MorganHillTimes.com | Witness: District double dipping

Witness: District double dipping

Nov 9, 2009
By Michael Moore

The Santa Clara Valley Water District violated state law by collecting $30 million, telling taxpayers all of it would be spent on the purchase of imported water, and then only spending half of it, according to witness testimony and opening arguments Monday in a trial that could open the floodgates for substantial refunds for thousands of local residents.

When the district determined what those charges would be for fiscal year 2005-2006, based on the recovery of costs associated with the management and recharge of underwater aquifers in Santa Clara County, it included an expenditure of about $15 million for water purchased through the State Water Project, according to forensic accountant Thomas O'Rourke, who testified on behalf of Great Oaks Water Company of San Jose. Those costs were paid by some 4,000 well owners.

Simultaneously, the district submitted a request to the county tax assessor to collect parcel tax revenues from property owners totaling the same amount, for the purchase of the same water.

"The (water district board of directors) approved groundwater charges, at the same time the board approved the recovery of $15 million from the Santa Clara County tax assessor's office," O'Rourke testified. "They were collecting it at the same time from two different groups of people, (but) they were not paying $30 million (for the expenses they designated)."

The other $15 million likely found its way into the district's contingency or reserve funds, O'Rourke said.

This practice of "double charging" is a specific violation of California Prop 218, a constitutional amendment which says taxes and property-related fees such as groundwater charges levied by the water district must be approved by voters before any public agency can collect them. The trial that began Monday morning picks up where Great Oaks' case against the district left off in April, when Superior Court Judge Kevin Murphy determined that in 2005-2006, the district's collection of groundwater charges from Great Oaks was unconstitutional because the district never secured voter approval for the charges.

Also, that ruling said the public agency violated the District Act, a state law that created it, by spending groundwater charge revenues for unauthorized purchases.

The judge also found in April that Great Oaks benefited from the water district's groundwater recharge activities, a point that the agency's attorneys repeated in their argument that no monetary relief is in order.

The current phase of the trial will determine how much that relief, if any, Great Oaks will be awarded. The water retailer which serves about 100,000 customers in San Jose is seeking a refund of about $4,623,000 - all the money it paid the district for groundwater in 2005-2006 - plus interest.

In his opening arguments in Santa Clara County Superior Court Monday, Great Oaks attorney Tim Guster said O'Rourke's testimony would describe the "systematic overbudgeting" and "massive overcharging" by the district that constitute specific violations of Prop 218, including the double charging for SWP contracts, and the District Act, including the placement of revenues in reserve funds.

O'Rourke's analysis of what the groundwater charge of $420 per acre foot charged to Great Oaks should have been - based on the district's financial documents - found that Great Oaks was overcharged by about $4.5 million in 2005-2006. The groundwater charge paid by Great Oaks in 2005-2006 should have been $144 per acre foot, O'Rourke's analysis indicated. The company is requesting that amount be reimbursed if a request for a full refund entitled under Prop 218 is denied, Guster said.

Specifically, Great Oaks was overcharged about $60,000 due to the district's overbudgeting for employees' expenses, and about $1 million due to overbudgeting for imported water purchases through the Central Valley Project.

"A disparity existed between the actual benefit (received by Great Oaks) and the groundwater charge imposed," Guster said.

The water district disagrees that Great Oaks is entitled to a refund. In his opening arguments, water district attorney Philip Matthews cited the April ruling that found Great Oaks benefited from the water wholesaler's groundwater management and conjunctive use practices, which ensure that an adequate supply of clean water is available.

Furthermore, the request for a refund under the District Act is a moot point because the district ran a budget deficit in 2005-2006.

"If you look at actual revenue versus actual income, there was a deficit," Matthews said during a recess "They're saying we're overbudgeting, but you have to look at the whole picture." That deficit was about $10 million.

Matthews also indicated that O'Rourke's analysis of groundwater rates is inaccurate as he "makes his own determination of what should be included" in the revenue collection model. The district was expected to begin calling its own witnesses, who include longtime district employees and an expert on rate setting, Tuesday.

It was unclear about halfway through O'Rourke's testimony if the water district collected SWP contract expenses twice for multiple years, or only during 2005-2006. Great Oaks has a number of similar cases on hold until the current trial is over - one requesting a refund of groundwater charges for each year since 2005-2006, including the current year.

Guster has indicated the district has partaken in the same illegal practices each of those years in its imposition of groundwater charges on Great Oaks. District staff said shortly after the April ruling that it has used the same process to set the charges for all well owners, and for every year at least since 2005-2006.

Plus, the company has filed two reverse validation lawsuits, claiming that for the past two fiscal years the district has violated Prop 218 and the ordinance that allowed it to collect groundwater charges should be invalidated. If that happens, a refund would be due to 4,000 well owners who paid the charges.

Michael Moore
Michael Moore covers county and law enforcement issues for the Morgan Hill Times. Reach him at (408) 779-4106, ext. 202, or mmoore@morganhilltimes.com.