Report 2002-106 Summary - December 2002
Although the Ortega Trail Recreation and Park District Seems to Have Complied With the Law in Forming Two Assessment Districts, the County Needs to Determine if Assessments Collected After July 1, 1997, Were Legal
Our review of the Ortega Trail Recreation and Park District (park district) revealed the following:
- The park district appears to have complied with the law when it established two benefit assessment districts.
- Following the passage of Proposition 218, the park district may have acted inappropriately by not seeking voter approval to continue the Wildomar assessment.
- Based on its audited financial statements, the park district appears to have used its assessments and other revenues appropriately.
- The park district appears to have acted appropriately when it accepted land and improvements in lieu of Quimby Act fees.
RESULTS IN BRIEF
Located in Riverside County (county), the Ortega Trail Recreation and Park District (park district) was formed as an independent special district in 1948 under the name of the Lake Elsinore Recreation Park and Parkway District. Its purpose was to bring Lake Elsinore under public ownership, which it did in the 1950s, to manage the lake, and ultimately to develop recreational facilities around the lake. To fund the purchase, development, and operation of new and existing parks, the park district formed two assessment districts-the Ortega Trail Recreation and Park District Benefit Assessment District (Ortega Trail assessment district) and the Wildomar Benefit Assessment District (Wildomar assessment district)-in the early 1990s. However, following the passage of Proposition 218 (proposition) in 1996, which required voter approval of new and certain exiting assessments, the park district discontinued the Ortega Trail assessment. When voters failed to approve a special tax to replace the assessment in 1999, the park district ceased operations and filed for dissolution. In 2000 the county became the successor agency to settle the park district's affairs, as required by law.
Since the early 1990s, there have been questions about whether the park district legally formed its two assessment districts and whether it appropriately spent the assessments it collected. More recently, questions have arisen about the disposition of the park district's assets. The purpose of this audit is to address these questions.
The park district appears to have complied with the law when it established the two assessment districts. Changes in park district boundaries in 1991-the detachment of the city of Lake Elsinore that caused the loss of 59 percent of its property taxes and the annexation of the Wildomar area-prompted the park district to seek other revenues. The park district formed the Wildomar assessment district to cover the addition of the Wildomar area and later formed the Ortega Trail assessment district to assess all property in the park district. Through fiscal year 1996-97, the park district adopted resolutions and, according to the resolutions, appropriately obtained engineers' reports and held public hearings-key procedures required by statute to form an assessment district and to renew an assessment.
However, the park district may have acted inappropriately when it did not seek voter approval of the Wildomar assessment following the passage of the proposition in 1996. With some exceptions, such as when assessments are used to repay bonded indebtedness, the proposition requires that voters approve certain existing, new, or increased assessments. In response to the proposition, the park district discontinued levying its Ortega Trail assessment. However, it continued collecting the Wildomar assessment, believing that the assessment was exempt from the requirements of the proposition because the park district primarily used it to repay an outstanding debt. Unfortunately, the park district either did not obtain or did not retain a formal legal opinion substantiating its belief. Consequently, questions remain regarding whether the Wildomar assessment was exempt and, if not, what should be done with the roughly $300,000 in Wildomar assessments collected after July 1, 1997, when the proposition went into effect.
Although the park district did not seek voter approval of the Wildomar assessment when the proposition became effective in 1997, concerned residents obtained the necessary signatures to place it on the ballot. In March 2000-more than three years after the proposition passed-Wildomar area residents voted to discontinue this assessment.
Our review of its audited financial statements showed that the park district appeared to have used its assessments and other revenues appropriately to pay the costs of its operations and debts through fiscal year 1995-96. However, we could not determine how the park district specifically used its revenues from fiscal year 1996-97 until its closure in February 2000 because it did not prepare complete financial statements, nor could we locate sufficient detailed records. We also found that the park district appropriately used the majority of the $157,600 in Quimby Act fees it collected from developers to fund parks, and the land and improvements valued at more than $596,000 it accepted appear to comply with the requirements of the Quimby Act.
When the park district was dissolved in February 2000, the county, by law, became responsible for winding up its affairs and took custody of its assets and liabilities. The county board of supervisors directed the county to use park district assets, not county assets, to pay the district's debts. Currently, the county is taking steps to determine whether residents of the park district are interested in using the remaining assets, which primarily consist of land and cash, for park purposes in the future.
To determine whether the Wildomar assessment, which was primarily used to repay an outstanding debt, fell within the Proposition 218 exemption for bonded indebtedness from fiscal years 1997-98 through 1999-2000, the county should obtain a formal written legal opinion. If the Wildomar assessment was not exempt, the legal opinion should advise the county on an appropriate course of action regarding the assessments collected after the proposition became effective.
The county concurs with our conclusions and recommendations and further states that it intends to request authorization from its board of supervisors to obtain a legal opinion addressing the collection of assessments within the Wildomar assessment district.