The Goleta Water District is hurriedly working to restructure its debt service in order to have enough cash on hand to cover current monthly bills and future financial obligations. The agency is also seeking $5 million for capital improvements via the financial reorganization.
At a special board meeting Tuesday, May 25, General Manager John McInnes, on the job for about five months, explained the urgency behind the move to refinance approximately $140 million of debt. “Cash flow is a primary issue for us. I’m extremely concerned about undercapitalization right now.”
Craig Geyer, a district customer and regular observer at water board meetings, was supportive of the restructuring proposal. “I don’t think you have a lot of alternatives,” he said. Board member Bert Bertrando echoed Geyer’s remarks. “We really don’t have an option with our cash flow problems.” Doug Brown, an attorney and expert in financial restructuring for public agencies, was at Tuesday’s meeting to present options for restructuring the agency’s debt. Requests for proposals for restructuring were sent out Thursday, May 27, said George Eowan, the district’s assistant general manager since January.
There is no money in the water district’s contingency reserve account, according to Eowan. As recently as two years ago, Lynette Mills, then chair of the agency’s finance committee, announced that the district “was going in the right direction,” and the budget showed about $12 million in the contingency reserve account.
A second reserve account, required for bond indebtedness, contains $3.5 million, and can only be used if the district is unable to make payments on this debt. McInnes and Eowan learned recently that this $3.5 million has been earning no interest. Both were adamant that it should be earning interest, and said it will be invested as soon as the restructuring is in place.
The water agency is also exploring selling some of its unneeded state water allocation to other agencies.
According to McInnes, the district’s debt is primarily for infrastructure projects that will last at least 50 years, but was set up to be repaid over 15-20 years. “It makes better sense to spread it out over 30-35 years,” he said.
Several board members, as well as McInnes and Eowan, have projected that the district will need to implement a rate hike sometime in the next year to cover its expenses.
Several detractors, particularly Jack Ruskey, a local rancher and regular critic of the water district’s board, have claimed the agency is perilously close to bankruptcy, while Bill Rosen, board president, and other board members, have called the use of the term “bankruptcy” inappropriate, saying it does not describe the agency’s situation.
A proposed budget of $25.6 million for 2010-2011, pared down about $2 million from this year’s budget, was approved at Tuesday’s special meeting. Staff took a zero-based approach to building the budget, starting from scratch and then putting in items essential to the district’s mission, said McInnes. This differs from the past several years when budgets were created by adding a small percentage to the previous year’s allocation in each category. “This was a budget balanced without any rate increases,” McInnes said. “However, as the five-year funding plan shows, the district is severely undercapitalized,” he added. “Rates will have to be raised in the future.”
Controversy is still swirling around recently departed Eric Ford, former financial officer and administrator for the district, and the settlement he reached with the board upon his resignation. The agreement pays him through June, though he has not been on the job for several months. The payout includes holiday, vacation, and sick time.
It also includes a hold-harmless clause, prohibiting the district from attempting to recover any funds from him, regardless of what is learned about actions he took over the years he was employed. Many constituents have asked the board to open an investigation into investments made by Ford, who was called to task, before his resignation, for investing district money in ways that violated district policy—policy that he helped to write.
The agency suffered several hundred thousand dollars in losses from its investment in CIT, a lender that filed for bankruptcy late last year.
In addition, multiple customers have been highly critical of the settlement with Ford because it appears to eliminate the possibility of recovering $100,000 from the water district’s liability insurance company for investment losses.
Ruskey has offered his services as a litigator – on a contingency basis – to recover losses and from Great Pacific Securities, the sole investment company Ford dealt with in his 11 years with the district. The board of directors has not yet responded to Ruskey’s offer.