City Council Worried Over Park Office’s Free Utilities

Council members say they are worried that the city of Oxnard may be violating the terms of an $11-million bond issue by supplying the city’s parks and facilities department with more than $250,000 a year in free utilities.

In addition to its concerns about that possible violation, the council requested a report by Parks and Facilities Supt. Michael Henderson about his department’s controversial shared savings plan, which has allotted more than $39,000 to seven employees for implementing cost-cutting measures.

Since October 1994, half a dozen parks and facilities employees, including Henderson, have each received more than $6,000 in city bonuses as members of the committee that oversees the shared savings plan. A seventh employee received $1,757 as part of the plan.

Council members said before the meeting that they wanted to know whether the plan’s savings were achieved in part by not paying for utilities.

The council approved the parks department’s subsidies in 1993 in an effort to trim the department’s budget. But Mayor Manuel Lopez said the council was not told that by subsidizing the parks department’s water bills, the city could be jeopardizing a 1991 bond agreement.

“The staff provides information to us and we are assuming that they are providing information that is relevant,” Lopez said.

If there is a violation of the bond provisions, the consequences for Oxnard could include a written reprimand, which could affect the city’s ability to arrange future financing. More unlikely, according to one bond expert, Oxnard could have its bond rating reduced, which would make future bonds more expensive, or it could face a lawsuit filed by disgruntled bondholders.

To reduce the parks department’s budget, the council in 1993 approved a plan to have the department’s utility payments paid by the refuse, water and sewage departments--basically giving the department free utility service.

Even then, some city staff expressed concern.

Former Utilities Director Ben Wong and Julie Hernandez, a utility analyst at the time, were worried that the city could be violating provisions of its $11-million bond issue, which directly forbids free water service for any public or private entity.

The city financed construction of a water blending station and two corresponding pipelines with the water revenue bonds. Its contract with the bond buyers states that the city would not permit use of water service free of charge to “any authority, firm or person, or by any public agency.”

In an unusual move, the city did not clear the decision to give free services with a bond attorney nor did it inform the bondholders, said Stan Kleinman, the city’s acting finance director.

Wong and Hernandez were so concerned that they asked private attorney Scott Slater, who specializes in water issues, to review the contract, Wong confirmed. Neither Wong nor Hernandez still work for the city.

Slater, who is retained by the city, recommended that the city not go forward with the subsidies, Kleinman said.

In addition, a 1995 city-financed water revenue analysis warned of a possible violation.

The independent analyst, Richard Gardena, said the city should seek a bond counsel’s advice on its policy or find other means to pay for the parks department’s utilities.

“Regardless of how it is accomplished, it would seem that the [agreement] with the Financing Authority and ultimately the bondholders, may not be fully satisfied under the current city policy,” Gardena wrote. “This is a question more appropriately directed to the city’s bond and / or legal counsel.”

Oxnard City Atty. Gary Gillig said Tuesday that he concluded that the language in the bond agreement did not refer to the city of Oxnard specifically. He added that he has been told that in many California cities, it is common practice to provide free water service to public facilities.

And Kleinman maintains that the city is not violating its bond agreement because the debt is being repaid on time and the other ratepayers are footing the bill for the parks department’s free utilities.

The parks department “is really not receiving free services,” he said. “The cost is distributed among the ratepayers. . . . There is no detriment to the bondholders; they are fully covered.”

But the directors of the refuse, water and sewage departments say the money is coming out of their budgets, which had not had rate increases for the past 3 1/2 years.

“We absorb the cost and it is actually reducing our revenue, because we did not increase the rates,” said Buddy Valencerina, the city’s water superintendent. “This is a problem because we have to cut somewhere else. We have a bare-bones budget.”

The parks department’s water bills are between $150,000 to $250,000 annually, Valencerina said.

Mike Norris, who heads the city’s waste-water department, said his department subsidizes the parks department for about $5,500 annually.

Ruben Mesa, the city’s solid waste superintendent, says his department pays between $80,000 to $90,000 annually for parks’ refuse collection. He said he intends to discuss changing the policy during this year’s budget talks.

“All of us in utilities are going to reevaluate this,” Mesa said. “Everybody pays for service. The only program we are not billing are the parks themselves.”

In 1993, the council justified its decision by saying the parks department’s budget was being slashed and since every resident benefits from using the parks, the money didn’t have to come directly from that budget. Besides, all the money to pay for utility bills comes out of city coffers anyway, making it a case of “robbing Peter to pay Paul,” Lopez said.

Despite the controversy, Los Angeles bond attorney Marilyn Garcia said contracts are always up for interpretation, but that if Oxnard’s bondholders are getting their money, then they are happy.

“The bondholders are most concerned about getting paid. If there is enough debt coverage, that is most important,” she said. “On the other hand, the [agreement] should be complied with.”