The Fate of the Water Tax

The current city councilmembers (or at least a majority of them) have finally agreed to meet quickly on Monday morning for the sole purpose of certifying the results of the recall election. Once that’s out of the way, the three new councilmembers will be sworn in unceremoniously by the city clerk during the day on Monday.

Why skip the usual pomp and circumstance? Because there’s urgent business to take care of.

The new council has called a second special meeting for Tuesday evening to immediately deal with the collection of the 10% in-lieu franchise fee on water bills: a tax which was called illegal by the Howard Jarvis Taxpayers Association over a year ago, yet still persists today.

And so at their first meeting, a fresh city council will finally have a chance to eliminate the water tax entirely – a fee that was never properly authorized by taxpayers under Proposition 218 and was illegally diverted to the general fund to pay for non water-related costs (primarily salaries and pensions) for the last 15 years.

There are probably a lot of residents who wouldn’t be sad to see it go.

Water Main Breaks In Front of Water Reformer’s House

The irony, astonishing.  The coincidence, unnerving.  The big picture, never clearer.

If you could choose a place to break a water line, would this be at the top or bottom of the list? It’s in front of my house this morning…again!

This is just around the corner from the house that exploded yesterday and has many questioning the water systems integrity and capability when taxed with fire services. Did the sudden demand on the system place too much stress on the water lines? One would think so but I have not been able to speak with the Water System Manager, Dave Schickling, or the City Engineer, Don Hoppe, to ask.

After you and I have contributed $27-million through the water tax since 1996 to the City’s General Fund, you would think the City would have this under control.

A City of Fullerton representative contacted my wife to tell her that, because the leak is slow, they’ll be out TOMORROW, on a Saturday, to fix the line. Can you say OVERTIME? Seriously.

If the City was ever going to try to demonstrate water efficiency and commonsense responsible water management, you would think they might want to expedite a water main break. I wonder how many other breaks occurred since yesterday…

Day 2

New Water Tax: 6.7%? Not a Freakin’ Chance!

Apparently the much-anticipated Joe Felz Water Study is in, and it says that the illegal 10% water tax is…drum roll, please…illegal. But get this: rather than an honest study, the consultants were clearly told to gin up as much plausible reason to keep as much of the 10% as they could. The result? It’s only 6.7%. Yay!

The only problem is that to reach 6.7%, the consultant cooked up the idea that the Water Fund owed the City rent on land where water reservoirs are located! According to Ad Hoc Water Committee member Greg Sebourn, the total annual rent was figured at $1,374,000 – well-over half of the existing tax.

Of course this scam raises all sorts of new issues, as scams generally do. Such as: the reservoir in Hillcrest Park supports a play field on its deck. Does the City rent this back from the Water Fund? Bet not! The reservoir up at the top of Euclid is situated in a cactus patch patrolled by goats. What’s the rental or development value of a nature park? I dunno, but it’s not much. Has the Water Fund been paying for maintenance on these properties that should have been the responsibility of the General Fund? Bet so.

Then of course there’s the issue of whether the waterworks itself paid for fee title to any of these properties in the first place, a way back when. I wonder if the consultant even bothered to check. Bet not.

And there’s the embarrassing fact that there is no arm’s length relationship between the people that impose the rent and the people that pay it. The City Council can demand any amount of rent they want – then agree to pay it. Why not? The proceeds go to pay their own pensions! Now, that’s not very good, is it?

In any case, the public may find it a bit confusing and unseemly that at the eleventh hour the bureaucrats and their hand-picked consultant are burning the near-midnight oil to drum up ways to charge as much for water as they can that they can keep siphoning money into the General Fund.

Will you please shut up.

Will the city Council buy into this load? Well, of course they will. The vote will be 4-1, and it will be up to the citizens and voters to rectify the scam at the ballot box.

Our job is to continue to expose the fraud for what it is.


Felz Blows Off the HJTA. Illegal Water Tax Ripoff Continues. Lawsuit Imminent.

The Howard Jarvis Taxpayers Association fired off another pithy letter to city manager Joe Felz last week, accusing him of intentionally delaying the termination of the illegal 10% in-lieu water franchise tax while continuing to collect over $100,000 per month from Fullerton residents in violation of the state constitution.

The letter states that Joe Felz verbally admitted to the illegality of the fee and promised action within a certain timeframe. But honesty is not a virtue within city hall, and nine months later Felz and his trusted council majority of Bankhead, Jones and McKinley still allow the city to continue its theft without comment or remorse.

Mr. Bittle closed out his letter with a threat of a class action lawsuit that would seek a refund on behalf of all Fullerton water users. As one of the 135,000 ripped-off residents, I’d say that’s a great idea.


$6,000 Bonuses Part of Fullerton Water Rate Hike

As the Fullerton City Council prepares to hike water rates as “pass-through increases” I thought it would be good to share the sweet deal MWD employees get on April 1, 2012 (no, its not a joke) and see just what is being passed through to us.

Come April 1st the employees of MWD get a $6,000 bonus as part of their contract.

9.3 Effective the first day of the pay period that includes April 1, 2012, each employee in the bargaining unit shall receive a one-time only payment of $6,000 which shall not be considered part of the employee‘s regular pay.

If that wasn’t bad enough, July 1, 2013 MWD employees will get a 0.25% raise.  And if you think 0.25% isn’t much of a raise, consider what else gets slipped in.  How about creating “higher steps” for employees who have hit the salary ceiling and giving them raises as well?

9.4 Effective the first day of the pay period that includes July 1, 2013, there shall be an across-the-board salary increase of 0.25%. In addition, all bargaining unit classifications shall be moved two (2) salary grades higher (approximately 2.75% for each grade), and placed at the equivalent salary step in the new grade (e.g. an employee at step 11 on June 30, 2013 would be placed at step 9 of his new salary grade).

All bargaining unit employees will be place on the same evaluation date, and will receive a performance evaluation for the period ending July 1, 2013. Employees will be eligible for a merit increase pursuant to ARTICLE 65—MERIT INCREASES.

These generous employee benefits are being passed along to Fullerton water customers in the form of “pass-through” rate increases.  When the City Council pushes for a rate hike this year, be sure to speak up in opposition.  The City Council will be happy to pass the buck so long as we sit quietly and let them.

You can read the MWD employee agreement here.

The Shameful Water Triple (Er, Quadruple) Dip

UPDATE: Of course the comment from “Do the math” is right on the money. The 10% in-lieu fee is defined as a percentage of gross revenue – including the in-lieu fee itself! This tricky little dodge adds 10% of the 10% – an add-on of yet another 1% to the cost of your water bill! Uh, oh! Quadruple dip!

The Desert Rat

Way back in 1970 the Fullerton City Council passed Resolution No. 5184 dictating that 10% of the gross revenue collected by the Water Department was a reasonable amount to cover ancillary costs from supporting City departments. Here’s the key language from the Resolution:

That an amount equal to ten percent of the gross annual water sales of the Municipal Utilities Department during the fiscal year ending June 30, 1970 is hereby transferred to the General Fund in payment for the services of the Finance Department of the City and of the City Administrator, the City Attorney and the City Clerk to the Municipal Utilities Department of the City as a part of the operating costs of the waterworks system of the City during the fiscal year ending June 30, 1970.

That at the end of the fiscal year ending on June 30, 1971 and at the end of every fiscal year thereafter, a sum equal to ten percent of the gross annual water sales of the Municipal Utilities Department of the City shall be transferred to the general Fund of the City in payment for the services, during such fiscal year, of the Finance Department of the City and of the City Administrator, the City Attorney and the City Clerk to the Municipal Utilities Department of the City.

What sort of justification proved that 10% of the water revenue in 1970 should have gone to the General Fund is anybody’s guess.

In 1982 the City Council passed an ordinance permitting itself the authority to collect an “in-lieu” fee from  the water utility as a fixed percentage of revenue. Despite the name change, the City continued to add the historic 10% to Fullerton’s water bills, and rake it off directly into the General Fund – without so much as a second thought.

A bit confusing? Not really. The original justification for the fuzzy 10% figure was to reimburse the City for vague incurred costs; calling it an in-lieu fee never changed the inescapable fact that the 10% amount was supposed to pay for actual costs associated with running the waterworks. Either way, as of 1997 and the implementation of Prop. 218, that became illegal.

Flash forward to today, and peruse this year’s budget documents. The Water Fund is Fund 44. Check out the total column on the right.

Summary of Appropriations by Fund.

Notice the amount directly allocated in the 2011-12 budget to the City Manager and Administration: $1.7 million ($29,917 + $1,678,962).

Now let’s see some actual charges. Observe Fiscal year 2009-10, over there, in the left column.

Summary of Expenditures and Appropriations by Fund

Good grief! As you might have guessed (based on this year’s budget), in 2009-10 the City directly charged the Water Fund over $1.5 million for the City Council, City Manager, and Administrative Services; plus fifty grand for Human Resources, and $100,000 for Community Development!

And this means that those services that were originally being used to justify the 10% levy on our water bills are already being charged directly to the General Fund. Double Dip!

Of course it gets worse. We now know the 10%  is a double dip; but hold on to your water bill. Because the directly charged costs for “administration” are considered part of the base waterworks cost; the automatic 10% in-lieu fee (which was supposed to pay for “administration” but that pays for nothing), is applied to that! That increase this year is at least $170,000, if you add 10% to that $1.7 million figure we saw in the first table. Triple Dip!

And that, Friends, is a triple gainer off the high board and right into the deep end of the pool.



Your Tithe is Man-dated At The Altar of The Almighty Bureaucrat

The upkeep just kept getting more expensive...

Everybody who goes to church is familiar with the concept of tithing – literally giving one tenth of your income to support the church and its good works. Of course the act is voluntary.

The people who pay for water from the Fullerton Water Works have been paying a tithe, too. You see, since 1970 the Citycrats have decreed that ten percent of the cost of a monopoly supplying you with water will be added to your bill, and then be immediately re-directed to the City’s General Fund.

In the early days, when water was dirt cheap it was a way to help pay for certain indirect costs of employees who were considered overhead support for the water works. It was called an “in-lieu franchise fee” like the ones the City charges other utilities to operate in Fullerton. Still, there was an immediate problem that nobody addressed: it was bad management, and bad accounting, and opened the door for all sorts of abuse. Decades later, in 1997, Proposition 218 was passed that specifically addressed the scam of governments charging “fees” that were nothing more than hidden taxes – just like Fullerton’s 10% in-lieu fee. It was now required that fee amounts be established through objective supportable analysis that was conducted transparently, in the light of public scrutiny. No longer could governments legally charge for more than any service was worth.

But Fullerton did. For 15 years the City continued to charge, then rake off a ten percent tribute from the Water Fund that went to pay for things like pensions and pay raises for all Fullerton city employees, stuff that had nothing to do with providing water to you. Not only did the city councils know about the scam, they heartily approved the slight-of-hand, year after year.

Meantime, the cost of water skyrocketed, increasing nearly 350% between 1997 and now, jacking up the illegal tax from $700,000 a year in 1997 to over $2.5 million a year now. That’s a rate of about 23% a year, just in case you’re inclined to keep track. A staggering total of almost $27 million has been surreptitiously extorted from you since Proposition 218 went into effect.

Those who support this cheapjack end run think it’s right and proper for you to pay this tithe without your knowing it, and without your consent. After all they’ve had plenty of opportunity to insist, at least, that notification of the 10% diversion be made on each water bill. But they never have. And that’s because their first priority is continue funding six-figure pensions, automatic raises for employees, and all the other things that constitute business as usual in their Church of The Almighty Bureaucrat. It’s their church, and as far as the High Priests and pharisees are concerned, you taxpayers can just sit in the back pew, way, way back there in the dark, and keep your mouths shut.

Fullerton’s Water Rep to Step Down

Amid Fullerton’s water rate debacle the City’s representative on the Metropolitan Water District of Southern California announced Tuesday that he is stepping down.  After representing the City of Fullerton for 24 years on the MWD Board of Directors, Jim Blake says he is done.

Jim Blake

It is rumored that Fullerton’s retired city manager Chris Meyer is looking to be appointed as Blake’s replacement but that will require a majority vote by the Fullerton City Council.   Since City Council Members Bankhead and Jones appointed Meyer as City Manager in 2002, there is little doubt that they wouldn’t give him the MWD nod as well.

However, with Fullerton’s water rates under scrutiny and an illegal tax being batted about City Hall for justification, you have to wonder how much of the water mess can be attributed to Meyer- not to mention the rest of the City’s countless woes.

An appointment of Meyer to the MWD Board might bring further outcry to City Hall, something the new Mayor might wish to avoid. Since August the Council members have been cussed at, cursed at, sworn up and down, and yelled at.  They are now being held accountable for their general lack of leadership by a campaign to recall three members, Mayor Pro Tem Pat McKinley, and members Don Bankhead and F. Dick Jones.

Many believe that the appointment should be filled by a current council member so that they can be held responsible by Fullerton voters for their actions on the Board.  Currently, Blake is answerable only to the Fullerton City Council.

If the appointment is to be held by a non-council member, then the process should be open to ALL candidates equally like any other council appointment to a commission or committee.

Whoever is appointed will be tasked with a massive budgetary shortfall that rivals Sacramento’s. The appointee will be asked for double-digit rate hikes and even more spending.  They need to know the water industry and even more about public policy and long-term investment solutions.  They need to know Fullerton and not just through the myopic eyes of service clubs.

Fullerton deserves an accountable and credible representative on the Metropolitan Water District of Southern California.

Howard Jarvis Will Challenge Fullerton’s Illegal Water Tax

It looks like our city may be in for another lawsuit. Check out this letter that was sent from the Howard Jarvis Taxpayers Association just before Turkey Day (emphasis mine):

Mr. Joe Felz, City Manager
City of Fullerton
303 W Commonwealth Avenue
Fullerton,CA 92832

Re:  Water Department “In Lieu Fees”

Jack Dean, a friend of the Howard Jarvis Taxpayers Association, has brought to our attention that the City of Fullerton pads the rates charged to water customers in order to transfer funds from the Water Fund to the General Fund.  These transfers appear in the City’s Budget under Water Fund expenses and General Fund revenue as a 10% in-lieu franchise fee.  We believe the fee and revenue transfers are illegal.

If a private company provided water service to the residents of Fullerton, the City could charge the private company a negotiated franchise fee for occupying public rights of way with its pipelines.  That is not the case in Fullerton, however, as the City operates its own municipal water utility.  The rates the City may charge are governed by the California Constitution, which limits rates to just the amount required to provide service, and prohibits transferring rate revenue for use elsewhere.

California Constitution article XIII D § 6(b) states in relevant part: “(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.”

We successfully litigated this issue several years ago in lawsuits against the cities of Roseville and Fresno.  The courts in those two cases ruled that a city’s utility enterprise can reimburse the General Fund for actual, documented expenditures incurred on behalf of the utility, such as the utility’s use of the City Attorney’s services, or the utility’s share of a common insurance fund.  However, the utility cannot serve as a supplemental source of revenue for the General Fund.  As the court in the Roseville case said:

“[T]he in-lieu fee violates section 6(b) of Proposition 218 in a more direct way. Roseville concedes that ‘[r]evenue from the in [-]lieu franchise fee is placed in [Roseville’s] general fund to pay for general governmental services. It has not been pledged, formally or informally[,] for any specific purpose.’ This concession runs afoul of section 6(b)(2) that ‘[r]evenues derived from the fee or charge shall not be used for any purpose other than that for which the fee or charge was imposed.’ It also contravenes section 6(b)(5) that ‘[n]o fee or charge may be imposed for general governmental services.’”Howard Jarvis Taxpayers Assn. v. City of Roseville (2002) 97 Cal.App.4th 637, 650.

By this letter we are formally requesting the City of Fullerton to stop charging the 10% in-lieu franchise fee, and to adjust its customers’ water rates accordingly.

If the City believes its 10% in-lieu franchise fee is legally defensible, then please consider this letter a request under the California Public Records Act for copies of the study(s) and/or accounting(s) that itemize General Fund costs on behalf of the Water Fund totaling exactly 10% each year.

Your response by December 10, 2011, would be appreciated.


Timothy A. Bittle
Director of Legal Affairs

The tax became a big issue back in July, when a guy named Jack Dean from the Fullerton Association of Concerned Taxpayers pointed out the illegality of this water tax to the council (during an attempt to double water rates.)

Well, it’s been four months now, and Fullerton residents are STILL PAYING that illegal tax on every water bill.

Of course Bankhead, Jones and McKinley are waiting for the city attorney to find a way to squeeze that tax through a legal loophole, instead of rescinding it and refunding the money they’ve been helping the city steal from taxpayers since Prop 218 passed fifteen years ago.

How about a refund?

Reasons to Oppose Fullerton’s Water Rate Hike

Tuesday night’s City Council agenda is set and among the many items for consideration by council members is a water rate increase.

The increase would raise water revenue by 7.8% but it is not clear how that increase would be spread among different rate classes. Some will feel the increase more than others. This cloud is just one of the many reasons I oppose this rate increase.

Other reasons include the hidden water tax, economic timing, city management’s long-standing philosophy on infrastructure, the likely law suits due to improper notice by the City, shortsighted conservation efforts, and the general feeling of distrust by consumers.

10% of every water bill gets diverted or skimmed from the water fund and transferred into the City’s General Fund. 80% of the General Fund goes to cover public safety employee benefits. Outside of City Hall only a handful of people know about this tax. In my opinion, it gives the appearance that the unions are embezzling public funds. The General Fund does not contribute any funds back into the water system. Removing this hidden tax would allow the water system to retain about $2.5-million for pipe replacement.

Fullerton residents and businesses are struggling to survive. The elderly and disabled have never had this magnitude of cuts in services and funding now on the table and being debated in Washington. There are other measures yet to be instituted which could provide a financial buffer for the next year or two. City management must exhaust all avenues before resorting to a rate hike in the midst of the worst recession since the Great Depression.

For decades, city management has turned a blind eye to the infrastructure. Unless the repairs or replacement was in a redevelopment district, the City would put off any work. Instead, the city sought to spend $6-million on moving a McDonalds 200 feet, $30-million* in bonds for housing (*will amount to more than $50-million when paid off), and more than $12-million to revamp the Lions Field athletic complex. Meanwhile, our water lines are failing, our roads are crumbling, our streetlights broken, and who knows what else is in disrepair. The proven ability of city officials, from council members to department heads, to go along with whatever hot new trend presented itself despite the obvious deficiencies in our infrastructure is unforgiveable. While some were getting bronze plaques with their names on it, the rest of us are left to foot the bill. Enough already!

The Howard Jarvis Taxpayers Association has indicated that the Proposition 218 rate increase notification received by some water customers last month does not comply with the requirements of the law. Fullerton’s notice is insufficient according to Timothy Bittle, Director of Legal affairs for the Howard Jarvis Taxpayers Association. “[T]hey can’t tell anyone yet what the new amount of their fee will be. That’s not compliance with 218!” says Bittle.

A recent survey of 122 public agencies by the Sierra Club shows Fullerton’s water conservation efforts sadly on par with the infamous city of Bell. The survey gives Fullerton 8 points out of 20. Out of the 122 agencies surveyed, only 16 scored worse.

Finally, people have lost a great deal of trust in their government at all levels and why wouldn’t they lose trust once they realize the City has been charging them with a hidden tax that does not benefit the water system. Most people who do not deal with City Hall regularly get frustrated at the run around they receive. One person tells them to do one thing and someone else tells them to do something different. Many are simply discouraged by driving on Fullerton’s poorly maintained streets. Others, like me, have watched the same section of water line replaced three or four times in just 24 months.

For these reasons and more, I strongly oppose this water rate increase and believe that our city can and should do better to serve the public before considering any rate hikes.