The Great Fullerton Water Heist plays out.


For those of you not paying attention, the city council is moving towards concluding our great water debacle.  In short (and apolitically as possible), Fullerton water rate payers have been paying too much for water with the balance of their overcharge being redirected to the general fund.

Here’s the applicable section from our California Constitution (Article XIIID)

(b) Requirements for Existing, New or Increased Fees and Charges. A fee or charge shall not be extended, imposed, or increased by any agency unless it meets all of the following requirements:

(1) Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service.

(2) Revenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed.

(3) The amount of a fee or charge imposed upon any parcel or person as an incident of property ownership shall not exceed the proportional cost of the service attributable to the parcel.

(4) No fee or charge may be imposed for a service unless that service is actually used by, or immediately available to, the owner of the property in question. Fees or charges based on potential or future use of a service are not permitted. Standby charges, whether characterized as charges or assessments, shall be classified as assessments and shall not be imposed without compliance with Section 4.

(5) No fee or charge may be imposed for general governmental services including, but not limited to, police, fire, ambulance or library services where the service is available to the public at large in substantially the same manner as it is to property owners. Reliance by an agency on any parcel map, including, but not limited to, an assessor’s parcel map, may be considered a significant factor in determining whether a fee or charge is imposed as an incident of property ownership for purposes of this article. In any legal action contesting the validity of a fee or charge, the burden shall be on the agency to demonstrate compliance with this article.

(c) Voter Approval for New or Increased Fees and Charges. Except for fees or charges for sewer, water, and refuse collection services, no property related fee or charge shall be imposed or increased unless and until that fee or charge is submitted and approved by a majority vote of the property owners of the property subject to the fee or charge or, at the option of the agency, by a two-thirds vote of the electorate residing in the affected area. The election shall be conducted not less than 45 days after the public hearing. An agency may adopt procedures similar to those for increases in assessments in the conduct of elections under this subdivision.

(d) Beginning July 1, 1997, all fees or charges shall comply with this section.


The big point of contention in council’s debate two weeks ago (more like a series of monologues) is what constitutes a “required” fund necessary to operate the water utility?

Well, fortunately we have a way to resolve what “required” means (Section 5 from the same Article above):

The provisions of this act shall be liberally construed to effectuate its purposes of limiting local government revenue and enhancing taxpayer consent.


During the last council meeting, we heard a lot about prospective and assumed costs that the water utility ought to be paying the city for.  Conversations included some red flag words like “value.”

Here’s the problem.  None of those prospective and assumed costs are required costs.  If the water utility were required to pay them, there’d be lease agreements, contracts, invoices . . . you know, all those pesky things that actually make one liable for debt.  We have to liberally construe what the word “required” means . . . which means we can’t bend “required” to mean something that allows the city to keep more revenue.  If you heard the words “would”, “should”, “if”, or “but” . . . it’s not required.

In order to demonstrate some sort of cost recovery mechanism and meet a liberally construed definition of “required”, the city must demonstrate an actual cost of service if it’s going to charge a fee on top of an established water rate.    OK, well, then let’s see what those actual costs are.  We’ll use the month of August 2010 as an example.

Let’s see the lease agreement with the city for the reservoir in Hillcrest park establishing the agreed rate the water utility agreed to pay.  Oh, right.  It doesn’t exist.

Any other property?  Oh, right.  It doesn’t exist.

Let’s see the invoices sent to the water utility by city workers for non-routine maintenance carried out in this specific month.  Oh, right.  It doesn’t exist.

Let’s see the the lease agreement for office space in city hall?  Oh, right.  It doesn’t exist.

Let’s see any bill at any time for any service provided by the general fund sent to the water fund for the month in question not covered in the annual budget for that year.

Oh. Right.

It doesn’t exist. Seems like the same song, but a different choir.

It gets worse.  As it turns out, the water fund had already set it’s basic rate to include the cost of service actually provided by the city.  How do we know?  Well, we’ve got two sources to confirm this.

1) The 2012 Budget

Take a look at page 15.  The city spent $25.6MM last year and has spent $11.9MM of $25.7MM planned for this year.  This includes payments for the city council, the city manager, the city clerk, administrative services, human resources, community development, engineering (to the tune of $18.6MM, which includes water purchases), maintenance services, parks and rec (WHAT?  They get FREE water!  That’s not enough?), and capital improvements.  You know, expenses required to operate and maintain the utility.

The water fund currently has a $7MM surplus of funds.

So . . . we’re already using funds collected through the basic rate to pay the city back for providing services to the general fund, we have millions of dollars left over . . . but we need to tack on an extra fee to recoup additional funds for cost of services provided by the general fund that aren’t paid directly by the water fund?

Are you freaking serious?

This is EXACTLY why Prop 218 exists.  To stop complete and utter bullshit like this.

Here’s the constitutional requirement for fees, again: Revenues derived from the fee or charge shall not exceed the funds required to provide the property related service.

I can show you the bill the city provided the water fund (the budget).  I can show you that the water fund paid the city what it’s owed (using the term owed loosely here), and I can show you that the preponderance of evidence (the surplus) suggests that the current rate structure at least covers the funds required to provide service.  After all, if it didn’t– there would be more bills to pay and less or no surplus.

Seems obvious, right?  Here’s more.

2) The Rate Study

From the first freaking paragraph:

Based on projected water sales, the City’s current water rates will not produce adequate revenues to cover the costs of operating and maintaining (including capital improvements) the water system in FY12 or during subsequent years.

So . . . before FY12, the costs of operating and maintaining (including capital improvements) WERE COVERED BY ADEQUATE REVENUES COLLECTED THROUGH CURRENT WATER RATES.

I mean holly hell, how freakin’ ridiculous can this get?  Read the report for yourself.  It’s based on the assumption of keeping the original 10% transfer to the general fund and using a rate increase to maintain the water system.

When you’re done, ask yourself this question: How can we possibly justify keeping any of the 10% overcharge as funding “required” action to operate the utility when all the required action is not only included in the budget, but was anticipated when the original water rate structure was adopted?

It’s ludicrous.  It really is.  The entire study is predicated on the notion that current revenue stream is inadequate to cover future expenditure demand.  How can we possibly use an analysis of forward looking spending requirements to justify capturing costs that didn’t exist in the past?

We can’t.  Demand accountability from your council.  Let’s see some outrage.  Make them show you the lease for office space.  Make them show you a lease for a reservoir.  Make them show you how the normal water rate didn’t cover the expenses incurred in August of 2010.  The truth is they can’t.  They can’t give you any of it, but what they can do is throw you some bullshit line of how we’re getting a good deal in comparison to someone else, so it’s good enough and we ought to be happy.

Demand more.


About Ryan Cantor

Our conservative columnist, raised in North Orange County, works as an auditor.