Report 2014-132 All Recommendation Responses

Report 2014-132: Apple Valley Area Water Rates: Differences in Costs Affect Water Utilities' Rates, and One Utility May Have Spent Millions of Ratepayer Funds Inappropriately (Release Date: April 2015)

Recommendation #1 To: Hesperia Water District

To assist low-income water customers, Hesperia should work with its governing body to consider the feasibility of using revenues from sources other than water rates to implement a rate assistance program.

Annual Follow-Up Agency Response From October 2019

As stated in the Hesperia Water District's previous responses, the Audit recognizes that state law prohibits public utilities such as the District from using rate revenues to offer rate assistance programs. Presumably the Auditor is suggesting that the City of Hesperia - a separate legal entity - donate taxpayer funds to subsidize a rate assistance program. Even if this were allowed by law, neither the District nor the State have the authority to commit City funds to such a program. The City is obligated to provide a broad range of services to its residents with limited sources of revenue. Such services include public safety, which in Fiscal Year 2019-20 consumes 53% of the City's General Fund Budget. City staff continue to work diligently to avoid a General Fund shortfall in next year's budget. The addition of a rate assistance program is not feasible.

Instead, we believe the best way to maintain the lowest water rates possible for our Water District customers is through efficient operations, which result in a lower cost of water for every ratepayer. The Audit shows that Hesperia's rates are among the lowest in the area and are, in fact, substantially lower than the "rate assisted" rates of water utilities in the Audit that offer a low income assistance program with Hesperia's rates being between 36% and 83% lower than the rates offered by Liberty Utilities (formerly Apple Valley Ranchos) under their rate assistance program. The Audit highlights that all Hesperia Water District Customers have very affordable rates for their water.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

As stated in previous assessments, although we understand that the City of Hesperia must make tough choices with how to spend its general fund monies, we encourage it to continue to seek to ensure that its citizens with limited resources have access to vital water services.

Annual Follow-Up Agency Response From October 2017

As stated in the Hesperia Water District's previous responses, the Audit recognizes that state law prohibits public utilities such as the District from using rate revenues to offer rate assistance programs. Presumably the Auditor is suggesting that the City of Hesperia -- a separate legal entity - donate taxpayer funds to subsidize a rate assistance program. Even if this were allowed by law, neither the District nor the State have the authority to commit City funds to such a program. The City is obligated to provide a broad range of services to its residents with limited sources of revenue. Such services include public safety, which in Fiscal Year 2017-18 consumed 52% of the City's General Fund Budget. City staff are currently working diligently to avoid a General Fund shortfall in next year's budget. The addition of a rate assistance program is not feasible.

Instead, we believe the best way to maintain the lowest water rates possible for our Water District customers is through efficient operations, which result in a lower cost of water for every ratepayer. The Audit shows that Hesperia's rates are among the lowest in the area and are, in fact, substantially lower than the "rate assisted" rates of water utilities in the Audit that offer a low income assistance program. Hesperia's rates are between 36% and 83% lower than the rates offered by Liberty Utilities under their rate assistance program. The Audit highlights that all Hesperia Water District Customers have very affordable rates for their water.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

Our recommendation that Hesperia work with its governing body to consider the feasibility of using revenues from sources other than water rates to implement a ratepayer assistance program is not in violation of state law. As we state on page 25, public utilities are not prohibited from using other revenues, such as money from a city's general fund, to offer rate assistance programs. We do not see how Hesperia considers spending its tax payer revenue to benefit its residents to be illegal.

Although we understand that the City of Hesperia must make tough choices with how to spend its general fund monies, we encourage it to continue to seek to ensure that its citizens with limited resources have access to vital water services.

Annual Follow-Up Agency Response From October 2016

As stated in the Hesperia Water Districts previous responses, the Audit recognizes that state law prohibits public utilities such as the District from using rate revenues 2 offer rate assistance programs. Presumably the Auditor is suggesting that the City of Hesperia - a separate legal entity - donate taxpayer funds to subsidize a rate assistance program. Even if this were allowed by law, neither the District nor the State have the authority to commit City funds to such a program. City is obligated to provide a broad range of services to its residents with limited sources of revenue. Such services include public safety, which in FY 2015-16 consumed 54% of the Citys General Fund (GF) Budget. City staff are currently working diligently to avoid a GF shortfall in next years budget. The addition of a rate assistance program is not feasible. Instead, we believe the best way to maintain the lowest water rates possible for our Water District customers is through efficient operations, which result in a lower cost of water for every ratepayer. The Audit shows that Hesperia's rates are among the lowest in the area and are, in fact, substantially lower than the "rate assisted" rates of water utilities in the Audit that offer a low income assistance program. Hesperia's rates are between 36% and 83% lower than the rates offered by Liberty Utilities under their rate assistance program. The Audit highlights that all Hesperia Water District Customers have very affordable rates for their water.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

1-Year Agency Response

Hesperia did not submit a 1-year response.

California State Auditor's Assessment of 1-Year Status: Will Not Implement

We contacted Hesperia and it stated that it will not be changing its statement from the 6-month response. Please see its 6-month response and our assessment of that response below.

6-Month Agency Response

The Audit identifies that state law prohibits public utilities from using rate revenues to offer rate assistance programs. Presumably the Audit is suggesting that the City of Hesperia, a separate legal entity, utilize its limited resources as a donation of funds to subsidize a program, as it is outside of the statutory authority of the Hesperia Water District to commit the funds of another entity. With 54% of the City's Fiscal Year 2015-16 General Fund Budget dedicated to Public Safety (which is an increase $654,301 over the prior year just to maintain the existing Police workforce), the addition of such a program, would negatively impact the City's ability to provide the broad range of services the City is currently obligated to provide to its citizens.

Instead, we believe the best way to provide assistance is to maintain the lowest water rates possible for our Water District customers through efficient operations, which results in a lower cost of water for every rate payer. An outcome of the Audit shows that Hesperia's rates are among the lowest in the area and are, in fact, substantially lower than the "rate assisted" rates of water utilities in the Audit that offer a low income assistance program. Hesperia's rates are between 36% and 83% lower than the rates offered by AVRWC under their rate assistance program. The Audit highlights that all Hesperia Water District Customers have very affordable rates for their water.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

Although we understand that the City of Hesperia must make tough choices with how to spend its general fund monies, we encourage it to continue to seek to ensure that its citizens with limited resources have access to vital water services.

60-Day Agency Response

The Audit identifies that state law prohibits public utilities from using rate revenues to offer rate assistance programs. Presumably the Audit is suggesting that the City of Hesperia, a separate legal entity, utilize its limited resources as a donation of funds to subsidize program, as it is outside of the statutory authority of the Hesperia Water District to commit the funds of another entity. With 54% of the City's Fiscal Year 2015-16 General Fund Budget dedicated to Public Safety (which is an increase $654,301 over the prior year just to maintain the existing Police workforce), the addition of such a program, would negatively impact the City's ability to provide the broad range of services the City is currently obligated to provide to its citizens. Instead, we believe the best way to provide assistance is to maintain the lowest water rates possible for our Water District customers through efficient operations, which results in a lower cost of water for every rate payer. An outcome of the Audit shows that Hesperia's rates are among the lowest in the area and are, in fact, substantially lower than the "rate assisted" rates of water utilities in the Audit that offer a low income assistance program. Hesperia's rates are between 36% and 83% lower than the rates offered by AVRWC under their rate assistance program. The Audit highlights that all Hesperia Water District Customers have very affordable rates for their water.

California State Auditor's Assessment of 60-Day Status: Will Not Implement

Although we understand that the City of Hesperia must make tough choices with how to spend its general fund monies, we encourage it to continue to seek to ensure that its citizens with limited resources have access to vital water services.

Recommendation #2 To: Victorville Water District

To assist low-income water customers, Victorville should work with its governing body to consider the feasibility of using revenues from sources other than water rates to implement a rate assistance program.

Annual Follow-Up Agency Response From December 2020

The Victorville Water District's response has not changed, our rates continue to be significantly lower than Golden State or other private water companies currently present in the area.

This recommendation was apparently made because of rate assistance programs offered at Apple Valley Ranchos and Golden State. The Victorville Water District offers low rates to all customers. According to Figure 4 on page 18 of your investigative audit, apple Valley Ranchos Water Company customers had an average effective rate of $4.36 per unit over the study period, Golden State has an average effective rate of $4.70; whereas, Victorville has an average effective rate of $2.65. Even when rate assistance is applied, the effective rates of the private water companies are still significantly higher than Victorville's rates.

Victorville and Hesperia have done very well to keep rates low for all customers. These rates are significantly lower than private water companies in the region, including any application of rate assistance, as demonstrated by the Hesperia City Manager in his letter to you on April 14, 2015. Victorville ratepayers who may be low-income or may otherwise qualify for rate assistance already pay significantly less than persons in similar circumstances who are customers of nearby private water companies. Any further assistance would be arbitrary and purely for public relations reasons. Arbitrary rate adjustments are prohibited by Proposition 218 and any use of other funds would necessarily take away from the purpose those funds are collected. At this time Victorville has no intention on adding such a rate and will instead endeavor to keep rates low for all customers.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

As we indicated on page 59 in our report in response to the City of Hesperia, regardless of the rates of other utilities in the area or its current rates, we believe cities should, consistent with applicable legal requirements, consider a rate assistance program to help low-income customers in its service area.

1-Year Agency Response

Victorville did not submit a 1 year response.

California State Auditor's Assessment of 1-Year Status: Will Not Implement

We contacted Victorville and it stated that it will not be changing its statement from the 60-day response. Please see its 60-day response and our assessment of that response below.

6-Month Agency Response

Victorville did not submit a 6-month response.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

We contacted Victorville and it stated that it will not be changing its statement from the 60-day response. Please see its 60-day response and our assessment of that response below.

60-Day Agency Response

This recommendation is apparently made because of rate assistance programs offered at Apple Valley Ranchos and Golden State, but it ignores basic math. The Victorville Water District offers low rates to all customers. According to Figure 4 on page 18 of your investigative audit, Apple Valley Ranchos Water Company customers had an average effective rate of $4.36 per unit over the study period, Golden State had an average effective rate of $4.70, whereas Victorville had an average effective rate of only $2.65. Even when rate assistance is applied, the effective rates of the private water companies are still significantly higher than Victorville's rates.

Victorville and Hesperia have done very well to keep rates low for all customers. These rates are significantly lower than private water companies in the region, including any application of rate assistance, as demonstrated by the Hesperia City Manager in his letter to you on April 14, 2015. Victorville ratepayers who may be low-income or may otherwise qualify for rate assistance already pay significantly less than persons in similar circumstances who are customers of nearby private water companies. Any further assistance would be arbitrary and purely for public relations reasons. Arbitrary rate adjustments are prohibited by Proposition 218 and any use of other funds would necessarily take away from the purpose those funds were collected. At this time Victorville has no intention of adding such a rate and will instead endeavor to keep rates low for all customers.

California State Auditor's Assessment of 60-Day Status: Will Not Implement

As we indicated on page 59 in our report in response to the City of Hesperia, regardless of the rates of other utilities in the area or its current rates, we believe cities should, consistent with applicable legal requirements, consider a rate assistance program to help low-income customers in its service area.

Recommendation #3 To: Apple Valley Ranchos Water Company

To demonstrate to water customers how they are working to keep rates reasonable, the four water utilities should document their cost-saving efforts and quantify, to the extent possible, any specific cost savings achieved from their respective efforts.

1-Year Agency Response

As explained in previous responses AVR implemented a policy to send out reminder notices to staff asking for details on cost savings measure undertaken in the previous year. We received multiple responses and were able to quantify the following:

1. ESRI Software License agreement was consolidated to allow unlimited users at a lower rate.

2. Geo-Reference tools for "As built" images loads digital images in GIS system saving field and office staff time.

3. Service line job posting consolidation eliminates unnecessary detail from fixed asset system saving staff tracking and input time.

4. Electricity aggregation demand response agreement provides rebates if we submit to system down requests during peak demand events.

5. Employee benefits restructuring saved an average of $0.03 per $1.00 of wages in 2015.

In total these measures saved an estimated $93,340 in 2014 and $177,635 in 2015. The calculations are roughly detailed on the supporting worksheet submitted to the auditor in charge.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

Apple Valley Ranchos provided a worksheet detailing the cost savings it describes above. For many of the cost savings, the amounts are estimates of time saved due to the changes identified. Apple Valley Ranchos previously provided its policy requiring staff to document cost saving efforts.

6-Month Agency Response

Apple Valley Ranchos Water Co. (Ranchos), in its April 14, 2015 comments on the redacted draft of the report, agreed that Ranchos should "document going forward cost-saving efforts and quantify, to the extent possible, any specific cost savings achieved... Ranchos agrees that it would be beneficial to inform customers of efforts to reduce costs and the results of those cost saving efforts and that providing such information to customers would be good practice for all utilities."

Many of Ranchos' costs are influenced by multiple factors, some of which are not under Ranchos' control or readily subject to cost-saving efforts. In addition, many cost-saving efforts are aimed at avoidance of cost-increase and may not result in reductions from prior costs. As a result, the dollar impacts of specific cost-saving efforts can be very difficult, or not reasonably or cost-effectively possible, to quantify with precision.

Ranchos provided copies of the State Audit Report to all senior management of the Company and its' parent company, Park Water Company (Park). Because Park's Corporate Division performs a number of centralized services for Ranchos, both companies are involved in cost-saving efforts that impact Ranchos. The recommendation was discussed at a meeting of senior management of both companies. A procedure was developed by Ranchos' Manager of Financial Services and Park's Chief Financial Officer. The procedure has been reviewed by both companies' senior management, and distributed to all relevant department heads.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

Apple Valley Ranchos provided the procedure referenced in its response which requires its staff to document actions with a cost savings in excess of $10,000. However, Apple Valley Ranchos has yet to provide documented examples of cost saving measures showing that it is following its procedure.

60-Day Agency Response

Apple Valley Ranchos Water Co. (Ranchos), in its April 14, 2015 comments on the redacted draft of the report, agreed that Ranchos should "document going forward cost-saving efforts and quantify, to the extent possible, any specific cost savings achieved... Ranchos agrees that it would be beneficial to inform customers of efforts to reduce costs and the results of those cost saving efforts and that providing such information to customers would be good practice for all utilities."

Many of Ranchos' costs are influenced by multiple factors, some of which are not under Ranchos' control or readily subject to cost-saving efforts. In addition, many cost-saving efforts are aimed at avoidance of cost-increase and may not result in reductions from prior costs. As a result, the dollar impacts of specific cost-saving efforts can be very difficult, or not reasonably or cost-effectively possible, to quantify with precision.

Ranchos provided copies of the State Audit Report to all senior management of the Company and its' parent company, Park Water Company (Park). Because Park's Corporate Division performs a number of centralized services for Ranchos, both companies are involved in cost-saving efforts that impact Ranchos. The recommendation was discussed at a meeting of senior management of both companies. A procedure was developed by Ranchos' Manager of Financial Services and Park's Chief Financial Officer. The procedure has been reviewed by both companies' senior management, and distributed to all relevant department heads.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

Apple Valley Ranchos provided the procedure referenced in its response which requires its staff to document actions with a cost savings in excess of $10,000. However, Apple Valley Ranchos has yet to provide documented examples of cost saving measures showing that it is following its procedure.

Recommendation #4 To: Golden State Water Company

To demonstrate to water customers how they are working to keep rates reasonable, the four water utilities should document their cost-saving efforts and quantify, to the extent possible, any specific cost savings achieved from their respective efforts.

Annual Follow-Up Agency Response From October 2018

As a result of the California Public Utility Commission's final decision on Golden State Water Company's (GSWC) General Rate Case Application to set rates for the years 2016, 2017, and 2018, GSWC has fully implemented the recommendation from audit report 2014-132.

A copy of the CPUC's final decision is available on the CPUC's website (www.cpuc.ca.gov). The decision number is D.16-12-067.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

GSWC's rate case included documented cost savings efforts. Now that the plan has been approved by the CPUC, GSWC should be able to implement those cost saving efforts.

1-Year Agency Response

We are awaiting a final decision from the California Public Utilities Commission that will establish rates for the three year window: 2016, 2017, and 2018.

Undeer the terms of the settlement in that proceeding, GSWC has reduced its annual O&M costs $7 million. These costs reductions were widespread within the organization. The largest individual reduction was in annual depreciation expense which was achieved by updating our depreciation study.

California State Auditor's Assessment of 1-Year Status: Pending

Golden State Water Company indicates its status as not fully implemented as its rate case, which establishes rates, is still pending final approval.

6-Month Agency Response

The recommendation is document cost savings and quantify if possible.

Golden State views this recommendation as an on-going task, not necessarily one that has a finish line

California State Auditor's Assessment of 6-Month Status: Pending

We look forward to Golden State providing some examples of its efforts to document its cost savings in its one-year response.

60-Day Agency Response

Golden State will collect data as recommended data for its next appropriate rate filing.

California State Auditor's Assessment of 60-Day Status: Pending

Golden State has indicated that it is in the process of documenting and quantifying cost saving measures in anticipation of filing its next general rate case in March 2016.

Recommendation #5 To: Hesperia Water District

To demonstrate to water customers how they are working to keep rates reasonable, the four water utilities should document their cost-saving efforts and quantify, to the extent possible, any specific cost savings achieved from their respective efforts.

1-Year Agency Response

Yes there are written examples of cost saving measures, as well as verbal dissemination of this info. Attached is transmittal letter from the City's Comprehensive Annual Financial Report (CAFR) for the Fiscal Year Ended 6/30/15(the full report is available on the City's website at cityofhesperia.us by clicking on "Your Government", "Financial Documents" , and "2014-15 CAFR"). The CAFR reports info for the City as a whole, including its component districts(i.e. Hesperia Water District). I've attached the transmittal letter for your review and highlighted areas within the letter that discuss cost saving measures affecting the Water District directly.Included is a link to a video of the City's 2015 State of the City Address (http://www.cityofhesperia.us/1156/2015-state-of-the-city-address)wherein the City/District's efforts toward water conservation are discussed, w/additl efforts for long-term solutions to water concerns, such as the construction of a recycled water reclamation facility located on the west side of Hesperia which will recycle 1 mil. gallons of water per day. Highlighted on the City's website is information highlighting Energy Efficiency and Emergency Repairs Rehabilitation Programs available to homeowners in Hesperia for improvements that increase energy & water efficiency of their home. These grants utilize funds provided by the U.S. Department of Housing and Urban Development's (HUD) Community Block Grant Program (CDBG) Program which assists income eligible homeowners w/grants for water and energy efficiency improvements. The info. provided above highlights multiple efforts made by the City/District which have helped to provide some of the lowest water rates in the local area w/additional efforts being made for future conservation of water resources as well as the administration of programs to assist homeowners in the City w/grants to make water efficiency improvements to their homes which assist in lowering their bimonthly water bills.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

The Audit also suggest that water utilities document cost-saving efforts and quantify, to the extent possible, any specific cost savings achieved from their respective efforts. Hesperia Water District has been able to operate the District without a rate increase since 2011, all the while maintaining the comparatively low water rates mentioned in the audit report. As indicated in the District's response to the draft Audit report, Hesperia Water District articulated several cost savings measures during the Audit period, including a reduction in personnel costs due to salary and benefit reductions and demonstrating that electrical costs have not increased for several years by pumping during off-peak periods. While a specific dollar value of these savings was not quantified, the impact of the savings is clear; Hesperia water rates have not increased despite ongoing increases in electrical rates as well as other increases in the cost of goods and services utilized by the District. Some benefit can be derived from promoting District cost savings measures to its customers. Therefore, wherever reasonably possible, information about District cost savings measures will be disseminated. The FY 2015-16 Budget document includes information within the Water District accomplishments section promoting staff efforts which have resulted in the notification of award of a $2 million Proposition 84 Drought Relief State Grant to be utilized for the construction of a recycled water distribution system. The District will continue to look for opportunities to inform its customers about additional savings measures as circumstances allow.

California State Auditor's Assessment of 6-Month Status: Partially Implemented

While Hesperia has identified a cost saving measure and quantified its benefit, we hope that Hesperia will continue to document its cost saving efforts and provide additional examples in its one year response to demonstrate that it has fully implemented the recommendation.

60-Day Agency Response

The Audit also suggest that water utilities document cost-saving efforts and quantify, to the extent possible, any specific cost savings achieved from their respective efforts. Hesperia Water District has been able to operate the District without a rate increase since 2011, all the while maintaining the comparatively low water rates mentioned earlier. As indicated in the District's response to the draft Audit report, Hesperia Water District articulated several cost savings measures during the Audit period, including a reduction in personnel costs due to salary and benefit reductions and demonstrating that electrical costs have not increased for several years by pumping during off-peak periods. While a specific dollar value of these savings was not quantified, the impact of the savings is clear; Hesperia water rates have not increased despite ongoing increases in electrical rates as well as other increases in the cost of goods and services utilized by the District. Some benefit can be derived from promoting District cost savings measures to its customers. Therefore, wherever reasonably possible, information about District cost savings measures will be disseminated. The draft FY 2015-16 Budget document includes information within the Water District accomplishments section promoting staff efforts which have resulted in the notification of award of a $2 million Proposition 84 Drought Relief State Grant to be utilized for the construction of a recycled water distribution system. The District will continue to look for opportunities to inform its customers about additional savings measures as circumstances allow.

California State Auditor's Assessment of 60-Day Status: Partially Implemented

While Hesperia has identified a cost saving measure and quantified its benefit, we hope that Hesperia will continue to document its cost saving efforts and provide additional examples in its six-month response to demonstrate that it has fully implemented the recommendation.

Recommendation #6 To: Victorville Water District

To demonstrate to water customers how they are working to keep rates reasonable, the four water utilities should document their cost-saving efforts and quantify, to the extent possible, any specific cost savings achieved from their respective efforts.

Annual Follow-Up Agency Response From December 2020

The Victorville Water District's response has not changed.

Victorville's water rates are adopted via appropriate public processes. Planned rate increases, which had been approved the voters, have been deferred at several public hearings over the past five years following significant public discussion, including detailed written staff reports. Not once has a single customer asked for additional documentation of cost saving efforts, only appreciation that the rates continue to stay low. Victorville has no intention of further quantifying cost-savings efforts and instead will put that energy and expense toward keeping rates low and responding to actual customer inquiries.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

As we indicate on page 26 of our report, we found during our review that Victorville did determine the cost savings of its efforts. We are disappointed that Victorville states that it does not intend to be more transparent in how it keeps rates reasonable for its citizens.

1-Year Agency Response

Victorville did not submit a 1 year response.

California State Auditor's Assessment of 1-Year Status: Will Not Implement

We contacted Victorville and it stated that it will not be changing its statement from the 60-day response. Please see its 60-day response and our assessment of that response below.

6-Month Agency Response

Victorville did not submit a 6-month response.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

We contacted Victorville and it stated that it will not be changing its statement from the 60-day response. Please see its 60-day response and our assessment of that response below.

60-Day Agency Response

Victorville's water rates are adopted via appropriate public processes. Planned rate increases, which had been approved by the voters, have been deferred at several public hearings over the past five years following significant public discussion, including detailed written staff reports. Not once has a single customer asked for additional documentation of cost savings efforts, only appreciation that the rates are lower. Victorville has no intention of further quantifying cost-saving efforts and will instead put that energy and expense toward keeping rates low and responding to actual customer inquiries.

California State Auditor's Assessment of 60-Day Status: Will Not Implement

As we indicate on page 26 of our report, we found during our review that Victorville did determine the cost savings of its efforts. We are disappointed that Victorville states that it does not intend to be more transparent in how it keeps rates reasonable for its citizens.

Recommendation #7 To: Victorville Water District

To ensure that it does not use revenues from ratepayers for inappropriate purposes, by October 2015, Victorville should revise its policies to prohibit transfers or loans of water fee revenue for nonwater district purposes. Victorville should also revise its investment policy that specifies the circumstances under which it can invest water revenues—setting prudent limits on its investment in assets that the Victorville city council manages.

Annual Follow-Up Agency Response From December 2020

The Victorville Water District's response has not changed.

The Victorville City Council, acting as the City Council, the Victorville Water District Board of Directors, and the Board of Directors for other associated agencies, adopted an updated inter-fund and intra-fund loan policy on April 7, 2015. Although the California State Auditor disagrees, counsel for the City, District, and other associated agencies has advised this policy follows all applicable laws. Victorville has no intention of further revision of this policy.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

As we indicate on page 36 and 37 of our report, Victorville should consider modifications to its investment policy. These simple revisions would strengthen protections of water district monies and help to ensure that the water district's core mission is not impaired.

1-Year Agency Response

Victorville did not submit a 1 year response.

California State Auditor's Assessment of 1-Year Status: Will Not Implement

We contacted Victorville and it stated that it will not be changing its statement from the 60-day response. Please see its 60-day response and our assessment of that response below.

6-Month Agency Response

Victorville did not submit a 6-month response.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

We contacted Victorville and it stated that it will not be changing its statement from the 60-day response. Please see its 60-day response and our assessment of that response below.

60-Day Agency Response

The Victorville City Council, acting at the City Council, the Victorville Water District Board of Directors, and as the Board of Directors for other associated agencies, adopted an updated inter-fund and intra-fund loan policy on April 7, 2015. Although the California State Auditor disagrees, legal counsel for the city, district, and other associated agencies has advised this policy follows all applicable laws. Victorville has no intention of further revision of this policy.

California State Auditor's Assessment of 60-Day Status: Will Not Implement

As we indicate on page 36 and 37 of our report, Victorville should consider modifications to its investment policy. These simple revisions would strengthen protections of water district monies and help to ensure that the water district's core mission is not impaired.

Recommendation #8 To: Victorville Water District

To address the excess interest expense resulting from loans to the city of Victorville and the building of the wastewater plant, Victorville should seek reimbursement from the city for its unrecovered costs. Victorville should work with the city to prepare and submit to the water district board and the Victorville city council by October 2015 a formal repayment plan including specific dates and payments to be made to ensure that the water district and its ratepayers are made whole. When the water district board approves such a plan, it should take steps to ensure compliance with the repayment plan.

Annual Follow-Up Agency Response From December 2020

The Victorville Water District's response has not changed.

Loans made to the City by the Victorville Water District (VWD), which for clarification purposes you refer to as "Victorville", were made at the Local Agency Investment Fund (LAIF) rate. This is the same rate those funds would have received if invested as all of the City's, District's, and other agency funds are invested, and the rate VWD received from LAIF prior to being loaned to the City. LAIF is a conservative, safe, fully guaranteed investment option. As discussed in your report, loans between the City and VWD have been fully repaid; however, it appears the California State Auditor is confused. There was an unforeseen issue with a difference in interest rates caused by advice from bond counsel, as discussed in your report. The interest differential resulted in $4,658,120.05 in additional costs to the District associated with the building of the wastewater treatment plant. This loan did not involve the City, it involved the VWD and Southern California Logistic Airport Authority (SCLAA). It would be inappropriate and potentially an illegal use of funds for the City to repay a loan by and between VWD and SCLAA. This additional interest was included in a first amended promissory note (loan) by and between the VWD and the VWD Wastewater Enterprise Fund which was approved by the VWD Board on April 7, 2015. This document was referenced in your investigative audit; however, misunderstood based on this recommendation. It will ensure repayment of any water delivery or connection fees loaned by VWD to build the wastewater treatment plant. This was corrected in April 2015, prior to the publishing of the investigative audit so there is no need for further action.

California State Auditor's Assessment of Annual Follow-Up Status: Will Not Implement

The State Auditor was not confused in its recommendation. The difference in interest that harmed the water district was the result of loans between the water district and the city and between the water district and SCLAA. As the city council is the board of directors for all three bodies, it would be most practical to work with the city to ensure the water district is adequately repaid, whether it is from the city or SCLAA. Further, Victorville's response ignores the amount the city owes the water district for building its wastewater plant, an amount it acknowledges in the repayment plan mentioned above.

As we note on page 35 of our report, Victorville did approve a 21-year repayment plan after we brought these matters to its attention. However, we disagree that there is no need for further action. As we state in our recommendation, the Victorville Water District should take steps to ensure compliance with the plan, especially because it does not fully account for the amount owed to the water district.

1-Year Agency Response

Victorville did not submit a 1 Year response.

California State Auditor's Assessment of 1-Year Status: Will Not Implement

We contacted Victorville and it stated that it will not be changing its statement from the 60-day response. Please see its 60-day response and our assessment of that response below.

6-Month Agency Response

Victorville did not submit a 6-month response.

California State Auditor's Assessment of 6-Month Status: Will Not Implement

We contacted Victorville and it stated that it will not be changing its statement from the 60-day response. Please see its 60-day response and our assessment of that response below.

60-Day Agency Response

Loans made to the city by the Victorville Water District (VWD), which for clarification purposes you refer to as "Victorville", were made at the Local Agency Investment Fund (LAIF) rate. This is the same rate those funds would have received if invested as all of the city's, district's, and other agency funds are invested, and the rate VWD received from LAIF prior to being loaned to the city. LAIF is a conservative, safe, fully guaranteed investment option. As discussed in your report, loans between the city and VWD have been fully repaid, however, it appears the California State Auditor is confused. There was an unforeseen issue with a difference in interest rates caused by advice from bond counsel, as discussed in your report. The interest differential resulted in $4,658,120.05 in additional costs to the district associated with the building of the wastewater treatment plant. This loan did not involve the city, it involved the VWD and Southern California Logistics Airport Authority (SCLAA). It would be inappropriate and potentially and illegal use of funds for the city to repay a loan by and between VWD and SCLAA. This additional interest was included in a first amended promissory note (loan) by and between the VWD and the VWD Wastewater Enterprise Fund which was approved by the VWD Board on April 7, 2015. This document was referenced in your investigative audit, however misunderstood based on this recommendation. It will ensure repayment of any water delivery or connection fees loaned by VWD to build the wastewater treatment plant. This was corrected in April 2015, prior to the publishing of the investigative audit so there is no need for further action.

California State Auditor's Assessment of 60-Day Status: Will Not Implement

The State Auditor was not confused in its recommendation. The difference in interest that harmed the water district was the result of loans between the water district and the city and between the water district and SCLAA. As the city council is the board of directors for all three bodies, it would be most practical to work with the city to ensure the water district is adequately repaid, whether it is from the city or SCLAA. Further, Victorville's response ignores the amount the city owes the water district for building its wastewater plant, an amount it acknowledges in the repayment plan mentioned above.

As we note on page 35 of our report, Victorville did approve a 21-year repayment plan after we brought these matters to its attention. However, we disagree that there is no need for further action. As we state in our recommendation, the Victorville Water District should take steps to ensure compliance with the plan, especially because it does not fully account for the amount owed to the water district.

All Recommendations in 2014-132

Agency responses received are posted verbatim.