After discovering that its budget won’t meet the $1.1 million surplus expected by the end of this fiscal year, the Goleta Water District is embarking on an intensive review of its financial condition.

In fact, General Manager John McInnes said revised projections of the district’s budget have put the district at a $1.9 million shortfall.

“That’s a $3 million swing,” he said.

Like many governments, agencies and special districts these days, the ongoing economic slump is responsible for a lot of the district’s financial losses — people are using less water. As households tighten their belts, McInnes said, things such as watering the lawn become less important, and a major portion of the district’s revenue comes from water sales.

Also, it’s been a relatively wet year, so the district water that normally would go to such things as upkeep of landscaping, gardens or crops hasn’t been purchased, leaving the district with 2,000 acre-feet of surplus. And its conservation program has encouraged the use of less water.

Unexpected expenses also have played a part in the budget downturn, McInnes said, including extra costs incurred for treating water that had been contaminated by ash runoff from the last couple of fires.

“I believe that came out to around $400,000,” McInnes said.

The GWD has taken some immediate action to control the debt, measures that include controlling overtime, deferring capital improvement projects and postponing technical studies, which could save the district about $1 million. The district is also looking into selling its surplus to other local agencies that might be short on water.

Restructuring debt is another option, as is changing the rate structure.

“We do have different rates for different types of customers and different sizes of meters,” he said. “On of the things our Administration Committee has asked for is to take a look at our rate structure. … Do we have a good structure, or should we have more variable rates?”

First, the district will need to know where it stands. According to a statement issued Monday, the GWD has recently approved the issuance of a Request for Proposals to open the bidding process for an auditing firm to conduct the district’s annual financial review.

In addition to the annual audit, the firm PFM Asset Managers has been retained by the district to review GWD’s investment policy, and the auditing firm of Nasif, Hicks, Harris & Co. LLP will be reviewing the district’s debt to determine whether restructuring would be beneficial. The firm also will look at the district’s investments of the past 10 years.

McInnes said the district is hoping to resolve the shortfall within the next fiscal year.

The analysis, particularly of what McInnes calls “the debt landscape,” will play a role in future projects as well. Goleta has the lion’s share of investment in the second-barrel project headed by the Cachuma Operation and Maintenance Board.

At over 40 percent of the cost to build a second pipe to the Corona del Mar Treatment Plant from the Tecolote Tunnel, GWD intends to issue bonds to fund its share of the $9 million project, and will look to the analysis to determine how to issue those bonds.

Noozhawk staff writer Sonia Fernandez can be reached at