By Linda Taaffe

The good news for Los Altos residents is that long, overdue upgrades and fixes to the city’s 40-year-old-plus sewer system are in the works. The Master Sewer Plan is set for approval this August after a three-year wait, according to Public Works Director Jim Porter.

How the city plans to pay for those upgrades is another story. The Los Altos City Council recently raised sewer fees for the fourth year in a row. According to city staff, that’s not the end of the increases. The city is already anticipating higher fees in the future to fund a long list of capital projects, outlined in the Master Sewer Plan, estimated to cost about $35 million, with the top priority items estimated to be $5 million of that amount - or twice the amount of this year’s sewer fund balance.

Under the city’s plan, taxpayers will fund many of the projects on a “pay-as-you-go” basis through increased annual service fees.

“Staff believes that it will be necessary to raise rates further in the future. … This rate increase will continue the process of providing a revenue stream that will account for operating costs as well as future anticipated capital repairs to the system. … It is important that we maintain a substantial fund balance,” Porter said in a staff report.

The plan makes sense on the surface, but Los Altos resident Gerry Madea, a former member of the Los Altos Citizens Financial Advisory Committee has continued to keep an eye on city spending. He says taxpayers could ultimately end up paying far more than their share of sewer costs due to the city’s sloppy handling of the Sewer Enterprise Fund.

Among Madea’s claims are that for years the city has been spending sewer money for other purposes and has been putting interest earned from the account into the city’s General Fund.

California’s Health and Safety code allows cities to be in various businesses or enterprises, such as sewer services. However, the code restricts the spending of the business revenues for other purposes, thus preventing the city from making profits, he said.

The city puts all interest earned from CDs and interest-bearing accounts into the General Fund, according to the city’s Proposed Service & Financial Plan. With balances of around $3.5 million, the sewer fund is losing at least $35,000 a year, Madea estimated.

He also claims that the city’s own facilities are receiving sewer services for free. He added that state law requires cities to pay their share of the expenses from their own enterprises.

Madea said he wants the city to abide by the law, so that the sewer fund monies are protected.

“Unless the city’s illegal handling of sewer monies is halted, taxpayers could ultimately end up paying far more than they should for sewer services,” he said. “Most (residents) are not aware of the how the sewer fund is financially abused. (The city) is starving the fund of monies that could be devoted to making sure that the sewer system is properly operated. My concern is that the city abide by the rules and requirements. Whether it’s 5 cents, 5 dollars or $5 million dollars, the principal has been violated.”

The city could correct the interest problem. The city’s new Proposed Service & Financial Plan states, “We are working on an interest allocation policy for council consideration. Adoption of such a different allocation policy will result in less revenue to the General Fund (probably about 50 percent), but we think allocating interest across all funds is appropriate.”

Madea is also challenging the legality of the Council’s action on May 10 to increase sewer rates. He said property owners were not properly notified of the recent public hearing at which the city council raised residential sewer rates.

Los Altos property owners will pay $24 more, or $252 annually on their real estate tax bills. Those in the unincorporated areas of Los Altos will pay $428.40 annually, a 70 percent premium over city residents. The rate increase will bring about $370,000 more a year to the city’s sewer fund

Madea said the California Constitution requires a written notice to property owners for sewer service fee increases. The written notice must contain useful information about the need for an increase. If a majority of residents oppose the increase at the public hearing, the city cannot approve the fee under the Constitution in Article 13D (from Proposition 218).

“Since the public hearing notification did not conform to those requirements, any action taken can be deemed null and void,” said Madea, who admits that there would have to be a very organized protest at a public hearing to stop the council’s decision.

City Attorney Jolie Houston said the recent sewer fee increases are service related rather than property related and not subject to Article 13D. The city gave notice, held a public hearing and followed proper procedure, she added.

The legal department at the Howard Jarvis Taxpayers Association agrees with Madea. Timothy Bittle, Director of Legal Affairs for the Association, reviewed the city’s municipal code and the staff proposal, and said he believes the city did not follow California law.

“The city should have mailed notices to affected property owners explaining the reason for the proposed fee, the amount and basis for calculation,” Bittle said. “She (Houston) is mistaken. There are at least three published appellate decisions holding that sewer rates are subject to Proposition 218. As far as I know, there are no published decisions holding that sewer rates are exempt from Proposition 218.”

Madea said, in addition, the city even violated its own municipal code, which requires notices for two successive weeks to be published in the local newspaper. The city published one notice in the San Jose Mercury News, rather than the Town Crier. “That notice was a total waste of taxpayer money,” Madea said.

Madea filed a complaint with the city last month regarding his concerns but had not received a formal response as of Monday. Los Altos Mayor David Casas said Madea has “raised some very valid concerns, but I feel very confident in Jolie’s advice.”

Assistant City Manager Starla Jerome-Robsinson would not respond to Madea’s complaints, which the Town Crier provided her last week.

“We’re not going to react to it,” Jerome-Robinson said. “There are too many inaccuracies and misrepresentations. Our attorney does not agree with Mr. Madea’s legal interpretations.”

This isn’t the first time Madea has challenged the city’s money management practices.

Last year Madea questioned the legality of spending sewer money for other purposes, particularly for storm drains and the Urban Runoff Program. The City Attorney agreed and the council removed those expenses from the Sewer Fund last July.

He also convinced the council last Fall to obtain a written legal opinion from the city attorney for garbage fees for services that he claims the city is illegally charging customers. Madea claims the city has been making an illegal profit from its garbage operations by charging residents for a franchise fee and other noncustomer services, such as pickup on city property, street sweeping and the purchase of city garbage bins.

The city attorney was scheduled to submit her legal opinion last month. The council said that if the attorney’s memo revealed that residents have been wrongfully charged, the council will make adjustments. The council has not said whether the city has received a memo yet. Under client and attorney confidentiality laws, the city does not have to release that opinion publicly.

Madea also believes that the sewer fund could potentially lose millions of dollars in sale revenues if the city chooses to redirect that money to its capital improvement budget for unrelated projects.

Palo Alto is actively negotiating with Los Altos to buy the remaining half interest of the 13-acre former Los Altos Sewage Treatment Plant. The sewer fund could potentially receive millions of dollars of sale proceeds.

Madea said the city’s most recent Comprehensive Annual Financial Report states that the sale proceeds would go into the Community Improvement Capital Project Fund.

“It was sewer money that bought that property, and it would be illegal if the city uses the sale money for other purposes,” Madea said. Taking those sale proceeds away from the sewer fund would require taxpayers to come up with even higher sewer rates than would otherwise be required, he added.

Madea called such a transfer a form of stealing from the fund.

Jerome-Robinson said the city has not decided whether it will sell the property.