Cash-strapped Oceano operating in the red

March 20, 2015

By JOSH FRIEDMAN

The Oceano Community Services District Board recently voted to raise water rates to reduce budget deficits. However, the amounts to be garnered through the higher utility rates will not cover the overspending the board has approved in recent years.

Last year, the OCSD board of directors adopted an approximately $4 million budget with a deficit of more than $265,000. A mid-fiscal year update released in January states concern for a budget overrun beyond the existing deficit.

On Friday, the district finance committee may begin preparations for the 2015-2016 budget. In advance of the meeting, CalCoastNews asked district officials to state if and how they plan to balance the budget.

Neither General Manager Paavo Ogren, nor Board President Mary Lucey responded to email questions.

Earlier this month, the board approved a 3.5 percent water rate hike that is scheduled to take effect in May. The rate hike is expected to add $70,580, about a third of Oceano’s deficit, to the budget, according to a district staff report.

The primary duty of the district is to provide water, sewer and trash collection services. District officials have particularly struggled to operate the water fund.

In late 2013, the district loaned the water system $770,000 from the general fund. Debt from the loan is protracted over 30 years, and it will cost the water fund more than $3,500 a month in principal and interest payments.

The most recent district audit shows the water fund ran at a loss of about $150,000 in 2012-2013. On June 30, 2013, the CSD only had $58,025 in its water fund.

That amounts to just 10 days of operating expenses, according to ratings agency Standard & Poor’s.

Last year, S&P downgraded ratings of county bonds issued to fund improvements to the Lopez Dam. The Oceano CSD is one five agencies that fund the project, and S&P criticized the district’s water fund in its report on the bond downgrades.

“We consider the system’s liquidity position to be weak,” the S&P report states.

When asked for an update on its water fund reserves, CSD office manager Marie McGrath said the district computers’ servers were down, and would remain that way for at least the rest of the week.

McGrath later said the CSD had $369,765 in its water fund as of June 30, 2014, but she said she was unable to give a more current balance. Nevertheless, the district was scheduled to make a state water payment of about $410,000 in July.

Twice a year, on Jan. 1 and July 1, the district pays half of its yearly $818,000 payment for state water.

Even though Oceano uses less than half of its allocated 1,953 acre feet of water, it is still required to pay for its portion of state and Lopez water allotments. In addition, the amount of water used by the financially strapped community is exacerbated because of failing infrastructure.

The district loses 83 to 136 acre feet of water a year due to leaks and structural failures, according to a recent grant application.

“The district’s water system is old,” the application says. “The bulk of the system has not been properly maintained for 60 years.”

Nevertheless, revenue from the upcoming water rate hike will not go to infrastructure repair, either. The $70,580 expected to come from the rate hike is needed because of the water fund shortfall and a state mandate to cut water usage during the current drought, according to a district staff report.

Coincidentally, $70,000 is also the difference in salary costs between Ogren’s base pay and that of the district’s previous general manager. The board hired Ogren last May at a base salary of $196,000.

The previous general manager received a salary of $126,000. Just four years ago, the position came with a base pay of $87,500.

Ogren is also due for raises of about $5,000 this year and next. Likewise, district retirement contributions have increased since his hiring, and other district staffers have also received pay increases.

Ogren, the former San Luis Obispo County public works director, officially holds two jobs with the district. In addition to being general manager, he is also the CSD’s chief accountant.

But, some question the need for the accountant job. The position did not exist until two years ago, and it was vacant when Ogren applied to work for the district.

Still, board members have touted Ogren’s hiring, claiming it has made the CSD functional. Prior to approving his contract, then-board president Matt Guerrero said Ogren’s hiring would bring the district a lot of credibility.

The district has gone through numerous general managers in recent years, and the board has fired several of them. Two of the last three general manager firings came amid allegations of theft.

One former general manager, Tom Geaslen, overpaid himself by more than $45,000, according to a district audit.

Oceano ratepayers may soon pay for the fiscal shortcomings, which the district is blaming on decreased water sales because of the drought and revenue shortfalls.

In addition to the water rate increase scheduled for this year, another rate hike is expected to take effect in 2016. Oceano residents could stave off the upcoming rate increases through state-sanctioned ratepayer protests, but few community members participate in local government.

A ratepayer protest hearing is scheduled for April 20.

The finance committee meets today at 9:45 a.m. in the district boardroom.