Rather than collect $20 million in outstanding fees from dozens
of businesses that have overused Gilroy’s water and sewer systems,
the city seems ready to count its losses and move on.
Rather than collect $20 million in outstanding fees from dozens of businesses that have overused Gilroy’s water and sewer systems, the city seems ready to count its losses and move on.
At least that is what staff recommended to the city council during a study session Sept. 15, when the body discussed revamping the city’s 23-year-old sewer and water ordinances and ultimately directed staff to tweak some elements of the new ordinances before the council votes on them in the near future.
The ordinances determine how much an incoming commercial or industrial user should pay to offset their expected impact on the city’s water and sewer systems. The business and city agree on the one-time “impact fee” and then businesses pay their separate, much-lower water and sewer bills each month based on actual usage. But throughout the past two decades, more than 120 businesses, ranging from medical facilities to restaurants, have exceeded their agreed-upon usage, effectively using more than they promised.
Since the issue came up in January, City Engineer Rick Smelser has said his department will begin collecting the money once the council clarifies the “overuse penalties” in the old ordinances. But while the new ordinances do outline the allocation process, subsequent adjustments and overuse rates, they do not address collecting the missing millions.
“We’re not going to charge them for last 10 or 20 years that they’ve been over-using. They haven’t been paying their fair share, and we’re letting them off,” Councilman Peter Arellano said. “I think it’s great that we’re bending over backwards.”
City Attorney Linda Callon did not say whether there would be any legal hurdles to collection, but council members have said hastily rounding up the money in this economic climate could hurt businesses that also pay sales and property taxes. Arellano also called the overuse penalties in the new ordinance “attention-getters” that will encourage compliance. Under the new ordinance, if a business ignores at least three written warnings to pay up within a six month period, then the city will charge them 10 times their normal rate for the volume of water or waste that exceeds their allocation, 100 times if noncompliance ensues another six months.
Councilmen Bob Dillon – who said in June that the money “has to be collected” – called the fee rates exorbitant.
“It defies common sense,” Dillon said.
“100 times is too much,” Councilman Perry Woodward told Smelser. “Show us scenarios of how an over-user will react with the option of paying fees or buying more allocation.”
The new ordinance allows businesses to purchase additional allocations if the city has available capacity, which Smelser said has been, and will continue to be, the case as long as Gilroy’s wells and sewer treatment plant have extra room.
“Our capacity is not at the max right now, but when it is built out, we’ll have this all sorted out,” Smelser told the council.
To help bring things in line, the city has developed an automated monitoring system of those businesses with allocation agreements. There are more than 900 commercial and industrial accounts in the city, but only 279 of them have allocation agreements. The rest set up shop before 1985 – when the original ordinances were passed – and have since not drawn any new permits that would have triggered allocation negotiations; they’re uses are grandfathered in, Smelser said.
Those with agreements, though, will be able to sell back their excess allocations at current rates if they consistently use less than they anticipated, according to the new ordinances. If they don’t want to, the new ordinances do allow the city to take back the extra allocation amount and compensate the user accordingly: “Like eminent domain,” Woodward said. City Administrator Tom Haglund noted, though, that the ordinance includes an appeals process, but getting to this point will be difficult with the city’s hiring freeze. It takes time to work with all these businesses, Smelser and Haglund said, and the city does not have the resources to pursue them, but fees from overuse and re-negotiations could subsidize the new collection effort, they said.
If left uncollected, the city will be hard pressed to maintain its 80-mile underground network of pipes, some of which date back to the early 1900s, according to Smelser and sewer officials. Thanks to state funding, though, the sewer account began the fiscal year in the black, but the water fund began with a nearly $3 million deficit, and both funds show multi-million jumps beginning in 2009, partly due to an expectedly recovered economy along with the potential piecemeal collection of the $20 million.
Overuse of the systems has recently become an issue because city coffers are already down 75 percent, or $13.8 million, due to snail-paced development, which largely fills the funds. The city also borrowed more than $6 million from two of the funds to help pay for Gilroy Gardens earlier this year.
In one of the most egregious cases of over-use, West Coat Linen, formerly Marriott Laundry, on Murray Avenue owes more than $2.2 million, according to City Hall. Five businesses alone owe more than $1 million each for excessive sewer use, and there are dozens of six-figure violators, as well. None of the businesses contacted returned calls for comment.
By the numbers
Out of 242 allocation agreements, here are some facts:
– 60 businesses exceed water allocation
– $2.1 million in unpaid water fees ranging from $485 to $400,000 per business
– 119 businesses exceed sewer allocation
– $17.4 million in unpaid fees ranging from $225 to $1.9 million per business
Commercial/industrial sewer impact fees are:
– $3,966/100 gallons per day
Commercial/industrial water impact fees are:
– $8,208/1,000 gallons per day
