Report 99116 Summary - December 1999
Water Replenishment District of Southern California:
Weak Policies and Poor Planning Have Led to Excessive Water Rates and Questionable Expenses
RESULTS IN BRIEF
The Water Replenishment District of Southern California (the district) was established in 1959 to counteract the effects of overpumping of groundwater from two major basins in Los Angeles County, the West Coast and Central groundwater basins. Under its enabling statutes (California Water Code, Section 60000 et seq.), the district has broad powers to perform activities that replenish the groundwater basins or clean up contaminated groundwater. The district is authorized to collect an assessment on groundwater pumped from the basins to pay for its activities. Recently, the entities that pump water from the basins have criticized the district for substantially increasing its assessment and for how it is spending money.
Every year the district overestimates the amount it needs to collect to pay for the water it buys to replenish the groundwater in these two basins. Over the past 10 years, the district has purchased considerably less water than it has estimated it would need. Also, the district has not sufficiently taken into consideration its unused cash balance when estimating how much money it will need to collect through the assessment in a given year. As a result, by June 30, 1998, the district had accumulated approximately $67 million in its unreserved fund balances. Thus, not only have the annual assessments been too high, but the district also is maintaining more than it needs in its cash reserves.
The district has stated that some part of its cash reserves is needed to fund capital projects related to replenishment and clean water activities. However, it could not tell us how much, if any, of the $21 million in reserves in the Clean Water Fund and the $43.5 million in reserves in the Replenishment Fund has been set aside for capital projects. Furthermore, the district's process for determining the economic feasibility of one of its capital projects is flawed. As a result, this project may not save money, as the district originally projected.
Finally, the district has failed to maintain sufficient controls over its administrative functions and spending. Although the district's Administrative Code fails to provide sufficient policy guidance in certain areas, the district's board and district staff have not always followed the guidance that was provided concerning issues such as contracting. As a result, the district may have spent too much on its contracts. Moreover, it has reimbursed staff members for expenses without documentation that these expenses were work-related. In addition, the district has added new staff positions without providing adequate evidence that they are needed. Finally, we found that the district is obtaining services from 10 lobbying firms in fiscal year 1999-2000, which we believe to be excessive.
The district should amend the way it determines its assessment rate to require that prior year estimates be compared with the actual cost of the replenishment water it purchased and the cost of clean water activities. Any surplus should be used as carryover to reduce the subsequent year's assessment rate.
The district board should reassess its policy regarding a prudent reserve and reduce its target reserve to $10 million to more closely reflect its budgeted operations.
To improve the means by which it determines the capital expenditure portion of its rate assessment, the district should determine the amount each capital project contributes to the annual rate. The board's resolution adopting the rate should specifically reference these amounts.
To improve its capital improvements projects, the district should:
- Implement and refine a long-term plan.
- Standardize its policies and practices for preparing cost-benefit analyses and for budgeting capital projects.
On the West Coast Basin Desalination Program, the district should move expeditiously to petition the court to clarify the water rights issue since the subsidy from the Metropolitan Water District is dependent on this action.
To strengthen controls over its administrative expenses, the district's board should:
- Reaffirm its commitment to following the policies in its Administrative Code and ensure that its staff abides by its policies.
- Amend and expand its Administrative Code to incorporate additional guidelines related to contracting policies and procedures and limits on the expenses it will reimburse.
- Ensure that a valid contract is in place before paying for contracted services.
- Limit reimbursements to travel within a specific geographic area or require that travel out of the geographic area be brought before the board for specific action.
- Reassess its need for 10 legislative and public advocacy firms.
- Direct its independent auditor, as part of the annual audit, to review the propriety of the district's operating expenses.
The district fully agrees with five of our recommendations, conditionally agrees with two, and disagrees with four. It believes the remaining five recommendations reflect current district policy or practice. It further disagrees with the basis for our analyses and conclusions related to our findings on the district's assessment rate-setting process, its reserve amounts, and the feasibility of the Alamitos Barrier Recycled Water Project.