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Local News

Lompoc Council OKs Utility Rate Hikes, Rejects Reimbursement Fees

The Lompoc City Council has approved three utility rate increases, but unanimously rejected a complex “enterprise cost reimbursement” plan developed by a consultant that would have redirected $4.35 million in utility revenues to the general fund budget.

Council members deferred taking action on the proposed rate hikes Tuesday night until after a 90-minute hearing on the proposed enterprise reimbursement plan that would have charged utility ratepayers and airport users for costs of providing public safety, street maintenance and capital improvements to city facilities.

The proposal and its underlying methodology came under heavy fire from council members, city utility commissioners and numerous public speakers, claiming the proposed fees were not directly related to the cost of the service provided.

“One of the difficulties I’m having with this is it because it’s about what the general fund needs and not the service being provided,” Councilman Jim Mosby said. “The budget becomes the driver on a lot of these charges, not the direct cost of the service being provided to the enterprise.”

John Farnkopf of HF&H Consultants defended the plan, saying the firm has developed similar reimbursement plans for nine other cities and none of the plans has been challenged in court.

Farnkopf acknowledged the development of enterprise cost reimbursement plans following the passage of Propositions 218 and 26 — which limits fees to “the reasonable costs to the local government of providing the service or product” — was a “new type of a study.”

Councilman Dirk Starbuck said there appeared to be overlaps between the proposed fees and the existing $10 million in overhead cost allocation charges utilities now pay the general fund for administrative support.

“We already have this (cost allocation) in place,” Starbuck said. “We’ve got millions of dollars in this hand, millions of dollars in that hand, and we have utilities in the middle and everybody who’s a ratepayer is paying left and right.”

Starbuck and others objected that the plan as proposed provides no information on what the effects would be on utility bills and ratepayers. 

Ron Fink, a longtime city planning commissioner and member of the Santa Barbara County Taxpayers Association (SBCTA), presented the organization’s analysis of the plan and its official opposition as proposed.

“Our analysis was fairly in-depth. We picked this thing apart,” Fink said. “The (enterprise fee) study doesn’t meet the test of establishing ‘reasonably represented’ costs rather than relying solely on proportional fees.”

Jack Rodenhi, a certified public accountant and city planning commissioner, said the plan “makes several claims of costs that are unsupported.

For example, on the matter of public safety costs, because the value of the wastewater treatment facility is set at over $195 million, the study claims that the city actually incurs over $687,000 in costs protecting each year.”

After citing other unsupported assumptions about costs, Rodenhi asked the council to appoint an ad hoc advisory committee “to produce a reimbursement plan that is supportable … and one that is fair to the citizens of Lompoc.”

Al Clark, another city planning commissioner, questioned the underlying purpose of the complex enterprise reimbursement plan.

“It’s no secret that flawed assumptions and methods lead to erroneous results. … Which begs the question: How did a study this flawed get this far?

“My conclusion was that the real purpose was to provide staff with an analysis that shows how $5 million can be added to the general fund in a way that would seem not to break any laws and would avoid having to ask residents to vote on a sales tax increase. I’m just saying.” 

Mayor Bob Lingl made the motion — approved 5-0 — to appoint an ad hoc committee of himself, Mosby, Fink, Rodenhi and Management Services Director Brad Wilkie to review the consultant’s study and recommend an alternative method of determining the actual costs of services the enterprise funds would be required to pay.

The committee will return to council with their recommendation in 60 days. 

The council approved the recommended rate hikes of 3.6 percent for solid waste and 10.5 percent for wastewater, but modified the water-rate increase to apply only to the meter charge, not the cost per unit of water used. The new rates will take effect July 1.

Melinda Wall, financial services manager, said last year’s water increase of 7.5 percent yielded only a 3-percent increase in revenue due to residents conserving water. The city recommended a 23.6 water rate hike, but Mosby suggested an increase on the water meter charge instead of increasing rates on water used.   

“We’re chasing our tails. We keep raising the rates and raising the rates and we don’t get the anticipated needed revenue.” 

Mosby’s motion to raise the fixed water meter charge was approved 5-0.

The increase will raise the average residential user’s meter charge about $6.75 a month, an increase of 23 percent, Wall said. Councilman Victor Vega voted against the wastewater and solid waste rate hikes.

The utility rate hikes were previously approved in 2013 and 2014 as part of a five-year schedule of rate increases to replenish operating reserves and build a repair-and-replacement fund for aging infrastructure. 

According to Wall, revenue from previous rate increases has allowed the city to meet debt covenants, and build operating reserves for water and solid waste, but the wastewater fund has not yet reached a positive net income.

No funds have been available to be set aside to repair and replace aging water and sewer pipes yet, Wall said.

Noozhawk contributing writer Carol Benham is a longtime local journalist who lives in Lompoc. Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.

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