For more information on the last five years of utility-fee transfers and the current state of utility infrastructure, read the Sierra County Sun’s previous article:
Analysis: Why Truth or Consequences City Commissioners don’t have to be transparent, By Kathleen Sloan, December 2, 2019
At the Dec. 16 Public Utility Advisory Board Meeting, City Manager Morris Madrid informed the Board it would have a group meeting with the City Commission on Jan. 22 to hear how to set utility rates for the water and sewer department based on cost, which is a requirement of the loan agreement with the USDA.
The City recently was approved for a $5,487,000 loan and $3,930,000 grant from the USDA to fix the water pipes downtown, as well as to replace critical equipment at the Cook Street pump station and to add a water tank. The loan/grant is just for water-system repairs.
However, the city recently combined the water and sewer departments, which may be why the USDA can oversee rate-setting for both water and sewer fees. It may also be because the City has an outstanding USDA loan/grant for sewer-system repairs.
Although Madrid said water and sewer rates would be studied, he gave a contradictory statement to PUAB Member Ron Pacourek, indicating they would remain at the 5-percent-annual increase.
Pacourek, for months, asked the board to reconsider the 5-percent annual rate increase for the sewer and solid waste utilities, noting that neither has a sunset clause. At the last meeting, the discussion was tabled, which meant it should have shown up on the Dec. 16 agenda.
Madrid said he took it off the agenda because “the increase in the [sewer] rate is due to the USDA loan and can’t come off until the debt is paid off.”
Madrid did not state what USDA loan he was referring to, but the City’s 2017-18 financial statement reveals it received a $4,575,400 grant and $715,000 loan from the USDA to fix part of the sewer system in 2016.
In addition, the City Commission’s July 10, 2019 minutes reveal the USDA granted another $485,600 and loaned the city an additional $315,000 for further repairs to the sewer system.
It is unclear from city minutes if the second USDA grant/loan was wrapped into the 2016 grant/loan, however, the first loan expires in 2059.
Therefore, if Madrid is correct, the sewer fee will go up 5 percent a year through 2059.
Since the sewer rate is compounded every year, that is, builds on the 5-percent increase from the year before, residents and businesses face massive rate increases in coming years.
The same applies to the solid-waste utility fee.
Pacourek insisted, several times, looking at Deputy City Clerk Angela Torres that the solid waste department 5-percent-a-year increase still should have been put on the agenda, since that department has no USDA loan and no USDA oversight.
Torres told him the agenda is set by Madrid and PUAB Chairman Jeff Dornbusch. Neither Madrid nor Dornbusch explained why the item was pulled, but Dornbusch doubted there was a 5-percent rate increase for solid waste and had to be informed otherwise.
The PUAB and City Commission training will be given by Rural Community Assistance Corporation, which adds another twist to the story of USDA oversight on utility rates.
Madrid explained the USDA “requires” the City to take out a bridge loan for the first part of the project, and repays the loan eventually, when certain conditions are met.
The RCAC is to give the city a $943,000 bridge loan, the application approved by the City Commission at the Nov. 13 meeting, with no documentation or loan agreement in the City agenda packet.
It appears the conditions the City has to meet to get the bridge loan paid for by the USDA are good financial management practices.
According to the RCAC website, the USDA subcontracts the RCAC, a non-profit loan and education organization formed in 1978. Its mission is primarily to ensure rural residents have clean water. As part of its mission it trains rural governments and communities how to run their utilities, to prevent fiscal waste and mismanagement, especially of loan and grant funds.
The USDA loan-conditions letter, in the Nov. 13 City Commission packet, states, “[utility] Revenue cannot be used to pay any expenses which are not directly incurred for the facility financed by USDA.”
That means the City can no longer transfer money out of the water and sewer funds and into the general fund.
Although the water system has been in dire need of repairs, leaking 47 percent of the water transported, according to a Sept. 2019 engineering study, the City transferred nearly $800,000 out of the water fund in fiscal-year 2017-18, according to that year’s financial statement.
According to the 2019-20 City budget, $122,170 will be transferred out of the water fund and $238,902 out of the sewer fund this year.
The question residents should be asking the RCAC during the Jan. 22 training session—If questions are allowed—is if transfers out of the utility funds—In the past and future—will be considered in determining rates.
The transfers out have artificially inflated utility fees.
If transfers out of all utility funds are not stopped, not just in the water and sewer department, the City can raise the electric and solid waste rates, continuing the practice of using the funds as a cash machine.
Transfers from utilities funds were:
— nearly $2.8 million in 2012-13,
— $2.1 million in 2013-14,
— nearly $1.5 million in 2014-15,
— $4.2 million in 2015-16,
— nearly $3.7 million in 2016-17,
— nearly $2.7 million in 2017-18, according to financial statements.
The 2018-19 audit and financial statement is not available.
The City budget for 2019-20 predicts $2.1 million will be transferred out of the utilities this year, but the City has already exceeded the budget in several areas.