San Marcos Water Rates and Politics
June 13, 2020Presented by Tom Scaglione
Co‐founder of Friendship of Vallecitos CustomersFormer AGM / CFO Vallecitos Water District
Friendship of Vallecitos CustomersWe pay for water, not politicsfriendshipvallecitoswater.org
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DARK MONEY
2
Special interest‐funded organizations with politically appeasing names.
These names show up on campaign contribution disclosures – not the special interests providing the financial support.
“North County Taxpayers for Responsible Government”$30,000 to Hal Martin
“Deputy Sheriff’s Association of San Diego County PAC”$18,532 to Mike Sannella
“California Taxpayers Coalition”$10,500 to Mike Sannella
“BIA of San Diego County PAC”$20,000 to Mike Sannella
Building IndustryThousands upon thousands to Martin and Sannella
A developer‐backed majority took control of the
Vallecitos Water District Board in the
2012 elections
The Political Shift
3
Board Member Jim Poltl:
“The District’s interest has to do with providing basic services, sewer and water, at the best price. That’s all it is. It has nothing to do with helping out developers.”
Newly elected Board Member Hal Martin:
“I look at the bigger picture.Economic stimulus.
Smaller governmental agencies … make that happen.”
At a Vallecitos Board meeting in 2013
Public Utilities ‐ 2 Sources of Controllable Revenuecontrollable because the Board can raise and lower rates to adjust the respective reserve balances
Capital Facility Fees from Developers Water and Sewer Bills from Customers
Construction cost for growthDebt service
Cannot legally charge more than the developers’ impacts
What’s left over is the developers’ money or Developer Reserves 4
Operating expensesAsset replacements
Cannot legally charge more than the cost to provide service
What’s left over is the ratepayers’ money or Operating and Replacement Reserves
5($20,000,000)
($10,000,000)
$0
$10,000,000
$20,000,000
$30,000,000
$40,000,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
VWD Developer Fund Surplus/(Deficit)
Ratepayers have subsidized developer costs by at least $14.6 million.
Since 2013,developers have not been paying for their full impacts (additional infrastructure).
Ratepayers have been making up the difference.
6
VWD is the only water agency in San Diego County (possibly all of California) with a deficit in its developer funds.
7
No other water agency in San Diego County has accumulated more ratepayer money than VWD, money that is being used to continually subsidize development.
9
• “I hate the word deficit for many reasons. It gives credibility to detractors to start with. … There's no deficit. … Deficit is a bad word. For the nay sayers, it's very easy to say 'deficit!'. … We need to change that terminology somehow ... You can't use the word 'deficit.' Change that terminology.” Hal Martin, Board President
• “[How about] 'Capital Facility Revenue Shortfall’,” General Manager
• “There you go!”Hal Martin, Board President
10
The Cover‐Up – 2019
The Cover‐Up – 2019
11
($14.4)($16.5)
($13.1) ($11.7)($7.8) ($7.6)
($50)
($40)
($30)
($20)
($10)
$0
“… the determined Cap Fees should have no fiscal impact to ratepayers.”
October 2, 2019 Staff Report on Modification of Cap Feeshttp://www.vwd.org/home/showdocument?id=11092, page 33
• Water Cap Fees were overstated by 29%• Sewer by 51%• Included $28 million in bond proceeds with no intention to issue
From VWD Adopted 2019 Budget5‐Year Developer Deficit Projection
A Subsidy Funded by Ratepayersin $Millions
2019 2020 2021 2022 2023 2024
The Cover‐Up – 2019
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($14.4)($19.6) ($19.1)
($20.3)
($29.0)
($49.4)($50)
($40)
($30)
($20)
($10)
$0
“… the determined Cap Fees should have no fiscal impact to ratepayers.”
October 2, 2019 Staff Report on Modification of Cap Feeshttp://www.vwd.org/home/showdocument?id=11092, page 33
$49.4 Million in the Cost of Urban DevelopmentPaid for by Ratepayers
5‐Year Developer Deficit ProjectionWith Actual Cap Fees and No Debt
A Subsidy Funded by Ratepayersin $Millions
2019 2020 2021 2022 2023 2024
The Cover‐Up – 2020
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“… General Manager Pruim stated rate payer funds do not help subsidize development in the Vallecitos service area. There is currently a deficit in the developer fund; however, the recently approved capital
facility fees were increased which will erase that deficit.”February 27, 2020 minutes to the board meeting
http://www.vwd.org/home/showdocument?id=11380, page 3
• 4 months later, bondholders were paid $3.1 million out of ratepayer funds. The bonds were issued to build growth infrastructure – development.
• According to the study that set the Cap Fees, to “erase” the deficit:• San Marcos will need to add 8,800 homes,• All growth infrastructure needs to be debt financed, and• The new cap fees need to be effective in 2016 – they were
effective January 2, 2020.
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The Board and the Public were warned in advance of the escalation of ratepayer reserves and the plummeting developer deficit. Since the Board started ignoring staff’s warnings and providing accommodations to developers, all but one manager resigned within five years.
15
($15.0)
($21.6)
($11.9)
($12.7)
($7.0)
($7.2)
($50)
($45)
($40)
($35)
($30)
($25)
($20)
($15)
($10)
($5)
$0
From VWD Adopted 2020 Budget5‐Year Developer Deficit Projection
A Subsidy Funded by Ratepayersin $Millions
• Includes $10 Million in Debt Proceeds in Year 2• with no Capital Expenditures to Finance
• Includes $50 million in Debt Proceeds in the 5‐Year period• with only $35 million in Debt‐Eligible Capital Expenditures
• No Intention to Issue Bonds• Assumed Unachievable Growth
The Cover‐Up – 2020
2020 2021 2022 2023 2024 22025
162020 2021 2022 2023 2024 2025
The Cover‐Up – 2020
($15.0)
($21.6) ($22.0)($22.6)
($43.2)
($52.5)($55)
($50)
($45)
($40)
($35)
($30)
($25)
($20)
($15)
($10)
($5)
$02020 2021 2022 2023 2024 2025
5‐Year Developer Deficit ProjectionWith No Debt
A Subsidy Funded by Ratepayersin $Millions
$52.5 Million in the Cost of Urban DevelopmentPaid for by Ratepayers
Projected Reserve Projection for FY 2022 as Adopted
Cover‐Up 2020Excerpt from the VWD Budget
Adopted May 20, 2020
Finance 101 – No one will loan you money so your projected $22 million deficit will only be a $12 million deficit. You can only issue tax‐exempt debt to finance capital expenditures with a public benefit.
$80.8
$63.7
$54.0 $51.4
$32.9
$25.2 $20
$30
$40
$50
$60
$70
$80
$90
2020 2021 2022 2023 2024 2025
Projected Total Fund Balance without Debtin millions
Even if VWD realizes that they do need to issue bonds, when they have eligible capital expenditures to finance in 2024, it is not likely they will be able to borrow, or at least
get a favorable credit rating. Considering recent and projected financial planning and decisions, at this rate of decline, Vallecitos could be bankrupt in 8 years, without
significantly increasing water and sewer rates.
This projected decline (VWD’s numbers) assumes a 3.5% to 4% increase in water and sewer rates each year.
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San Marcos Water Rates and Politics
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