

Water Main Breaks In Front of Water Reformer's House

The irony, astonishing.  The coincidence, unnerving.  The big picture, never clearer.

If you could choose a place to break a water line, would this be at the top or bottom of the list?  It's in front of my house...again!

This is just around the corner from the house that exploded yesterday and has many questioning the water systems integrity and capability when taxed with fire services.  Did the sudden demand on the system place too much stress on the water lines?  One would think so but I have not been able to speak with the Water System Manager, Dave Schickling, or the City Engineer, Don Hoppe, to ask.

After you and I have contributed $27-million through the water tax since 1996 to the City's General Fund, you would think the City would have this under control.

A City of Fullerton representative contacted my wife to tell her that, because the leak is slow, they'll be out TOMORROW, on a Saturday, to fix the line.  Can you say OVERTIME?  Seriously.

If the City was ever going to try to demonstrate water efficiency and commonsense responsible water management, you would think they might want to expedite a water main break.  I wonder how many other breaks occurred since yesterday...

Neighbor's driveway is barricaded 

Are Fullerton's Water Rates and the Proposed Rate Hikes Justified

Tonight is the Fullerton Water Rate Study Ad Hoc Committee meeting at the Main Branch Library at 6pm.

As a member of this committee, I would like to hear your thoughts and concerns on all things water related.

With a massive MWD scandal brewing that implicates Fullerton in even more corruption and with the recent revelation that Fullerton water ratepayers were over charged, I think it is important to hear what you, the ratepayers and voters, have to say.

Tomorrow, the Fullerton City Council will take up a water rate hike.  You have a say in the rate increase but you need to come and speak to the Council.

FULLERTON IS YOUR CITY.

The OC Watchdog Plays in Fullerton's Muddy Waters

The OC Watchdog jumped into Fullerton's muddy water tax again on Sunday. CLICK HERE TO READ THE OC WATCHDOG.

Let's not forget how the City has used the $2.5 million.  10% of every water bill gets diverted or skimmed from the water fund and transferred into the City's General Fund. 80% of the General Fund goes to cover public safety employee salaries and benefits. The General Fund does not contribute any funds back into the water system. Removing this hidden tax would allow the water system to retain about $2.5-million for pipe replacement.
http://gregsebourn.blogspot.com/2011/07/reasons-i-oppose-fullertons-water-rate.html

WAKE UP FULLERTON! The Water Fund isn't the only fund getting skimmed.
http://gregsebourn.blogspot.com/2011/08/where-did-all-money-go.html

And in case you forgot...

http://gregsebourn.blogspot.com/2011/08/illegal-taxes-and-misappropriations.html

Is it a "Pass-Through" or a Hedge Fund?

It's no secret that water rates are always on the rise.  It's also no secret that Fullerton officials have some serious explaining to do about the Water Fund franchise fee.

But when I showed up to the Wednesday evening Water Rate Study Ad Hoc Committee meeting, I had no idea it could and would get worse.

First, some background on "pass-through" costs.  We buy water from Metropolitan Water District of Southern California (MWD) and we pay a pumping tax to the Orange County Water District (OCWD).  Since we pump about 2/3 of our own water we also have to pay Southern California Edison and the City of Anaheim for electricity we use from them. 

As the MWD, OCWD, Edison, and Anaheim raise their rates to us, so must we pass them on to Fullerton water customers.  These are known as "pass-through" costs.

During Wednesday's meeting it was announced that MWD will be raising water rates in January 2013.  (There is an entire background story about MWD water rates that I will ignore for now so as not to put you to sleep.)  Knowing that there will be a MWD rate hike in a year means the City is gearing up to pass those increases to us in July.  So, if MWD rates aren't going up until January, why does the City want to pass-through a non-existent rate hike in July? 

Stay with me on this.  The reason for the preemptive pass-through according to Water System manager Dave Schickling is because the City wants to "smooth the rates".  Instead of raising rates in January and July (OCWD raises their rate in July), they just want to get a head of the curve.  The problem is that the City is raising water rates in July and claiming it as a pass-through when the actual pass-through costs will not change until January. 

That sounds to me like the City of Fullerton is operating a hedge fund of sorts with our Water Fund.  You might even call it a Ponzi scheme since rates never seem to be based on reality.  And we aren't talking about socking the money away for the future either.  As revenue to the Water Fund increases with every rate hike, whether pass-through or not, 10% of the water fund gets moved to cover salaries and benefits of ALL city employees.

Near the end of the meeting there were three motions made.

First, the Committee recommended to the City Council to raise water rates in July consistent with the anticipated pass-through increases.  I voted NO and Adan Ortega Abstained.  It passed.

Second, the Committee recommended that all revenue collected as a result of the pass-through increases be exempt from the franchise fee.  This was, believe it or not, recommended to the Committee by City staff.  I voted NO but probably should have abstained because, although it sounds good, the pass-through as we have seen is not an actual pass-through of rate increases.  The motion passed. 

Third, the Committee recommended that the City's appointed representatives to MWD (Jim Blake) and OCWD (Council Member Don Bankhead) appear before the Committee to explain the nature of the rate hikes by their respective agencies.  I voted YES as did the rest of the Committee.

I will try to articulate my concerns again to the City Council, though by now they have already read this. 

I will try to get a MWD budget briefing posted here in the next week or so.  If you would like to read the budget, you can download it at http://www.mwdh2o.com/mwdh2o/pages/finance/budget/PAB2013.pdf.

Thank you to the residents and business owners who attended the meeting.  Your input is invaluable and much appreciated.  We need more community involvement.