Santa Paula Council: Financial Issues Dominate Agenda

 By Sheryl Hamlin

Financial implications dominated the three hour and 50 minute Santa Paula Council Meeting of February 21, 2016 and were an integral component of six items on the agenda:

  • Salary Analysis
  • Chloride Removal at Waste Water Treatment Facility
  • Operations & Maintenance (O&M) Contract for the Waste Water Treatment Facility
  • Annexation by the Ventura County Fire Department
  • Proposed Change to Measure T Oversight Committee Composition
  • Report of the June 30, 2016 Audited Financial Statements


City Salary Survey

City Manager Fontes spoke about the City Salary Survey prepared by Elizabeth Paniagua which he called a “follow up” to the 2015 Salary Survey. He said that they are studying what it would take to achieve “parity with other cities”. Note that raises were given to several classifications of employees within the last six months.

Chloride Removal Program Waste Water Treatment Plant

John Ilasin, acting Public Works Director, reported about the negotiations with the Regional Water Quality Control Board with respect to the city’s permit. The water softener buyback has had a measurable effect dropping chlorides 15%. The new proposal will remove chlorides from the percolation pools before it gets into the groundwater. They already have customers for this water: golf course, small farmers and Limoneira. This will be cheapter than the $40 million Reverse Osmosis (RO) system proposed by PERC, the current plant operator and partner with Alinda Capital in the previous DBOF. The city is hoping for another ten year permit.

Waste Water Treatment Facility Operations & Maintenance Contract

John Ilasin presented the “cleanup version” of the agreement based on the discussion from the previous session. Vice Mayor Gherardi said she has been looking for a summary of all costs to run the plant but has received no financial information whatsoever. She said she is uncomfortable working in the dark. The problem now is the April 2017 deadline for the city to have a new O&M contract in place per the bond covenants and commitments related to the buyout. PERC presented a list of items (not in the packet, but discussed) which must be replaced. John Ilasin said that the city does not have the qualified staff to make such determination, so has hired a consultant, whose analysis should give an indication of future costs to the city. Also, American Water, the newly chosen operator, has six months to determine what the plant needs, which will also generate more costs to the city. The council crafted a motion to incorporate both timelines in order to move ahead with the O&M contract. Read previous reports here and here.

Annexation by the Ventura County Fire Department

This item has been on the council several times: click here and here for previous reports. At the February 21, 2017 meeting, Chief Araiza presented a more detailed report of costs to join VCFD .

Three alternatives were presented extrapolated to FY22/23: 1) Status Quo, 2) Status Quo fully funded with 5000 additional population and 3) annexation to VCFD. The financial development of this final option was still incomplete. Stan Hoffman is updating the previous study for East Area 1 in terms of buildout schedule, which will be added to the future dates. The staff analysis continues to use “received” property tax rather than assessed values, the method used by the county, which will yield higher costs to the city. There will still be costs in Alternative #3 because there are legacy retirement benefits for existing department retirees which will reach over $1 million by 2022 and Fire Administration costs to move the Chief to a full-time, six-figure position in Code Enforcement. The city loses the revenue from the permits and fees brought in by the SPFD, so residents will go to the county in the future for current services. The council voted to move the application forward to LAFCO and more work will continue on the analysis.

One important point to note is that Santa Paula has “negotiated” a rate of 16.5% with VCFD, the highest in the county. This means that 16.5% of the property tax differential (difference between current and previous years) is added to the previous year’s payment to VCFD. Click here to see the rates paid by other cities.

Measure T Oversight Committee

Chris Rivera, Vice President of the Santa Paula Police Officers Association, presented a concise, well-articulated history of the Measure T tax and its associated Oversight Committee. Officer Rivera said that over 20 members of SPPD campaigned for Measure T. His organization anticipates salary and facilities relief. SPPD may lose 9 officers and 2 dispatchers are servicing multiple agencies. The SPPOA does not support the addition of a sixteen year old student to the Measure T Oversight Committee, he reported, saying that this committee is not the place to “gain life experience”. The council voted not to include a sixteen year old on the committee with Council Member Procter saying that eventually the committee should be enlarged from five to seven members.

Presentation of the June 30, 2016 Audited Financial Statement

Sandra Easley, Finance Director presented a six-slide Powerpoint describing all of the funds in the city’s financial report. It was not disclosed if the cash balances had been audited, which was one of the questions submitted prior to the meeting.

The summary of the “Net Position” showed that the General Funds have decreased but the Enterprise Funds have increased, offsetting this decrease. However, the increase in the Enterprise Funds is due to an increase in Capital Assets and not Cash or equivalents.

The Management Report was not discussed in any detail except to note that the auditors said the city did not make any auditable accounting faux pas. The auditor’s role is merely to check that all the pieces are in place and summarized property, according to the auditor’s representative.

Vice Mayor Gherardi and Sheryl Hamlin both submitted questions prior to the meeting. Director Easley answered the Vice Mayor’s questions. To read the Hamlin questions, click here.

One of the questions asked was in reference to the $692,843 loss mentioned in the brief Management Summary in the audit on page 150. On page 160 and 168, a loss of $771,225 was shown. According to Director Easley’s response, the smaller value is strictly for the General Fund, while the latter is the entity-wide change in net position. This loss was described in a distributed, written response only and not discussed by the council.

In Public Comments, Sheryl Hamlin asked how the council could make educated decisions without more timely financial information and why there was no discussion about the loss.

Vice Mayor asked about making decisions without an updated financial statement. Note that the council does not receive quarterly financial updates. She indicated that no one refers to over-budget spending when making appropriation requests. Council Member Hernandez said very matter-of-factly that “there is no procedure” for over-budget decision making, thus it is not done. No procedure! How many businesses or families make spending decisions without checking on the ability to pay? Evidently the City of Santa Paula needs “a procedure” to make such decisions.

Mayor Crosswhite asked an extremely astute question when she observed the rise in the city’s net Pension Liability on page 192. The Auditor related briefly the history of CalPERS dwindling returns. Historically, they had reported over 7%, which means they expected a 7% return on their investment to pay pensions. However, due to the ZIRP (zero interest rate policy) of the Federal Reserve for the last few years, the actual rates of return have been around 1%, which means that the city MUST make up the difference. This is a HUGE liability for Santa Paula. Read more about this issue here which will affect every city in California adversely.

The council voted to receive and file the audit.

NBS Water and Sewer Rate Study

Recall that this item had been initiated several years ago in 2013 spending $79,000 at the time without implementing the rates. The council has decided to revisit the rate structure in order to make up for the deficits in the Enterprise Funds. See $3 million drop in Current Assets on line one of slide two showing $49,611,496 last year to $46,506,899 on June 30, 2016.

The goal is full cost recovery, said Council Member Hernandez. The bond consultant Phillip Curl, a colleague of Terry Maas, indicated a “sizable savings” from the new contract with American Water. Recall that American Water was the highest bidder and required the city to pay PERC a buyout of almost $900,000. Vice Mayor agreed that there would be savings, but again, asked for a detail of such savings. She felt uncomfortable spending $75,000 now without all of the financial picture in place, to which Council Member Hernandez replied that the study would provide these numbers. The 10 items needing replacement as reported by PERC (discussed but not distributed) were again referenced as well as the six-month due diligence by American Water. The decision was to award the contract to NBS requiring them not to proceed until all data is in place. There was no discussion about the source of funding for this contract.

To watch the video and download the reports, click here.


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