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Mayor Jerry Sanders wants the San Diego City Council to refund $937,000 to the city’s Water Department from its everyday budget and plans to reform the way city departments bill one another, responding Monday to issues raised last month by a county grand jury report.
The action comes weeks after a county grand jury released a report showing that contracts known as service level agreements are being used to subsidize the city’s general fund to the harm of its enterprise funds. The agreements are contracts in which one department provides another a service and bills it for work performed.
Critics have long argued that the contracts are being used as a stealth vehicle for raising taxes, as they siphon money from user-based funds such as the water or wastewater department to the fund that covers everyday expenses such as police, fire and parks. Water and sewer rates, for example, can be increased with a vote of the council, while tax increases generally require a vote of the people.
The mayor affirmed the findings of the jury’s report Monday, saying that the city entered agreements that allowed it to divert money from enterprise funds to its general fund. He ordered that the city cancel many of these agreements and recommended new policies for handling service level agreements.
“It shouldn’t have taken a grand jury to detail these reports,” Sanders said. “We should have done that ourselves.”
Sanders asked the council to refund the Water Department $600,000 and cede control of the Chollas Reservoir to the city’s Park and Recreation Department. The grand jury report found that the Park and Recreation Department transferred the reservoir to the Water Department in 2005. The Water Department then paid the general fund $600,000 to manage the facility, though the Water Department doesn’t store water at the site and doesn’t plan to use it in the future.
The city’s general fund would in total be asked to repay the Water Department for potable water pumped into the reservoir and for a maintenance worker previously paid for by the water fund.
In total, the mayor is asking the City Council to transfer $937,000 from the already tight general fund budget to the Water Department this fiscal year, which ends June 30. Sanders spokesman Fred Sainz said it was undecided where the funds would be taken from, but additional budget cuts would be necessary to free up the funds.
The mayor also cancelled a contract with the Water Department in which the Park and Recreation Department was paid to provide staff and equipment at concession stands at lake recreation areas. The concession stands have been constantly loosing nearly $1 million or more in recent years, a loss that’s been subsidized by users of the water system, the report found.
The city will instead offer a concession contract to a private vendor. Sanders estimated that this will save the Water Department more than $800,000 per year.
The Water Department, like the airports division and the Metropolitan Wastewater Department, is considered an enterprise fund and financed apart from the city’s general fund budget. It has its own budget, covered wholly by the fees it collects from users of the water system.
“Those were services that were paid for by the enterprise fund and have to be paid back by the general fund,” Sanders said.
He said an independent audit firm will release a report in June detailing the city’s handling of service level agreements.
“The purpose of this is to make sure that we have control over the enterprise funds,” Sanders said. “I think what we’ve seen in the past is, people have been very creative about how that money has been used to augment other city operations.”
The mayor recommended that the city modify various accounting practices to ensure that departments are being charged for services that they are actually receiving.
The county grand jury is meant to serve as a watchdog of local government. After being the subject of a grand jury probe, agencies are required to file reports with the court detailing how they will remedy disclosed problems.
Sanders announced his plan yesterday during a press conference in which he also introduced former Navy Captain and private businessman James Barrett as the new director of the city’s Water Department.
Barrett, who will oversee the department’s financial accounting procedures, replaces acting Director Charles Yackly who now resumes his role as No. 2 at the department.