Many government agencies have felt the burn of economic meltdown over the past year, and the Goleta Water District is no exception. For years, the District’s chief financial officer, Eric Ford-who has been the District’s acting general manager since Kevin Walsh resigned last fall-has invested its money successfully and gaining money for the utility. Now, however, CIT Group, a bank holding company from which Ford purchased bonds repeatedly over his 10-year career at the District, faces possible bankruptcy, one of the numerous financial institutions to succumb to the pressures of widespread economic strife. The resultant loss of District funds may run as high as $1.5 million.
With advice from an Orange County-based broker, Ford has been urging the District’s Board of Directors to hold on to the bonds until they mature, as selling them now would result in a net loss of over $400,000 of the District’s funds. Several board members and a few very vocal ratepayers are adamant, however, that they be sold immediately in case CIT files for bankruptcy, in which case the entire purchase price of $1.5 million could be lost.
The result has been close scrutiny of Ford’s economic decision making as of late, leading the board last week to rescind an offer they had made to Ford to become the District’s next permanent general manager. They based their decision on an investment policy guideline they said he had violated, which states that bonds purchased with District investment funds have to be rated AA or higher in the S&P index. CIT’s were rated A, a higher risk rating, when they were purchased last year.
Ford and his staff claimed that by providing liquidity and good returns they have seen the small agency through tough times and avoided having to pass the strain along to rate payers through higher rates, and not only that, but they have made the District money. Ford defended his decision to purchase the bonds by saying that he had used CIT bonds successfully many times before. When Board president Bert Bertrando, followed by Directors Jack Cunningham and Lauren Hanson, objected to Ford’s apparent violation of District investment policy, Ford responded that he wrote that policy.
One certain result of the dust-up is that the District, which has been without a permanent general manager for nearly a year, will likely face another several months of quasi-captainless sailing, until the Board of Directors chooses a qualified applicant. Ford will remain in place until another interim general manager is selected, and is then expected to revert back to CFO. Some 68 applicants were reviewed for the general manager position, a process that cost the District $24,000 in fees for a consultant hired to collect the applicants. Bertrando, for one, indicated that none of those applicants were suitable for reexamination; however, the decision does not have to be unanimous.
As for the CIT bonds, the board elected to send the issue back to its finance committee, which is scheduled to discuss the matter of whether to sell, hold, or seek more detailed advice at a special meeting on Thursday, August 20, at 7 p.m.