Dragging Special Districts from the Shadows Dear Judge Borris: The Board of Directors (*

Note: Missing finding numbers detected: F3, F4

Conclusions 3

• CL1
  The true cost of water and sanitary sewers in the enterprise special districts is hidden when both taxes and fees fund these districts. Only when the monthly service bills to the customers include all the costs for these services without the tax subsidy will the public understand the true cost of these services and achieve financial transparency. Response: Please refer to responses to findings F6 and F9.
• CL2
  Only one of the special districts, the South Coast Water District, has had recent performance audits. The lack of performance audits for the remaining special districts leaves the potential for inefficiencies, poor practices, outmoded operations, etc. hidden from the governing boards and the communities they serve. The lack of published performance audits has contributed to the public's ignorance of these districts. Response: TCWD concurs that internal and/or independent performance audits should be performed routinely and as circumstances dictate. TCWD believes that multiple audits based upon specific industry disciplines can be beneficial and provide a focus on a particular discipline's Best Practices. TCWD utilizes independent resources to audit financial and internal control practices. TCWD recently completed an independent evaluation of its Organizational Structure which included recommendations where appropriate to incorporate Best Practices. TCWD utilizes independent resources to assess efficiency and reliability characteristics of system wide water, sewer and recycled water infrastructure and operations today and into the future. TCWD participates actively in the LAFCO Municipal Service Review process and incorporates LAFCO findings and
• CL3
  F14. The true cost of water and sanitary sewers in the enterprise special districts is hidden when both taxes and fees fund these districts. Only when the monthly service bills to the customers include all the costs for these services without the tax subsidy will the public understand the true cost of these services and achieve financial transparency. Response: Please refer to responses to findings F6 and F9. F15. Only one of the special districts, the South Coast Water District, has had recent performance audits. The lack of performance audits for the remaining special districts leaves the potential for inefficiencies, poor practices, outmoded operations, etc. hidden from the governing boards and the communities they serve. The lack of published performance audits has contributed to the public's ignorance of these districts. Response: TCWD concurs that internal and/or independent performance audits should be performed routinely and as circumstances dictate. TCWD believes that multiple audits based upon specific industry disciplines can be beneficial and provide a focus on a particular discipline's Best Practices. TCWD utilizes independent resources to audit financial and internal control practices. TCWD recently completed an independent evaluation of its Organizational Structure which included recommendations where appropriate to incorporate Best Practices. TCWD utilizes independent resources to assess efficiency and reliability characteristics of system wide water, sewer and recycled water infrastructure and operations today and into the future. TCWD participates actively in the LAFCO Municipal Service Review process and incorporates LAFCO findings and recommendations into near and long term strategic planning. TCWD cannot validate the Grand Jury's reference to only "one of the special districts" completed a performance audit. RESPONSES REQUIRED TO GRAND JURY RECOMMENDATIONS TCWD references at this point the comments set out in TCWD's cover letter (from TCWD's Board President) and TCWD's responses to finding submitted herewith. Those comments are incorporated into these responses by reference. All special districts (except Vector Control District and the County Cemetery District) R1. should be eliminated from the county tax rolls and should rely solely on fees or the services of surrounding governments (See TCWD's Response to Findings F2, F3, F4, F5, & F6). Response: TCWD will not support any action to implement this recommendation because it is not reasonable for all of the reasons that were previously stated under the "Findings" section (see responses to Findings F2 and F6) and for the reasons described in TCWD's cover letter to the Superior Court. Taking away any portion of the allocated property tax revenues that TCWD receives would impose a significant hardship on our ratepayers, it would effectively, shift our property tax revenue away and require a successor agency to absorb the lost revenue which would result in either a degradation of service or increased rates to TCWD customers. Water and sewer districts should be consolidated into no more than six regional districts. R4. Consideration should be given to including the city water agencies in the consolidation. LAFCO should meet with the water and sewer districts before October 31, 2012 to develop plans and schedules for consolidation. (See TCWD's Response to Findings F5, F6, & F9). Response: The recommendation will not be implemented because it is not reasonable. It is unclear what, if any, criteria were used in reaching this recommendation. TCWD notes that it is not the number of special districts that is relevant, but the ability of each district - such as TCWD - to deliver core local services effectively and responsibly. Furthermore, LAFCO has stated its disagreement with this recommendation in that it has made no analysis, as required by the Government Code, of such a proposal. As it is charged to do by statute, LAFCO does continue to meet regularly with water and sewer district as well as with cities, in order to assess the quality of services and recommend improvements where appropriate, using reasoned and legally mandated assessments and criteria and applying such on a case-by-case basis. Please also see TCWD's Response to Finding F10. Water and sewer districts should be removed from the tax rolls and operate solely on fees R5. and other revenues for their services. Consideration should be given to forming non- profit agencies with ownership shared by the constituents. These districts should meet with county officials before October 31, 2012 to prepare plans and schedules to remove themselves from the county tax rolls. (See TCWD's Response to Findings F2, F5, & F6). Response: TCWD will not support implementation of this recommendation because the Grand Jury has failed to present any factual evidence that it is warranted or that there is any reasonable basis for the number of regional districts referenced. Please see TCWD's Response to Finding F10 Special districts should adopt "board of director's practices" for all their reserves, R6. restricted and unrestricted. All reserves should be classified in their 2013-2014 budgets according to GASB standard No. 54. LAFCO should work with the special districts to prepare standard criteria for accumulating reserves according to the new classifications by December 15, 2012. These standards should be used in preparing the 2013-2014 budgets. (See TCWD's Response to Findings F7 & F9). Response: The recommendation will not be implemented because it is not warranted. TCWD will continue its practice of incorporating and publishing its restricted and designated reserves as part of its annual budgeting process. It is TCWD's understanding that GASB Standard No. 54 does not apply to enterprise special districts. Please refer to the response to TCWD's Response to Finding F7 Excessive unrestricted reserves should be used to reduce existing debts. Future revenues R7. should be reduced to avoid the accumulation of unallocated revenue that does not meet the adopted new standards. (See TCWD's Response to Findings F7 & F8). Response: The recommendation will not be implemented because it is not warranted. It is unclear what "excessive unrestricted reserves" is considered to be, and it is unclear what the adopted new standards will be. It is important to note that there are myriad variables that the TCWD Board considers in budgeting and long-term planning. Furthermore, TCWD's Board is successfully executing its fiduciary responsibilities to TCWD's constituents. Please also see TCWD's Response to Findings F6 and F7. Each special district should have an independent performance audit at least every three R8. years. The executive summary of the performance audit should be distributed to all the taxpayers of each special district. Each of the special districts that has not had a performance audit within the last five years should contact with an independent outside consultant to conduct such an audit during 2012. These audits should be repeated at least every three years. (See TCWD's Response to Finding F15). Response: The recommendation will not be implemented because it is not warranted and will entail an unnecessary cost to TCWD ratepayers (please refer to TCWD's response to Finding F15 above). TCWD annually undergoes a financial audit by a credible third- party accounting firm. TCWD's budget documents, general fund budget, capital facilities budget and debt financing budgets are all available for public review upon request and are approved of by action(s) of the TCWD Board taken in open session in full compliance with State laws. TCWD's audit reports are also presented to, and accepted by, TCWD's Board in open public session and re also available for public inspection upon request. Additional, TCWD's MSR by LAFCO, which takes place every five years, has found no significant issues with the District (TCWD's most recent MSR is posted online as www.oclafco.org). Each special district should contribute 1% of its unrestricted reserve fund to LAFCO to R9. help finance preparing and directing the consolidation, absorption, or elimination, and the setting of standards for reserves for the special districts. These funds should be included in LAFCO's future programs and budgets until the consolidation, absorption or elimination of each special district is achieved. With these additional funds, LAFCO should begin meeting with each special district before 2012 fiscal year is budgeted for consolidation, absorption, and/or elimination of these districts. (See TCWD's Response to Findings F1, F2, F3, F4, F5, & F6). Response: The recommendation will not be implemented because it is not reasonable. It is unclear to TCWD as to how the 1% contribution was derived and what, if any, criteria were used in quantifying how much revenue is needed by LAFCO. As prescribed by law, TCWD provides LAFCO with its proportionate "Special District" LAFCO budget share based upon a definitive LAFCO budget which encompasses routine LAFCO staff and commission administrative activities and identified special efforts. The LAFCO budget is funded in equal parts by the Special Districts, by the Cities and by the County. In practice, specific reorganization considerations/studies are typically funded by the agencies collaboratively seeking LAFCO involvement. The TCWD Board believes it is, and would be, inappropriate and fiscally irresponsible to arbitrarily shift funds safeguarded for affordable rates, emergency preparation, infrastructure maintenance and long-range capital improvements without a compelling basis or reason to do so. Shifting money from special districts' reserves will not reduce the need for prudent reserves funding. Rather, as evidenced by past funding shifts from the State, this will: a) increase cost pressures on ratepayers and taxpayers to fund core services; b) increase fiscal uncertainties; and c) place pressure on some local agencies in the County to increase reserve funding.

Agency Responses 2

Government agencies' official responses to this report's findings and recommendations. Click on a response to see the structured breakdown.

No Responses Found 3

Government entities assigned to respond to this report. No response documents have been linked in our database.