Poway's Sewer Slush Fund

In my last post, I tried to explain some of the anomalies and inequities in the way Poway charges single family home ratepayers for using the sewer. In this post, I am going to show that Poway has collected way more money than it needs in sewer fees and not all of that money even goes to pay for sewer-related expenses.
To get an idea of how much money goes into and out of the Poway sewer utilities fund, I looked at the most recent budget documents. (note: Staff is currently working on the next budget. Until they release it, this is the most current document.)

Sewer Utilities Fund 2006-2010

The budget documents cover the years from 2006-2010. Although the last years are not yet in their "actual" form, the proposed numbers  should be pretty close to what the actual numbers will be.  In each of the budget years, you can compare the total operating expense (red box) to the revenues (green box).  Notice that in every year, the revenues are 1-2 million more than the expenditures.  Even when the capital projects are added in, the total expenditures were less than the total revenues in every year except the year 2006-7. The result of the sewer fund taking in more money than it was paying out is  that the sewer fund has about $11.861 million extra dollars in it.

The main costs that are charged to the sewer fund will always be "public works" and any capital improvement projects. Public works includes the charges Poway has to pay to have the sewage treated and the costs for Poway employees who work on our sewer system.  This FY (fiscal year), the public works costs are expected to be $6.43 million.  An additional $1.237 million goes for administrative,legislative and development services and something called "indirect cost allocation". Those administrative/legislative/development/ (and whatever indirect cost allocations are) tally up to almost 20% of the public works cost. That is a lot of administrative overhead.  But for the moment, let's assume that the City can justify dinging the sewer fund for money to pay the costs of running the city manager's office other administrative offices.

The sewer fund is pretty flush, with $11.861 182 in excess funds. But there is more.
More? How? See the line that says "TOTAL TRANSFERS/LOANS"?  In 2009-10, the sewer fund is expected to transfer out almost a million bucks- $861,460, to be exact.(BLUE CIRCLE)
Transfer Loans Sewer Fund
 $111,460 of that was to go for paying off "city debt service"(pay off bonds for the new city hall)  and $750,000 was to be a loan to the Water Fund. A loan to the water fund? The city just raised water rates, but deferred raising the rates on the higher tiers because the fund was flush with money.  Let's hope they are so flush, that the water fund doesn't need that loan from the sewer fund after all.

You know what's really weird about the sewer fund loaning money to the water fund? Well, besides the fact that the staff said that they don't need to raise the higher tier rates because they have enough money in the water fund? Well, the water fund has a loan to the redevelopment fund on the books. Yeah, really. The water fund was gonna borrow from the sewer fund, and all the while they have millions loaned out to the redevelopment fund and the redevelopment fund hasn't paid it back yet. Instead of the water fund going to the redevelopment fund and getting their loan money back, they go begging to the sewer fund for a loan. The sewer fund is the "go to" fund. Sweet, isn't it?  Especially since not everybody pays into the sewer fund, and the rates are constructed so that those who use the least, pay more per unit.

If you look in the blue box in the document above, you can see that every year the city takes some money from the sewer fund to help pay for the new city hall (city debt service fund).  In 2009-2010, they expect to take $111,460. The city also takes some money from the water fund to pay off city hall.  I would have expected that property taxes would be the main source for funds to pay off a new city hall, but a lot of property taxes in Poway are diverted into the redevelopment agency, so I suppose it was one of those "no brainer" things to raise water and sewer rates to pay off the new city hall.  Not everybody is on the sewer or pays sewer fees. In fact, several of our councilmembers are not on the sewer, but they approved the new city hall and hiked up water and sewer fees so that those on city water and sewer can pay for it.

Before Poway incorporated, we had a water and sewer dept. The city currently owns the old water dept building on Poway Rd (across from the library.)  Recently, Tina White, asst city manager, mentioned that the City intends to sell that building.  I'm not totally positive, but I expect that building was paid for by bonds which were paid off by Poway water and sewer ratepayers. If I am correct then I think that when the building is sold, the profits from the sale of that building should be returned to the water/sewer ratepayers. That seems only fair since we paid for it.

The blue box (in the document above) also shows that the sewer fund has loaned money to at least 4 other funds- redevelopment, CFD 88-1 (bonds to build the industrial park), the water fund and the
drainage fund.

Certainly it does make budgetary sense to transfer money between funds, especially on a short term basis. If something unexpected comes up, a loan from another fund can mean that the city saves the costs of borrowing new funds. For example, the sewer fund loaned some money to the drainage fund in 2005-2006, which it repaid in the following year. But not all the loans were short term.

According to Peter Moote, Asst Dir of Administrative Services, Poway, there are 3 loans from the sewer fund that have not yet been paid off.

1.  $5.5 million remains of the loan to the redevelopment agency. This loan was made in 1983 or 1984.
2. $1 million balance on the loan to community facilities district (CFD) 88-1 (to pay off bonds for the industrial park). This loan was made in 1994.
3. $214,500 still owed on the Street Development loan from 1993.

Water/Sewer Loan to Redevelopment

I don't know why the loan to CFD 88-1 wasn't paid off already. I know the sewer fund lent money to them because the redevelopment agency was going to default on the bonds when all the developers in the industrial park were going bankrupt, in the early 90s. But I thought that Poway brought in McMillan and worked out a deal with McMillan, where McMillan  paid off the bonds in return for future tax increment of  properties in the industrial park. So, how is it that the sewer fund didn't get paid off?

Poway's redevelopment fund owes money to both the water and the sewer fund. According to city manager Penny Riley, the $13.7 million that Poway had to give back to the state, was only about a third of this years redevelopment income. If Poway has $40 million coming in from redevelopment every year, why can't redevelopment pay back the sewer fund? And the water fund? Sheesh, those loans go back to 1983.

Poway made such a big deal about having to send that $13.7 million check to the state. $13.7 million is a lot of money. But it isn't even close to the amount the city has over-collected from sewer ratepayers. The sewer fund has a total of $6.7 million in loans on the books, $7.45 million, if you count the pending loan to the water fund. Add to that the surplus $11.86 million in the sewer fund and the grand total of excess money collected on our sewer bills is $19.31 million.

19.31 million dollars. That is quite a slush fund. Remember, not everyone in Poway pays into the sewer fund. Many people are on septic. Several of the councilmembers (Higginson, Emery, Rexford) who approved the sewer fee structure and the recent sewer fee increases do not pay these fees because they are on septic systems. They do not share the honor of loaning money to the street fund or the water fund or the redevelopment agency or to the community facilities district 88-1 to pay off bonds to build the industrial park. Those on septic do not share the privilege of paying off the bonds for the new city hall to the same degree as those on the sewer do. (Both the water fund and sewer fund pay equally for the debt service on city hall).  Sewer fee increases will be on the agenda again in a few months.   I suggest we remind our council members of how very thankful we are for the honors and privilege of keeping the city afloat with our sewer fees.