Down the tubes, Part 2: Rate increases proposed for Sebastopol's troubled wastewater system
The rate you pay will now depend on the size of your wastewater pipe: the smaller the pipe, the lower the rate.
This is Part 2 of an article on the proposed increase in Sebastopol’s water and sewer rates. Part 1 dealt with how the rate study was structured and the proposed increase in water rates. Today’s section deals with proposed rise in wastewater (or sewer) rates, and the council’s and public’s reaction. The charts in this section are from the Raftelis presentation to the Sebastopol City Council.
What’s up with the wastewater system?
Like the water system, the wastewater or sewer system is old and in need of repair. Financially, it’s in far worse shape than the water system and will have to borrow $1.1 million from the general fund this year to remain solvent. The current revenue does not meet the operating expenses of the wastewater system, let alone the cost of improvement or reserves. The wastewater fund will also have to reimburse the city general fund for that $1.1 million loan.
The new revenue targets for the wastewater system are as follows: a 50% increase in revenues in fiscal year 2024-25, starting in July, followed by an 11% increase the next year and 10% increases in the next three years after that.
Wastewater rates will be based on the size of your meter. You could think of your meter as the size of your pipe: little pipes cost less (because they discharge less) and bigger pipes cost more (because they discharge more). (The size of your meter is listed on your bill. Most homes are less than one inch.)
The average wastewater bill for a single family residence in year one of the new plan would increase from $138.47 to $188.07 every other month, an increase of $49.60.
The bottom line
Sebastopol residents receive a combined water and wastewater bill every other month. With the proposed water and wastewater rates, the bill for an average single family residence would increase by approximately $86 every two months. If approved, this increase would take effect in July 2024.
Explaining these steep first-year increases, Kostiuk said, “We have to stop the bleeding, get out of negative territory, and on track for the future.”
Public comment
As might be expected, there was plenty of public comment on this topic. Several commenters—those in favor of the increase and those opposed to it—asked the city to create an independent water/wastewater committee, consisting of councilmembers and community watchdogs.
Oliver Dick and several others opposed the three-tier rate structure. Dick argued that since the city sits on its own aquifer, “We don’t really need to be thinking about conservation and tiers and penalizing people for using too much water because we have practically limitless water regardless of droughts.” He also said the tier structure was unfair to people with large families, and people with ADUs or gardens.
Some of the comments were blistering.
“This report shows an alarming and radical mismanagement of the city’s most basic infrastructure,” said frequent commenter Kate Haug. “It reveals zero concern and care for the most fundamental services that a government supplies: water and sewer. The previous council and city manager misappropriated funds from water and sewer for at least 10 years. They illegally breached their fiduciary duty and used revenue collected for water and sewer to subsidize the General Fund. This was documented in the recent allocation study, which showed over $700,000 in misallocated funds. It was the first allocation study in 20 years. Prior years most certainly had equal amounts of misappropriation. A forensic accountant would be able to determine how much was misappropriated. In the most simplistic terms, the city manager and council stole money from water and sewer ratepayers. They perpetuated fraud by collecting money for one service and using it for others. This is completely illegal and in violation of California Prop 218. Like any case of abuse, the first step is to acknowledge what happened and to acknowledge it was wrong. In order to repair the wrongs of previous council, you must 1) determine how much money was misappropriated in the last 10 years; 2) create a mechanism to repay the money, whether it is a percentage of the new sales tax or part of increased TOT; and 3) create a separate body that advocates for water and sewer ratepayers to prevent future illegal behavior and to ensure the ongoing viability of our water and sewer infrastructure.”
After public comment was over, longtime City Attorney (and former City Manager) Larry McLaughlin spoke to Haug’s accusations of fraud and misappropriation. He blamed the problem of the balance of funds between the general fund and enterprise funds on the city’s failure to do regular cost allocation studies. Cost allocation studies look at the full costs of a government service by including both direct and indirect costs. For example, the full cost of the Public Works Department includes its direct costs (wages, benefits, maintenance, and operations) plus the indirect costs of support services received from central services (such as accounting, payroll, and IT.
Since the same people in Public Works had been doing the same job (with the same tasks) over a number of years, McLaughlin said that the council hadn’t thought it necessary to resurvey them in a new cost allocation study. He said, looking back, that he concurred with the new city manager’s plan of doing cost allocation studies more often going forward.
“There has been no intentional misleading of the public or in any other way trying to cloud the issue here,” McLaughlin said. “It was an assumption that may have turned out to be wrong—that the cost of producing water and sewer services would remain relatively the same year-to-year given the same staff doing the same jobs. I will say that if you went back and did a forensic look at all of the years previously over three city managers, you’re going to find out that we under-allocated toward the General Fund because we had two large instances of water contamination…and that took a great amount of additional staff time, as well as attorneys and other specialists, including geologists who were brought in…yet no further allocations were made toward the general fund.”
Council reaction
Honestly, the council looked a tad shell-shocked after this shellacking, but they stuck to the business at hand.
Councilmember Jill McLewis was the most assertive questioner. She took issue with the idea of a three-tiered rate schedule for water, preferring a flat rate, and inquired of her fellow councilmembers whether there was any support for that. None of the other councilmembers supported this idea.
McLewis, in reaction to some of the public comments, also pressed the city manager about what the city could do to avoid falling into this situation again.
Schwartz had three suggestions:
Doing a cost allocation study every three years. Cost allocation studies look at the full costs of a government service by including both direct and indirect costs. For example, the full cost of the Public Works Department includes its direct costs (wages, benefits, maintenance, and operations) plus the indirect costs of support services received from central services, such as accounting, payroll, and IT.
Review the revenue and expenses of the water and wastewater funds on an annual basis. “I think one of the reasons we got into this situation is we had some—especially on the wastewater side—some really significant drops in revenue that we weren't anticipating…I wasn’t here, but I got the sense that we didn’t react to that or really try and dig in and understand what was going on and what that might mean for us,” Schwartz said.
Create master plans that look at the present and future needs of the water and wastewater systems. “When I got here, somebody said ‘That all resides in Dante’s head,’” meaning Public Works Director Dante Del Prete—“I’m glad that he has a big brain and I have a lot of respect for him, but that’s not a real reliable way to track what’s going on and understand what your system really needs,” Schwartz said. “So we have to modernize ourselves and leap into the 21st century and put together the plans that really are industry practice. That includes documentation, that includes better record-keeping. That will help us get a better handle on things and prevent us from getting into this situation.”
McLewis asked who would be responsible for making sure all of this happened, and Schwartz said that would be his job.
Councilmember Neysa Hinton wanted to ensure that users from out of town who purchase water from the city of Sebastopol were paying the highest rate. “They’re not in our community paying taxes, so in my mind they should at least be in the top tier,” she said.
Councilmember Sandra Maurer supported the smaller rate hikes associated with Option 2. In addition, she said, “I’d like to see more transparency and more data on how we got here. I want to better understand the losses in wastewater, which have been called ‘unclear’ and ‘it’s still a mystery to us.’”
Noting that rates have gone up every year, Maurer also didn’t seem to buy the story that the city hadn’t invested enough in infrastructure. She mentioned the $5 million loan the city took out for public works in 2021—an investment that was billed as paying for itself. She requested a written analysis of how this money was spent and if it was in fact paying for itself.
Councilmember Zollman felt time was of the essence. “There is a need to straighten us out financially and also prepare us to make the necessary well replacement for Well 4—that is, according to what I’ve heard, 30% of our water. That’s very alarming to me, especially when I don’t know the status of the other wells. We need to get ourselves to a point where we can actually do a loan if we need to to get that squared away. That is really important to me.”
Mayor Rich came up with the idea of waiving the interest on the city’s $1.1 million loan to the wastewater fund and also suggested putting off the five-year schedule of repayment by one more year—starting in 2027-28.
Rich delineated the elements of the motion up for approval, and McLewis requested that the three safeguards Schwartz had described earlier be added to the motion.
The long and unwieldly motion was as follows: To approve and accept the water financial plan and associated rates for Option One; accept the wastewater lower service level financial plan and associated rates for Option Two; accept the tiered arrangements as proposed; direct staff to proceed with the Proposition 218 notification and rate implementation processes; schedule a public hearing for June 18, 2024; wave the interest on the loan; defer the payment of the loan for one year; ensure the safeguards as stated by the city manager are incorporated to include the cost allocation plan, annual review of water and wastewater revenues and expenses, and the master plans; and review of the waste hauler rates.
When it came time to vote on this package, Maurer was the sole dissenter. The motion was approved 4 to 1.
What happens next
Though it was approved by the city council, this package of water and wastewater rate increases is not a done deal. As stated in Part 1 of this article, the next steps are as follows: On May 3, the city will send out a letter to all rate payers informing them of the proposed rate increase. That will be followed by a 45-day protest period. (Opponents must submit a written protest.) A public hearing will be held on June 18 to receive public comments, count the protests, and consider the adoption of the water and wastewater rates. If approved, they will go into effect on July 1, 2024.
Looking for Part 1 of this article? Read it here.
Watch the Special Sebastopol City Council meeting discussed in this article. The next regularly scheduled city council meeting is May 7, 6 pm, at the Sebastopol Youth Annex, 425 Morris St., Sebastopol.
Seriously? Larry, who was not only our city manager but our city attorney, didn't know it was illegal for the city to spend our water and sewer payments on things other than water and sewer?? And the baloney he touted at the meeting was reminiscent of the Wizard of Oz saying "Don't look behind the curtain, there is nothing to see here". All of us were diligently paying our bills thinking it was actually going to what we were paying for and it wasn't. Not only are we not getting our money back that was illegally used for non water and sewer, now we are going to pay MORE. I figured out my bill and I will be paying 60% more for water and much more for sewer. So, between the water/sewer and the trash cost skyrocketing and the added parcel tax for fire, there are going to be many families and senior citizens who will be experiencing severe financial distress thanks to the last city council and two of our current members who neglected addressing these issues. I want to thank Council members McLewis and Maurer for asking probing, pertinent and thoughtful questions during that incredible important meeting. And our Vice-Mayor Zollman did a great job running the meeting.
Our last city manager /city attorney McLoughlan has a serious misunderstanding of how the illegal allocation scheme was constructed. First keep in mind in California it is against the law for a city to take water and wastewater rate payer money to pay for general operating expenses. He references a 20-year-old study that determined how much city staff time was spent on Water and Wastewater. that % is then applied to each affected department budget. Unfortunately, we take his word that this didn't change over 20 years because he previously reported that the study has been lost. If in fact staff time had only been allocated to water and wastewater rate payers his comments would be accurate and the expenses allocated would have been more defensible.
In fact, the city has been allocating a percentage of the entire operating budget of impacted departments which includes salary and benefits as well as all other expenses in that department, many unrelated to water and sewer. For example, 26% of the City Council operating budget was allocated to water and wastewater rate payers. It seems reasonable that 26% of city council time might be spent on these operations. But city council members are not paid. They do get some benefits which are allocated. The problem is that 26% of city council expenses like the grants for homeless services, support for World Friends, electric shuttle fair subsidies all get allocated to water rate payers but have nothing to do with delivering water to customers.
The new allocation study dramatically changed several department allocations. Before, 7% of the Fire budget was allocated to water and sewer for a reason lost with the 20-year-old report. Fire expense is not allocated at all in the new plan.
Mr McLoughlin tried to explain away the issue saying they probably under allocated expenses during a year where drinking water was contaminated. Under the old allocation scheme public works allocated more than $1MM per year in expenses to water and wastewater rate payers. The new study only allocates $300,000. For many years we as water rate payers have been paying for these inappropriate expenses.
Further defense included a geologist who was hired to study the problem. But a city manager should understand that such an expense would be a direct expense charged to the Water and wastewater enterprises and not subject to any allocation.
We are blessed that the Sebastopol Times even exists and reports on these events. We need a part 3 in this series that goes deeper into the facts here. It is important for us as Sebastopol Water and Sewer rate payers to know what we are actually paying for. There is no effective oversight over our water and sewer operations. We have no independent board. We have no one on the city council with expertise in water operations and water quality standards. Prior councils apparently didn't think investing in safe and reliable water infrastructure was even a priority. The Sebastopol Times is as close as we are going to get to the fourth estate. We do need a watchdog.