Minutes after reviewing a audit criticizing the Santa Clara
Valley Water District’s fiscal practices, county supervisors
Tuesday decided to sever official ties with the agency. The county
has held financial oversight of the district for 54 years, but
supervisors now say they want out of that responsibility.
San Jose – Minutes after reviewing a audit criticizing the Santa Clara Valley Water District’s fiscal practices, county supervisors Tuesday decided to sever official ties with the agency. The county has held financial oversight of the district for 54 years, but supervisors now say they want out of that responsibility.
“I don’t want to be in the business of setting water rates,” Santa Clara County Supervisor Don Gage said. “They are elected, just as we are. If they’re not doing the job then voters should take care of that.”
The county has maintained final budget authority over the district since 1951, and has appointed two of the district’s seven-member board since 1969.
Last year, for the first time, supervisors ordered an independent audit of the district, in part to determine why the agency held nearly $500 million in reserves at a time when most public entities face shortages.
The audit, completed last month by the Harvey Rose Accountancy Corp., criticized the district for overpaying employees, overcharging for water and mismanaging various financial accounts.
At the center of the audit is the district’s 15-year, $1.68 billion capital project budget, which the district’s board uses to dole out funds each year. The capital project budget was roundly criticized because the board has never formally adopted a long-term expenditure plan or prioritized the projects.
According to the audit, the plan is too poorly defined to be a reliable source of budget information. Projects often come in well under budget, but rather than transfer those funds into the district’s general fund, staff often diverts money back into its capital reserves, limiting their use.
Among the audit’s 18 recommendations were directives to reallocate about $147 million to an unappropriated reserves account and give board members more authority over spending priorities. Auditors said the district should adopt budget procedures similar to the county, which maintains reserves very near the legal minimum to avoid service cuts and fee increases.
But while supervisors ordered the audit, and agreed with its findings, they appeared eager to divest their authority over district spending. In a unanimous vote, the supervisors agreed to craft legislation in concert with the district that would formally cut ties between the agencies. Only Supervisor Liz Kniss questioned the timing of the move, which came after almost a year of investigation into district financial practices.
“We’re saying we now feel comfortable saying all is well with the water board when we just spent a year saying we don’t know that all is well'” Kniss said. “We should not move too quickly. It will be some period of time before I’m ready to go arm-in-arm and sing Kumbaya with this.”
Supervisors will not relinquish authority immediately.
It will be several months before the county and district staff finalize an agreement, and supervisors promised to solicit substantial community input. But a pending state law could moot Tuesday’s proceedings. SB 393, sponsored by Deborah Ortiz, D-Sacramento, would require counties to keep close watch over special districts within their jurisdictions, in part through annual audits.
Gage said the decision to relinquish control would have looked better if the audit has been more positive, but suggested voters will pressure the agency to do more to keep down water rates, which have been raised five times and 87 percent since 2000. That year, South County residents paid $115 an acre-foot. Today, the rate is $215 an acre-foot.
“We knew there were a lot of problems to begin with, that’s why we ordered the audit,” Gage said. “This raises public awareness. Once people get fed up with water rates and understand what’s going on, the (water) board will be accountable.”
Gage, though, would like the supervisors to retain authority to appoint two district board members, and there was almost no public input during Tuesday’s hearings. The only comments came from Alan Gardner, of the Great Oaks Water Company in North County, who beseeched the supervisors to take a more active role with the water district.
“We suggest it is inappropriate to consider severing your control. We suggest you take a harder look and a fuller audit,” Gardner said. “We suggest it’s inappropriate to relinquish your duty before you have fulfilled it.”
District CEO Williams said the district will adopt several of the audit’s findings and move quickly to enact a formal 5-year capital improvement plan that can be integrated with development plans of local jurisdictions. He reiterated his belief that the auditors made several faulty recommendations because they did not understand the water district’s business.
“This was a good exercise,” Williams said of the audit. “What it proved is that it doesn’t make a lot of sense to put the supervisors in a budget role when they are not policy directors.”
As of July 1, the district had $374.9 million in reserves. Portions of those reserves are legally restricted.
For instance, income earned from water sales must be used for water delivery projects, and property tax revenue generated by Measure B’s Clean Safe Creeks program must be applied to flood control and prevention projects.
At the end of this fiscal year, June 30, 2006, the district expects to have about $303 million in reserves.
