At last Wednesday’s monthly meeting, the directors of the Tomales Village Community Services District received two visitors, both of whom raised concerns over how the district has been conducting its business.
The first to address the board was Gary Goelitz, a consultant hired by the service district to evaluate operations and maintenance of Tomales’s sewer system. The second was Jim Lino, a longtime trustee for the Shoreline Unified School District, who came to discuss a new charge for depreciation that was recently added to the school district’s bill—and which the cash-strapped Shoreline trustees have refused to pay.
Since 1999, Shoreline has been under contract with the service district to cover one-third of the total cost to run the sewer system in Tomales, where the school district has elementary and high schools. Throughout this time, Shoreline’s share of annual service fees has contributed to an enterprise fund that the services district keeps to offset operational expenses.
But this year, acting on advice from an auditor, the service district began charging Shoreline separately for its share of depreciation—a routine cost that utility districts put in their budgets to accumulate a “nest egg” fund to replace old equipment.
The move tacked on an extra $10,000 to the school district’s bill, which covered last year’s depreciation. Shoreline officials are not happy about a higher bill arriving at a time when cost cutting is forcing the district to consider laying off staff.
More than anything, Shoreline’s brass are simply confused about why the depreciation charge is being added at all, saying that, on paper, it looks like the service district is charging twice for depreciation: once as part of regular fees, and again as an additional cost.
“To depreciate equipment and simultaneously charge for it seems like two things at once,” said Mr. Lino, who, save for a two-year hiatus, has served on Shoreline’s board since 1995, longer than any of the other six current trustees. “I don’t agree with that double charge.”
But the service district’s administrator, Karl Drexel, contended that depreciation has not actually been reflected in Shoreline’s service fees. Rather, as a partner, Shoreline receives its bill before depreciation is moved from a line item on the service district’s balance sheet to an expense that must be recouped, and it is not until the following fiscal year when the service district’s budget is adjusted to include old depreciation costs.
This year, Mr. Drexel said, the district’s auditor advised him to begin charging for depreciation; that charge has increased Shoreline’s one-third share of the service district’s annual operating expenses.
“In the past, it was always the board’s option to either accumulate depreciation or not accumulate depreciation, as an expense,” said Mr. Drexel, who has been the service district’s administrator since 1999. “That was until last year, when our auditor told me that [the Governmental Accounting Standards Board] says you can’t do that.”
The service district’s auditor did not return calls and emails from the Light.
Although Shoreline’s administrators have argued that depreciation should not be charged as an operating expense, Mr. Drexel’s auditor seems to think otherwise. Mr. Drexel referenced an email sent over the fall in which the service district’s auditor wrote that, yes, “depreciation is an operating expense” and ought to be billed as such each year going forward.
But during Wednesday’s meeting, Mr. Lino produced a letter from the school district’s auditor that ran contrary. This letter, dated Jan. 9, noted that depreciation costs should simply be shown as a balance-sheet item and not as an actual expense—which means that depreciation would already be covered when the school district pays its normal service fees to Tomales.
At Wednesday’s meeting, Shoreline’s representation refused to pay for depreciation until the both districts come to an agreement, a determination that the school district’s trustees made during their December board meeting.
“The new charge would be paid only after a direct board action,” said Mr. Lino, who made the motion at that meeting to withhold payment of the service district’s invoice.
Last week’s meeting was the first occasion that board members from Shoreline and Tomales have met to discuss the depreciation issue, and they agreed to meet again soon to continue the discussion.
“What we don’t want to do is come to blows with the sewer district,” said Tom Stubbs, Shoreline’s superintendent. “We want to work with them as we always have.”
After Wednesday’s meeting, Shoreline’s chief business officer, Susan Skipp, requested from Mr. Drexel a revised invoice that did not include the depreciation charge. Ms. Skipp received this revised invoice, agreed to pay Tomales the amount owed minus depreciation, and is awaiting further instruction from Shoreline’s board on how to proceed with depreciation payments.
According to Mr. Goelitz, the service district’s consultant, one of the biggest challenges for the districts is to determine whether Shoreline’s one-third portion of the service district’s costs is a fair price to pay. Currently, he said, there is no way to evaluate the demand that Shoreline’s two schools place on the sewer system because the service district does not use flow meters to monitor wastewater output.
“We don’t know the amount of flow for S.U.S.D.,” Mr. Goelitz said. “Does the 33 percent rate reflect accurately the amount of demand you’re putting on the system? I can’t answer that demand until flow meters are installed.”
Mr. Drexel disagreed, stating that, should the service district begin monitoring Shoreline’s individual usage, the district would then have to install flow meters to monitor all of its rate payers—a change that he does not foresee the district making.
Mr. Goelitz is preparing a final efficiency report that will provide the board with recommendations for improving the service district’s system, and included in this report will be an updated analysis on how installing flow meters might impact the district’s operations.
Among the critiques he raised on Wednesday is that the service district has not put enough preventative measures in place to address system failures and overflow, and that the district’s rates are higher than the median rates of 16 other districts in the state that have similar populations, ranging from 200 to 1,000 users.
One of the reasons the district’s rates may be high, he said, is due to the amount needed to employ a full-time administrator. As shown in the district’s 2014-15 budget, Mr. Drexel’s fees tally at just over $80,000, around 40 percent of the district’s total expenses.
Mr. Drexel has served in a dual role of both district manager and accountant, and the board is now looking at ways to break up his responsibilities to save money, according to board president Bill Bonini. But the board will not make a decision about how to change the administrator’s position until after Mr. Goelitz gives his final report on Tomales.
On a positive note, Mr. Goelitz noted that the service district is in good financial standing and effectively operates a simple system. He will release his report the first week of February.