Oxnard Council: water rate increase stopped (again), audit results presented– and more
By George Miller
At the 7-19-116 Oxnard City Council meeting, a second attempt at a water rate increase was stopped, at least for another three months, the long-awaited audit results were presented six months late, a million dollar remediation settlement for water damage was approved, a $600,000+ pipeline will be built to deliver recycled water to an industrial customer, 10 new SUV ‘s will be purchased for the Police Department, OPD Chief Jerri Williams was congratulated on her new position as Phoenix Police Chief (starts in October).
Audit report
At the 7-19-16 Oxnard City Council meeting, auditors Eadie + Payne presented the “Single Audit” Report. We already reported this recently, so you can read that article HERE. There was some additional discussion at thi meeting, though.
Mayor Pro Tem Ramirez asked if there was any evidence of fraud. Auditor Eden Casaraeno said no. She also asked if any problems related to a lack of staff. Casareno said that staffing and training were issues, but she couldn’t pinpoint fault attribution. Ramirez asked if there were any problems with cooperation of mgmt. No, but some info wasn’t available.
Councilman MacDonald said that all of his questions were answered at the Fiscal Policy Task Force meeting.
Councilman Perello thanked Councilman MacDonald for chairing the Fiscal Policy meetings and thanked Dan Pinedo for video recording the meetings (link in Task Force meeting story, below). Perello noted no auditor opinion on management discussion. Casareno said that they only opine on the financial statement itself. He also asked about the Controller’s request for audit work papers and wants to know the timing. She said that there is a time frame (60 days from end of audit to complete all documentation). Perello wants a monthly report to the Fiscal Policy Task Force on resolution/addressing the audit problems and a quarterly report to the City Council.
Mayor Tim Flynn thanked the auditors for the report and noted it would be useful to provide guidance to the Council and staff for problem resolution. He noted that 93 of the problems are control-related and wanted to know from new CFO Dave Millican about staff requirements to address these. Millican estimates 1-2 years to address these, with 1 year being rather optimistic, while rebuilding a financial system which had disintegrated. He said it wasn’t even possible to write a coherent report about the existing system and controls. The Council will require regular reconciliations, staffing and training. Consultants will still be needed for the foreseeable future, focused mainly on process design, documentation and training.. Ethics, expectations, legal and policy compliance are all issues. The council and staff must address risk assessment, along with the internal auditor, when one assigned (this was authorized by the Council several months ago). Another finance staff member resigned today. The 107 deficiency items will be built into the new model. In response to a question from Flynn to Casareno, she said the Controller is the master of control activities.
Public speakers:
Steve Huber; Counted 111 recommendations, mostly for internal controls, which he said he had recommended actin on before. He said “blow up” the old fiscal controls policy and rewrite it.
Phil Molina: said he was never in a position when state a controller was coming in to review an audit and does not envy the City. He said per HUD- up to a 10% allocation of a grant may be used for admin. expenses. He wants to know if 10% was added to program income. He had issues about the $56MMm in certain receivables. He learned that that there are no GASB requirements to book this as accounts receivable., but says that the City should instead expense them . This may become formal policy in the future.
Steve Nash: said that 107 findings is unprecedented, let’s hold elected issues accountable- not just staff. They need to be a watchdog for the public. Nash recommended a vote of no confidence for the Treasurer./ Why did we elect her. She didn’t want to rock the boat, didn’t look out for the public. He listed 9 findings which he related directly to the Treasurer’s responsibility and recommended running someone against the Treasurer in the upcoming election.
Dan Pinedo: He is recording the Fiscal Policy Task Force meetings, since the City isn’t. There were about 28 views of his latest youtube recording. He lauded the openness and accessibility of those meetings and encouraged members of the public to view them on Dan Pinedo’s youtube channel or CitizensJournal.us.
Larry Stein: To what extent is the city liable to bondholders for failure to report problems? To what extent do the liabilities exceed $5 million and where would would the funding come from? He demanded interactive responses to his questioning and was denied by Mayor Flynn, who cited current policy.
Al Velsaquez: Wants response to allegations that some are hoping the audit report is off its mark. He said no one in city is hoping that, but says they are hoping the audit will put it to rest. But, he said, the Controller’s report demanding a review means that “you’re not out of the woods yet.” He has questions on 55 material weaknesses on control activities and wants to know specifically what is being done to correct these serious problems.
Aaron Starr: On the question if fraud was detected: was the auditor engaged in fraud investigation? No. He said fraud is very hard to detect when there are weak internal controls. Question on lack of staff answer was “politely answered.” Wants to know if staff is adequate. He asked Phil Molina, who knows govt. accounting: Why no opinion issued on the statement as a whole, but just pieces? Starr is Controller of the largest manufacturer in the region and head of activist organization Moving Oxnard Forward.
end of public input.
Millican’s answer to some questions (in violation of policy stgated by Flynn, but in response to Flynn’s prompting): Some loans are forgiven if held a certain amount of time, or repaid if the property transfers. They should be in a separate sub-ledger of the general ledger, need loan servicing and income tracking capability. It was very difficult to even identify these loans, along with their terms, status, probable outcome, etc. There are no specific penalties for lack of timely filings. But it could affect interest rate swaps, renewals of letters of credit and future creditworthiness. He cannot quantify it. The audit did not discover fraud, but this was not a fraud audit. Fraud ismore probable with weak controls.
Eden Casareno agreed with Millican’s words on fraud. In a governmental audit, opinions must be provided in each opinion category column.
Councilman Bert Perello: What is the blowback if the controller finds more problems besides what is in the audit? Millican: that would put the audit under a cloud. We don’t expect that to happen. The Controller could expand the scope and look at the city as well as the audit. Perello: Could the state expand it to previous years? Millican: I don’t know.
Perello: If the audit had 107 findings (which it did) and it was quality work,. would we even qualify for an award? Millican: an award recognizes compliance to standards. The are looking at the report only, not the controls. The audit has extensive discussion of controls, leading to many adjustments and needs to address issues. Perello: Would it jeopardize any grants/return of funds, etc.? Millican: Could trigger federal audits. This is a very unusual audit, with many defects identified, but not likely if it is considered to be a good audit.
Previous article on the Oxnard audit findings:
By George Miller- At the 7-13-16 Oxnard Fiscal Policy Task Force meeting, audit firm Eadie + Payne staff presented the 2014/15 single audit. It took ten months to get this far, because of the “enormous number” (their words) of “material defects” in the system/data. Here is a summary of the audit and the meeting presentation […]
July 19, 2016
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Meeting Ceremonial Items
Ventura County Fair
2016 VC Fair poster
Junior Fair Board honored. They are looking for a design for next year’s County fair poster and are having a contest. Described fair concert and other events schedule- August 3-14. Their are youth days, dollar day, senior day/disability, military appreciation day, nightly fireworks- See:
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Public comments:
Marget Cerchese?- Glad you kept Mr. Nyhoff on- pleased with performance. Happy to pay utility rate increase.
Steve Huber- USN Capt retired. 4 busloads of Oxnard residents shipped off to the Viet Nam war. There is a scheduled 29-31 July vets stand down event- new clothing, medical/dental services, boots, 987-3118 info/donations/volunteers. At Army National Guard armory.
Steve Nash: There is a list of accomplishments by the City Mgr and team. He encouraged incompetent dept. heads to depart with consequences to the city, hired Millican, initiated the Downtown Charette, saw CAFR completed, Qualified audit from nonexistent records, kept wheels turning in an organization that should have declared bankruptcy otherwise. Consultants will tell you Oxnard is worst that they had encounters. I give the credit to Mr. Nyhoff. I support utility rate increases.
Larry Stein: Ramirez proposed policy to help pay poor people utility bills. $13K collected, Treasurer never developed a policy. When will this be done? Adopt policy.
Cynthia Gonzalez: Her son Joshua Vann and cousin were murdered. $1.3 mm allocated for measure O public safety. How do we get money allocated to address rising crime in our area? People are terrified. It is getting worse and worse. The Council is responsible to do something about rising crime.
Jackie Tedeshi: Stand down was announced in La Vida. 2 night, 3 days, free services to homeless vets. Donate new or used boots/shoes to Police or Fire stations by 7-25: 385-7722.
Jack Villa: Candidate for City Council, re: $4 mm concessions requested of unions. Hope that the city offers something in exchange- low layoff deals, no contracting, etc. No greed, ego, pride, anger, just making Oxnard better. Must be a win/win, in good faith for city and residents.
Phil Molina, Re: GFA Award for audit excellence- won’t get for a qualified audit (previous question from Perello)
Larry Barberi: Thank Council on utility rates, Thanks for Speaking at Calvary High school graduation, keep fighting murders/crime- #1 priority. Appreciate Mayor efforts. Fathers not in homes- 70% in home s without fathers.
Al Velasquez: Sympathize w/Joshua Vann’s mother. Police Dept. has had constant reductions in funding. Understaffed. 18-20 vacancies, 18-20 on light duty. What are you doing to assist? It now takes hours to respond to calls. What kind of messages are you sending to criminals?We are paying the price.
Pat Brown: Ask Police and Fire to hold raises until we can straighten out finances. They will just have to be patient or go somewhere else to work. Residents stop picking on staff. People at fault are not here anymore.
Mayor Flynn queried OPD Chief Williams on number of officers out and recruitment lag- how many positions looking to fill? Williams: 10 vacancies right now- all in Patrol. Some on Workers Comp., too. Need 10 unfunded positions in budget for this (workers comp). 16 on Workers Comp. now. Flynn: Is that separate from light duty? Injured on duty (IOD) per Williams. The 16 covers them all. MacDonald- we eliminated 15-20 on last budget, $3/4 million removed from budget.
City Manager Report
Nyhoff: $4mm in concessions is reduced to $600,000 in the current budget. Short-term rentals survey will be on lime 7/20. 7/28 downtown vision plan session. 7/26 session at VC Govt center on levee l improvements meeting.
Council member comments
Perello: Thanks to MacDonald for his work on Fiscal Policy Task Force Chair. thanks to Dan Pinedo for putting meeting videos on Internet. Thanks to Nyhoff for working on Soccer field problems. Therte are West Nile virus mosquito problems.
Ramirez: Congrats to Chief Williams (leaving) for winning Phoenix Police Chief job. What are we actually accomplishing with grants to help young man of color? Want report on this. CA Coastal Trail meeting.
MacDonald: Congrats to Chief Williams. best wishes. Celebrate Life meeting for Cancer Survivors. Pacific Surfrider train line will add additional trip per day soon.
Padilla: Oxnard Downtown Improvement. Dist Thurs 830 Heritage Square Hall/ PBD funds. New Dir. Josh Traylor. Oxnard Convention Bureau. Padilla is Going to Oxatlan, Mexico sister City. Cultural Arts Commission grants. Policing isn’t the only crime solution- need community work. Fears that these quality of life issues/projects will be overlooked due to major finance/utilities problems.
Flynn: Hope to defeat cancer- went to cancer walk. It goes on 24 hours (he didn’t go that long). Need more people involved next year.
Information Consent agenda (L)
All 8 items approved.
Item M continued to 7-26-16
Item N-1- Memo of understanding for cost reimbursement for 7 police officers assigned to Oxnard school District (42,000 students) 4 assigned to High schools. Oxnard , Hueneme and Rio districts.
Covers, safety, bullying, healthy choices,. substance abuse, technology, students, parking, traffic, criminal events/ Objective is to provide a safe environment. Loitering, speeding, traffic issues. Thefts, assaults, alcohol, weapons, truancy, gangs, runaways, even parental conflicts. Prevention-based posture- role models. Citing/arrest is a last resort.
Police activities League, sports coaching, Jr High law academy, bike safety, heroes and helpers, attendance, etc.
Measurable activity: 2000 parents counseled, 200 presentations- anti-bullying, gang, drugs, attendance, 300 crime/incident reports, 400 arrests, citations .
Costs -large increases, due to community priorities- building relationships with schools and youth organizations.
OUH+SD $522,000
OSD $261,000 75% of cost.
RSD $45,2450 and HSD $85K (Prorated)
Motion passed unanimously
S. Oxnard Library water damage remediation settlement (N-2)
Not sure why it happened- defects in materials, settlement? Inspection did not detect. Cost of $905,000.
A discussion ensued on why this happens and how to prevent it. Not much in the ways of answers. Dan Rydburg discussed an overall building asset management inspection program. He doesn’t know what the specific library damage causes were.
Approved unanimously.
Water rate increase- First reading- N-3
Dan Rydberg presented a history of the rate-setting process, which dates back 2 years. It involved a technology, capital, maintenance and rate plan, followed by outreach programs, workshops, tours, community forums, civic organization presentations, radio, TV, Internet and print to try to explain it. On January 26, water rate increases were fought off and not implemented. An April update was given. A new proposed increase would go into effect in October, 2016.
Rydberg described it as a rebuilding programs, stating that it has been neglected, with some near-failing infrastructure, he also cited significant regulatory compliance and reserve-building issues.
He mentioned that all revenue and expenses are separated by utility and from the general and other funds, although there are some shared service cost allocations/transfers.
Rydberg mentioned that ratepayers can only be charged for actual costs (+ reserves) for their class of use. Usage penalties not allowed now.
The large decrease in water usage due to the long-running drought and conservation efforts has hurt the budget, since fixed costs aren’t being recovered well. Backup wells, recycled water and interconnecting/sharing with other jurisdictions is being looked into. Old pipes need replacements/repair. Most water meters are worn out- many are failing ($14 mm). Corrosion-resistance systems need replacement. The maintenance control system needs updating. Te pipe-flushing schedule is way behind, due to drought and staff. New systems to do this can reduce loss.
Bottom line- revenue hasn’t kept up with expenses. It’s even worse, due to deferred maintenance and vanishing reserves.
The bond coverage ratio is slipping. $36 MMM fund balance is now way down since 6-30-15. Some of reserves are allocated to specific projects, so actual amount available for new projects is very small. Forecasted reserves will be down to $1.8 MM or lower by year end. The Proposed increase would leave over $4MM in the fund.
The city wants to delay some street resurfacings until they can coordinate with needed new pipe laying. Brittle old pipes are more likely to break during street resurfacing.
add water divsion expense charts here
Proposed increase (for a typical residential customer)
2015- 45.24
2016 $50.91
2020 $70.57
Public speakers:
Danel Chavez Jr: Thinks a rate increase is needed but only in small chunks.
Shirley Godwin: Drinks water straight out of the tap, doesn’t want the water made harder. There was a bad water leak on her street. Rate comparisons with other cities are not valid. We have our own set of circumstances. Should not put off increases.
Larry Godwin- rate increase should be more, faster. He has been following utilities for years. It was obvious that increases had been deferred excessively, too much deferred maintenance, deferred projects.
Larry Stein: Different user categories. One is GREAT (recycling system project) water. There are debt service considerations. GREAT users not being charged proportionally for feeder service or proportional debt service. We are subsiding GREAT water users. Impact fees are too small. What would be the cost of recharge wells? 14,00o acre-feet of water from Callegas. We (residents) pay 4X as much as farmers.
Phil Molina: a qualified audit means we can’t trust the numbers. As of June, had $36 MM in the water enterprise fund alone. A year. How much do you really need? Should be able to handle expenses. An interest increase of 1% would be $20MM over many years. The biggest expenditure increase is contracted service- up 4X. Would save $3MM without this. Repairs is $1.5MM vs ,5MM typical. Some should actually be capitalized. Was$ 51 for 700 cu ft- way higher than Fresno. My water is at the top of the scale of hard water. Rate increase is NOT needed. Wait until next audit.
Larry Barberi: Appreciate MacDonald’s no vote and Flynn and MacDonald’s later no vote. More burdens on ratepayers not needed. Want to vote for ballot initiative to rescind increase. City can make money by selling recycled water at higher rate. Put the transportation tax on ballot, school bond– we have paid in much already.
Barbara M.- For many years, there was no increase on utilities. She knows people from other cities who pay less. We have had an easy ride. We are the most overcrowded city in the county. Cost per resident not actually that great. Need to educate people on why we need it.
Alicia Purcell- Only showing rates as of 2017 on the meeting materials chart. It will be MUCH higher after GREAT increases. Other cities import much more expensive water and pay more. More than half of the capital plan is for GREAT water recycling. ROI is tiny on this project- $1.8MM vs 400 MM+ in capital costs. There is a proposed 66% water increase- many, many protest cards were filed. many came to protest. The increase will squeeze big water using businesses greatly.
Aaron Starr: Rate increases are abusive to cover extravagant 400+million capital expenses- $265 mm is for GREAT water used by very few people . $7MM annually transferred from enterprise to general fund.
Al Velasquez: Ratepayer advisory panel OPPOSED the excessive rate increases. MacDonald OPPOSED the rate increases and recommended doing it over 10 years. Where does the money come from? You raised my wastewater 35% first year. Over 700 came to oppose increases in January.
Mayor Tim Flynn queried Rydberg: Revenue vs credits. Proven to be difficult to convey the plan/rationale to anybody. Several hundred million already invested in the GREAT programs and hundreds of millions more would follow, but only generate tiny revenue. Rydberg: benefits from revenue plus credits for using less imported water. The original purpose of GREAT was for preventing seawater intrusion and providing recycled water for agriculture, reducing imported water. Now, not doing the seawater barrier, but selling to ag customers , plus water allocation at$700/acre-foot, vs importing at $1200/ac/ft. This is a 20-24 year project. Trading of pumping allocations was the big selling point. Flynn: $7MM /yr for utilities paying for police, fire, trash truck road wear, utilities cutting into pavement. Also some reimbursement for other depts. working on utilities.
Flynn: It appears that the water presentation did a poor selling job and did not properly present all of the true costs and benefits.
Millican said that the presentations (Rydberg vs Molina) were confusing in that they alternated between cash and full accrual costs used. On a cash basis as Molina presented, it sounds OK, but all reserve coverage ratios would be violated. Also need to consider rate fluctuation reserves. “Impending doom” occurs at 2017-end without rate increases. Some funds are allocated to spend on building capacity/expansion. And yes, I am a CPA, he told us, in response to thee question from Al Velasquez.
Mayor Flynn- Is Oxnard on a capital improvement binge of unparalleled scope- Disneyland (sarcasm)? Rydberg: (critics) are cherry-picking data to make their points. The large numbers are from a 25 year master plan. Rates only cover first 5 years. Flynn and Rydberg claim that the bulk of the 5 year expense is not in GREAT program. $500K /year for repairs is ridiculously low. Flynn: what about consultants- used for services and fill-in for vacant positions. Rydberg: have averaged $8MM/yr for consultants for public works, some for fill-in, some services.
Councilwoman Padilla- This has been a long, tedious process. Need financial stability/reliability. Council approved reserve policies this year. Supports raising all utilities.
MacDonald- Yes, need a rate increase, need to fix stuff. Do we just keep patching up or re-pipe house? The city is in this situation. But, there are people on fixed income struggling. 65% increase proposed over 5 years. Willing to look at a shorter term, minimal amount needed to maintain us on an even keel. Conservation has cut water (and wastewater) revenue. Nervous about funding public safety from enterprise funds. Law changes could end this. $304/yr increase- This is just one utility. I can’t say yes to this much of an increase. I can’t support it in this form.
Ramirez- Here we are again. What will we tell community when the system fails? We don’t want to be like Flint, MI. Infrastructure is being neglected. Water systems throughout the state are in poor shape. I do support increase. Have to trust our staff. This is also public safety. We have some very smart people in the room who have found a way to create doubt. We are in a very precarious situation. Don’t want to pay more but we need to.,
Bert Perello- I don’t totally understand. Have tremendous respect for one of the people who spoke. Have we squeezed efficiency out of the system we have? Re: Rio Manor water supply- asked for written report- haven’t gotten it., Utility rate advisory panel- did NOT support rate plan. A whistleblower said we were treating a tremendous amount of water to highest levels, but dumped it down the drain. I hear that some are not paying for recycled water. Staff hasn’t explained it to me well enough, I can’t explain it to the lady who corners me in the grocery store. Pitch of GREAT water was that would qualify as potable water. We are selling it for less than what it costs to make. We are told it is tremendous, leading edge, but it is subsidized on the backs of ratepayers. There will come a time where people might have to say “I can’t afford to live here anymore.” I cannot support this increase. I don’t believe that you have sold it to this councilman. Will not go along, get along, like I did fire station 8. Need more common sense, plain English, understandable, conveyable answers.
Nyhoff- Have never cumulatively had these kinds of rate increase. However, we count on water. We need this. Must ensure adequacy of pledged revenues. The audit says water and wastewater funds are no in compliance. Goal is 1.25 reserve coverage. We are playing catch-up on rates. This is just the first 5 years- replenish reserve accounts, bond coverage and start making improvements to the water system. These are best practices. It gives me great concern to be sitting at $1.8MM and wastewater looks bad too.
Flynn- I voted against water and trash increases, but voted for the wastewater increase, which was badly needed. I believe all need increases, but turned (water and solid waster) down due to doubt over city’s financial status. Also, there was poor community outreach. No question in my mind that city needs an increase in water rates. There will be doubters all through the process. They have created doubt in minds of the public. We should launch the most ambitious public outreach program in our city’s history. a survey said 77% of people don’t know where its water comes from and where the money comes from. Then he went on to praise Rydberg’s outreach, after just panning it. Then he said it hasn’t been effective. Only 800- people reached, he said.
So basically, he blamed it on Oxnardians being too stupid (or too clever for their own good) and his staff doing a poor job of selling it. Not that there is anything at all wrong with the plan. Then he said the public have valid reasons for questioning it but the plan/proposal is valid. Then he sought ways to bypass the Prop 218 process. Fischer said if the rate study basis assumptions used are still valid, it would still be OK. Rydberg says assumptions haven’t changed.
Ramirez- What are the consequences of delaying them for 90 days. Nyhoff: that delays building reserves.
Flynn- my understanding is that reserves will go until March. Nyhoff- if delayed, increase might have to be larger.
Ramirez- we are in a precarious situation.
Motion by Ramirez, Padilla to make rate increase.
Vote: Flynn no, Perello no, Mac Domald No, Ramirez, Padilla yes- motion failed.
Flynn wants 90 day public outreach period. MacDonald would be more willing to approve smaller increase. Perello wants to see better business plan.
Perello- if it’s not explained better in 90 days, it’s still NO. This does not deny us ability raise rates later.
Flynn made motion to bring this back in 90 days. Perello wants GREAT business plan
Vote: Unanimous.
N-4 Amend regional wastewater ordinance- Las Posas area, etc. Interim rate was approved, but not for regional customers. 30% increase Oct 1, more later.
MacDonald- this lacks detail. 30% of what?
Motion: Ramirez, Perello- Vote – passed- unanimous.
N-5 A %555,198 Perkins Road recycled water line. Total appropriation is $601, 165.
620 ac ft /yr. Up to $1MM in annual revenue, less than 1 year payback. Additional funding coming from Metropolitan Water. Recycled can only be used for ag, irrigation, industrial use. Rate is 15% less than irrigation rate. Includes exchange of pumping allocation credits.
Perello- not enough recycled water customers? Rydberg- it is most cost-effective to distribute to largest customers. Will it be a prevailing wage job? No. Will it be American made pipe- high quality standards?
This customer is only 150 ft from the GREAT facility, so why is the project so expensive?
George Miller is Publisher of CitizensJournal.us and a “retired” operations management consultant residing in Oxnard.
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