The costs allocation plan is very complicated. Probably by design, so Water rate payers don't realize they are paying up to 1/2 of city expenses like City Council and City Manager and Administration. Imagine that the water and wastewater rate payers decided to form a separate district and part ways with the city. Do you think the city would be able to cut administrative expenses by 1/2 because there would be so much less work to do? The city can do this because it is complicated and really no one is paying much attention.
An honest assessment and allocation would result in reduced rates for the water and sewer payers. The city would than be required to take a hard look at their cost structure and either reduce costs or find a true revenue source
The May 5 discussion is important, but it should not be viewed as the beginning of this issue. This has been unfolding for years, across at least three City Manager administrations: Larry McLaughlin, Don Schwartz, and newly appointed City Manager Mary Gourley.
The key public moment I keep coming back to is the October 3, 2023 City Council meeting. At that meeting, during the water and sewer rate discussion, the Council asked how the General & Administrative allocation to the enterprise funds was being determined. Staff stated that the allocation was based on the 2001/2002 cost allocation study. In other words, ratepayers were being asked to consider major rate increases while a major component of the charges to Water and Wastewater was still based on a roughly 21-year-old methodology. The minutes also show that the current utility rate study itself had been initiated later than anticipated because of workload, even though existing rates were already insufficient for infrastructure and capital needs.
That matters because ratepayers were already paying the bills. They were paying under old assumptions, old formulas, and unclear documentation. When this was finally questioned publicly, the answer was essentially: yes, the allocation study is old, and yes, a new one is coming. But coming later. First quarter of 2024 was the expectation. That was during Larry McLaughlin’s time as City Manager/City Attorney. Don Schwartz would not begin as City Manager until January 2024.
So this is not a sudden technical disagreement that appeared in 2026. The problem was visible by at least October 2023, and the underlying methodology went back more than two decades.
Under Don Schwartz, the City did finally bring forward a new Indirect Cost Allocation Plan on February 20, 2024. That study was significant because it confirmed what many ratepayers had suspected: the old approach was materially shifting costs onto Water and Wastewater. The staff report said the new plan would increase the burden on the General Fund or similar discretionary sources by over $714,000, with corresponding decreases to the Water and Wastewater enterprise funds. Specifically, it showed decreases of roughly $510,000 to Water and $204,000 to Wastewater.
But this is where the “slow roll” becomes hard to ignore. The City had been directed in October 2023 to complete the cost allocation study and answer questions before returning with a new rate proposal. By May 21, 2024, staff acknowledged that direction. Yet the rate proposal had already moved forward on April 23, 2024, and the staff report noted that many Council and public questions remained, with Council questions nearing 30.
That may be procedurally defensible from the City’s point of view, but from a ratepayer’s point of view it looks backwards. The rates moved forward while the deeper questions about overhead, actual costs, documentation, and fairness were still unresolved. The new study reduced some charges, but it did not settle the core issue: are Water and Wastewater customers being charged only for the actual, proportional cost of service, or are they still being used to backfill General Fund expenses?
The creation of the Enterprise Fund Oversight Committee shows that the public concern did not go away. In November 2025, the City described the committee as a response to community concerns about governance and oversight of the Water and Wastewater enterprise funds, and as a way to increase transparency and accountability.
But even then, the process continued slowly. By April 28, 2026, the committee agenda still described Option A as a placeholder, pending recommendations from the Enterprise Fund Oversight Committee to the Budget Committee and ultimately to the City Council. Then on May 5, 2026, the Council considered Scenario A, which staff described as a placeholder approach that would allow the FY 2026–27 budget process to continue moving forward.
That is the point I hope does not get lost: ratepayers are not objecting to paying for water and sewer service. We all understand that infrastructure costs money. The objection is to years of unclear, outdated, and insufficiently documented allocations being allowed to persist while ratepayers absorb the impact.
This has now spanned Larry McLaughlin’s tenure, Don Schwartz’s tenure, and Mary Gourley’s interim administration. At every stage, the answer has been some version of: the study is coming, the methodology is being reviewed, the committee will look at it, the recommendation is pending, or the current option is only a placeholder.
At some point, “we are working on it” becomes the problem. Ratepayers deserve direct billing where possible, actual documented time where staff time is allocated, year-end reconciliation to actual expenses, removal of unrelated costs, and refunds or credits if past charges cannot be justified. This should not take another budget cycle, another consultant report, or another City Manager.
Council member Carter did announce it will be fixed with baby steps!! The current draft budget shows a $169,000 reduction in costs being allocated. $50,000 of that is being charged back directly for "legal costs" (that is only about 5 times the cost of the city's attorney's actual time billed) .....Thanks for adding your common sense to the discussion.
Proposition 218, passed in 1996, amends the California Constitution to restrict local governments from raising water rates without strict justification, requiring that fees do not exceed the proportional cost of service. This means that water rates must reflect the actual cost of providing service to each parcel and can't be used for anything else.
It is clear that for many, many years Sebastopol has been charging "overhead" expenses to the rate payers in excess of the cost of delivering services. We, rate payers, have not had a city manager for almost a year. Yet, the city charged $286,000. to the rate payers for a vacant position. That is an average of $95. for every rate payer this year. And this is just one example, of many, where we have been over-charged.
The Cost Allocation matters because Prop. 218 and Prop. 26 do not allow California cities to subsidize the General Fund with revenue from Water and Sewer Bills. Thus, if the City does not have the ability to justify their costs, the Cost Allocation might be illegal.
Several California cities have faced lawsuits alleging violations of Proposition 218, often resulting in settlements or court orders to repay millions in overcharges.
The costs allocation plan is very complicated. Probably by design, so Water rate payers don't realize they are paying up to 1/2 of city expenses like City Council and City Manager and Administration. Imagine that the water and wastewater rate payers decided to form a separate district and part ways with the city. Do you think the city would be able to cut administrative expenses by 1/2 because there would be so much less work to do? The city can do this because it is complicated and really no one is paying much attention.
An honest assessment and allocation would result in reduced rates for the water and sewer payers. The city would than be required to take a hard look at their cost structure and either reduce costs or find a true revenue source
The May 5 discussion is important, but it should not be viewed as the beginning of this issue. This has been unfolding for years, across at least three City Manager administrations: Larry McLaughlin, Don Schwartz, and newly appointed City Manager Mary Gourley.
The key public moment I keep coming back to is the October 3, 2023 City Council meeting. At that meeting, during the water and sewer rate discussion, the Council asked how the General & Administrative allocation to the enterprise funds was being determined. Staff stated that the allocation was based on the 2001/2002 cost allocation study. In other words, ratepayers were being asked to consider major rate increases while a major component of the charges to Water and Wastewater was still based on a roughly 21-year-old methodology. The minutes also show that the current utility rate study itself had been initiated later than anticipated because of workload, even though existing rates were already insufficient for infrastructure and capital needs.
That matters because ratepayers were already paying the bills. They were paying under old assumptions, old formulas, and unclear documentation. When this was finally questioned publicly, the answer was essentially: yes, the allocation study is old, and yes, a new one is coming. But coming later. First quarter of 2024 was the expectation. That was during Larry McLaughlin’s time as City Manager/City Attorney. Don Schwartz would not begin as City Manager until January 2024.
So this is not a sudden technical disagreement that appeared in 2026. The problem was visible by at least October 2023, and the underlying methodology went back more than two decades.
https://www.cityofsebastopol.gov/wp-content/uploads/2022/12/APPROVED-October-3-2023-FINAL-City-Council-Meeting-Minutes.pdf
Under Don Schwartz, the City did finally bring forward a new Indirect Cost Allocation Plan on February 20, 2024. That study was significant because it confirmed what many ratepayers had suspected: the old approach was materially shifting costs onto Water and Wastewater. The staff report said the new plan would increase the burden on the General Fund or similar discretionary sources by over $714,000, with corresponding decreases to the Water and Wastewater enterprise funds. Specifically, it showed decreases of roughly $510,000 to Water and $204,000 to Wastewater.
But this is where the “slow roll” becomes hard to ignore. The City had been directed in October 2023 to complete the cost allocation study and answer questions before returning with a new rate proposal. By May 21, 2024, staff acknowledged that direction. Yet the rate proposal had already moved forward on April 23, 2024, and the staff report noted that many Council and public questions remained, with Council questions nearing 30.
That may be procedurally defensible from the City’s point of view, but from a ratepayer’s point of view it looks backwards. The rates moved forward while the deeper questions about overhead, actual costs, documentation, and fairness were still unresolved. The new study reduced some charges, but it did not settle the core issue: are Water and Wastewater customers being charged only for the actual, proportional cost of service, or are they still being used to backfill General Fund expenses?
https://www.cityofsebastopol.gov/wp-content/uploads/2024/01/Agenda-Item-Number-5-Cost-Allocation-Study.pdf
https://www.cityofsebastopol.gov/wp-content/uploads/2024/01/Agenda-Item-Number-9-Water-Sewer-Rates-Discussion.pdf
The creation of the Enterprise Fund Oversight Committee shows that the public concern did not go away. In November 2025, the City described the committee as a response to community concerns about governance and oversight of the Water and Wastewater enterprise funds, and as a way to increase transparency and accountability.
But even then, the process continued slowly. By April 28, 2026, the committee agenda still described Option A as a placeholder, pending recommendations from the Enterprise Fund Oversight Committee to the Budget Committee and ultimately to the City Council. Then on May 5, 2026, the Council considered Scenario A, which staff described as a placeholder approach that would allow the FY 2026–27 budget process to continue moving forward.
That is the point I hope does not get lost: ratepayers are not objecting to paying for water and sewer service. We all understand that infrastructure costs money. The objection is to years of unclear, outdated, and insufficiently documented allocations being allowed to persist while ratepayers absorb the impact.
This has now spanned Larry McLaughlin’s tenure, Don Schwartz’s tenure, and Mary Gourley’s interim administration. At every stage, the answer has been some version of: the study is coming, the methodology is being reviewed, the committee will look at it, the recommendation is pending, or the current option is only a placeholder.
At some point, “we are working on it” becomes the problem. Ratepayers deserve direct billing where possible, actual documented time where staff time is allocated, year-end reconciliation to actual expenses, removal of unrelated costs, and refunds or credits if past charges cannot be justified. This should not take another budget cycle, another consultant report, or another City Manager.
Council member Carter did announce it will be fixed with baby steps!! The current draft budget shows a $169,000 reduction in costs being allocated. $50,000 of that is being charged back directly for "legal costs" (that is only about 5 times the cost of the city's attorney's actual time billed) .....Thanks for adding your common sense to the discussion.
Proposition 218, passed in 1996, amends the California Constitution to restrict local governments from raising water rates without strict justification, requiring that fees do not exceed the proportional cost of service. This means that water rates must reflect the actual cost of providing service to each parcel and can't be used for anything else.
It is clear that for many, many years Sebastopol has been charging "overhead" expenses to the rate payers in excess of the cost of delivering services. We, rate payers, have not had a city manager for almost a year. Yet, the city charged $286,000. to the rate payers for a vacant position. That is an average of $95. for every rate payer this year. And this is just one example, of many, where we have been over-charged.
The Cost Allocation matters because Prop. 218 and Prop. 26 do not allow California cities to subsidize the General Fund with revenue from Water and Sewer Bills. Thus, if the City does not have the ability to justify their costs, the Cost Allocation might be illegal.
Several California cities have faced lawsuits alleging violations of Proposition 218, often resulting in settlements or court orders to repay millions in overcharges.
This is exactly the type of thing that a trained City Manager keeps an eye on.
Guess the Grand Jury had something to say on the matter.
https://sonoma.courts.ca.gov/system/files/grand-jury/05-12-2026-sebast-water-posting.pdf