The first steps San Diego Mayor Jerry Sanders is taking to try to move the city out of its financial quagmire have only stirred up more mud. He has warned water and sewer rates may need to be raised. But this has provoked questions that touch on yet another layer of possible scandal at city hall. KPBS reporter Alison St John has more.
In his State of the City speech, Sanders revealed his concern the city will face litigation and heavy fines if it doesn't catch up on water and sewer upgrades.
SANDERS: "In order to settle these lawsuits, the city will need to raise 500 million dollars to begin repair and replacement of aging sewer pipes and pump stations. This will also require a rate increase."
But water and sewer rates have increased up to 30 percent in the city in the last four years, causing at least one major company to leave San Diego. Craig Benedetto, chair of the Chamber of Commerce's infrastructure committee, asks - how come those increases weren't enough?
BENEDETTO: "We're wondering whether or not the pension situation is causing the need for additional rate increases, because the cost of these projects has increased, I mean we have a lot of questions we'd like answered before we get behind any proposal that's put before the city."
Benedetto says business trusts the new mayor to use fee increases for what he says he'll use them for - improving pump stations, pipes and treatment plants.
But attorney Pat Shea, a mayoral candidate who ran against Sanders in the election, says it's not a question of how the money will be used in the future, it's a question of how the rates were used in the past. Were they siphoned off to bolster other cash strapped departments?
SHEA: "We already raised water rates by 30 percent in order to accomplish infrastructure upgrades and the questions is, if we didn't do it or we paid overhead or we sent it to other city departments, at least some accounting of where the money went and why isn't it enough and where did it go, seems appropriate, we should know about that."
The water and sewer departments combined say they need more than $800 million additional dollars, on top of what the recent rate increases provide. San Diego is already paying almost $40 for the same water Los Angeles residents pay $34 dollars for, and San Francisans just $25 dollars.
Charles Yackley, interim director of the city's water department, says that's because San Diego is at the end of the pipe line and has to import almost all its water supply. He says the reason San Diego will have to raise rates again is because the city's been barred from the bond markets and unable to borrow money for infrastructure projects for more than a year.
YACKLY: "As of Dec 2004 we've had to curtail the program, cos we've basically used up all the bond money."
Yackley says replacing cast iron water pipes is already behind schedule and the department has completed only 21 of 31 projects needed to meet higher federal standards.
YACKLEY "In 2012 they're up-ing the bar for us, they're going to have higher treatment requirement for the city and so every water agency is has to make sure they meet those drinking water requirements."
According to Yackley, the water department pays for services it gets from the city, but...
YACKLEY: "All the moneys for the water department are used for water department purposes."
However, this is currently under investigation. Carl Demaio of the Performance Institute, a perennial critic of the city's financial practices, points out there's a federal investigation into how the city charged sewer rates and whether it used the water and sewer enterprise funds like a slush fund to bail out other city departments.
DEMAIO: "You think the pension system liability is big, we have a growing concern that the water, waste water funds could be a potential liability for the city of san Diego and all it takes is a civil lawsuit by ratepayers, any one rate payer, to force that issue."
Demaio says even if money wasn't transferred out of the water and sewer enterprise funds, other expenses appear to have been transferred into them.
DEMAIO: "We've seen well over 400 positions in the past 6 years transferred from general fund to the special enterprise funds."
Demaio says for example, some librarians have been paid with water and sewer funds. He says, rather than residents paying hundreds of millions more in rates, lawsuits might result in the city being forced to repay rate payers hundreds of millions of dollars.
Mayor Jerry Sanders knows raising rates is usually easier than raising taxes. He's promised not to raise taxes. Unlike new taxes, new rates don't have to go to the public for a vote.
Other cities have resorted to raising rates when taxes were politically unpopular. Max Nieman, director of government and public finance programs at the Public Policy Institute of California, says every community decides what is reasonable for utility funds to pay for administrative overhead, usually about 10 percent.
NEIMAN: "Once a community determines what that is, it's not unreasonable for that to flow into the general fund and be used for whatever purpose, but there is often or there is sometimes a temptation to shift those things around willy nilly in order to avoid some of the hard choices you have to make."
But Neiman says, not paying for water and sewer upgrades lands cities in trouble.
NEIMAN: "If you defer raising that money and you don't build the faculties, you're going to be stuck at some point out in the future, and I know elected officials are often playing a kind of musical chairs situation, hoping they're not going to be the ones left standing."
San Diego Mayor Jerry Sanders is left standing on shaky ground. That was demonstrated last week when he proposed paying part of the $10 million fee for consultants out of water and sewer enterprise funds. Not even city attorney Mike Aguirre could say for sure if that is simply putting a hand back into the cookie jar. Alison St John, KPBS news.
