Inquiring minds want to know

September 14, 2012

By Marsha M. Rea

I really thought this was going to be the last article on water and sewer-related issues… but, then again, maybe not… Here are some thoughts on issues we have talked about before, but which still have dangling, un-resolved parts:

LOSS OF CONTROL OF THE CITY’S WATER ENTERPRISE: In what seemed to be a rather carefully orchestrated commentary at the September 4th City Council meeting, a member of the public went to the podium to criticize the preceding article in this series related to the possible sale of the City’s water enterprise. The Mayor, Mr. Gonzales, then asked City Manager, Jaime Fontes to address the issue. Mr. Fontes made careful and precisely crafted comments, saying that there had been no discussions, past or present, to sell the water enterprise. However, he pointedly did not address the other possibility that was raised in the article, of a potential public-private partnership that would give up certain City-owned water rights to private ownership. Later at the meeting a Councilmember referred to the proposed partnership, confirming what is already known by the writer and others in the community, that such a deal is currently under consideration at city hall. The Councilman commented that the water in question isn’t worth anything. I respectfully but strongly disagree, and would encourage the council to conduct an independent due diligence effort to determine the true value of the water before making any decisions on the topic. The City is known to have paid $8,000 per acre-foot for water rights in an open auction to a local landowner, during the process of establishing the new water treatment plant.  In real estate terms, that is what is called a comparable sale for valuation purposes.  

Notwithstanding an altruistic or paternalistic rationale promoted by any local or regional corporate interests for such a partnership, the consequences of a loss of control of our water will have important, and probably negative, impacts on the City’s ability to grow responsibly and attract business investment in the future. At this point the proposed partnership has not been placed on an agenda for public comment, so the details under discussion are not known. An attempt by the writer to gain access to the proposed details, though initially offered by a corporate representative, has since been denied. Once a deal is struck behind closed doors it is unclear what recourse the community would have to overturn it, short of costly litigation.  

THE VALUE OF OUR RECYCLED WATER: Another issue, which we have touched on before, involves the ownership of the recycled water discharged from the wastewater recycling plant. While the City contracted away the Wastewater treatment processing operation, it retained ownership of the recycled water coming from the plant. As mentioned in an earlier column, that water is available for sale or re-use, at the City’s discretion, provided the City follows safety regulations. This water is potentially a very significant source of future cash for the community. Its sale could be used to fund other needs of City government as traditional funding sources dry up, or be used to keep water user rates low, even as the costs of providing water and complying with new water laws increase. It will also likely be needed to comply with a State law that requires all water users (homes, businesses, farms, etc.) to reduce their use of drinking water by 20% in 8 years, by 2020. If our residents/water customers can substitute recycled water for drinking water to irrigate their landscaping, it will make compliance with the law much easier for our community. 

Distributing this recycled water for community benefit will require the construction of new pipelines and pumping stations (which = new jobs). The City’s Recycled Water Management Plan estimates this cost at about $23 Million. While not inexpensive, remember that the potential value of the water, just as it comes from the Wastewater Recycling Plant, would repay the up-front costs in just a few years. Additionally, there are loans available from the State for such programs at about 1% interest per year, repayable over 40 years - so this is very “cheap” money. In a future column we will discuss another option that would make the water even more valuable. 

THE COMING INCREASE OF SEWER PROCESSING FEES (SPF):  If the City is unable to re-purchase the wastewater treatment plant from PERC/Alinda this fall, there will be another sewer surcharge increase by the time we go to the polls to vote on November 6th.  Since November of 2011 the basic sewer rate has been $77 per month. Added to that amount is a sewer-processing surcharge, based on the total amount of water used. The current surcharge of 58 cents per 100 cubic feet of water (/100cfw) will increase to $1.12/100cfw effective Nov. 1. This surcharge is billed for all of the water used by a household or business, even water that will never reach the sewer plant. 

For the past year, the City administration has been promising community leaders that they would consider adopting the water assessment methodology successfully used in the City of Ventura.  To date, no response has been made to inquiries, nor has progress been reported on efforts to investigate or implement this plan that would be beneficial to Santa Paula.  

Very roughly, the Ventura plan works like this:  the City analyzed the amount of water used by water customers during the wet months (Dec. - April) over a number of years.  The assumption being that during these rainy months, almost all of the water sold by the City was being used for household/business consumption, not for irrigation; and that this represents the baseline amount of wastewater going through pipes into the sewer system.  This amount is used as the base rate for billing water customers for potable/drinking water at a level that supports the wastewater treatment enterprise.  Water usage above the baseline rate during the dry summer and fall months is assumed to be used for irrigation purposes, and is not subject to the sewer fee.

Currently Santa Paula sewer rates require customers to pay for the sewage treatment (or “recycling”) of water that never reaches the sewer plant. Customers with larger lots, with vegetable gardens, or with fruit trees, all of which tend to use more water, are being charged sewer processing fees on water that is simply going into the ground, and is never treated. So what is the justification for the City of Santa Paula continuing to charge such curiously flawed sewer fees? And why, one would ask, has the City not followed through on its commitment to make adjustments? The answers to these and other questions, while hugely important, are unknown.  To the writer, the Ventura process seems to be the only fair solution to the problem we will all face on November 1.

When the original contracts with PERC/Alinda were negotiated, a formula was developed that would have increased the SPF surcharge from a low range of $.58/100cfw to $1.12/100cfw, over an extended number of years, so as to minimize the financial impact on water customers. In 2011, the City’s then Finance Director, Mr. Quinn decided to build a reserve allocation for the sewer fund, to improve the City’s credit rating.   Ah… but where to get the money? The council voted to push the SPF rate increase from the bottom of the scale to the top of the chart in one year, thus effectively doubling the cost of sewer processing for Santa Paula residents in 12 months. The amount collected over and above the contractual payments to PERC, (the City’s profit) would be transferred to the reserve account for investment by the City.  

Of additional concern is the fact that there has been no publication of a rate/cost study update for the Sewer Enterprise Fund, which is required by federal law to be produced every two years.  This study is done to insure that the rates charged to customers are in line with the actual expenses of the enterprise.  One would ask…why has it not been done?  We are overdue by several years.  Is it because an update would show that the current rates were improperly established and exceed the allowable amount, based on the actual cost of operating the enterprise? This practice is prohibited under federal guidelines for Enterprise Funds.  Just wondering…

Would Santa Paula voters have agreed to increase the processing fee simply to enhance an already decent credit rating?  Was the fee increase enacted according to the requirements and intent of Proposition 218, or has the City asserted that these fees are exempt from Prop 218? According to one source, because the plan was approved by a vote of the City council it cannot, at this point, be changed.  Let’s all cross our fingers and hope that the City can make good on its commitment to bring those $93 million bonds to market and re-purchase the sewer plant from PERC/Alinda within the next 47 days. Make no mistake, if they cannot, and if this rate increase goes through, it is going to hurt each and every one of us to some extent.  What were they thinking?  One councilmember was quoted as saying that “It’s the cost of doing business.”  Really?

Next time… the final water article then, really… on to other things!

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