Sharp-eyed members of the Ventura County Taxpayers Association caught a possibly legal conundrum in the city of Santa Paula’s 2018-19 annual budget last year and had considered the matter sorted after a meeting with city officials in January, but the city is disputing whether or not they came to the same conclusion.

The issue arose from the use of the city’s water resource in-lieu fees allocated to pay water replenishment charges in the city’s 2018-19 Fiscal Year budget. The Ventura County Taxpayers Association issued a statement in September 2018 alleging that the city’s use of these fees to pay a $600,000 United Water Conservation District bill violated both city municipal code and state law. Water resource in-lieu fees are collected when a project such as new housing or other types of development are approved without an adequate supply of water if the developer is unable to supply their own. The fees are, in theory, supposed to be saved and used for capital projects that would essentially make up for the water deficit.

Following an article on the budget in the VCStar in June 2018, the Taxpayers Association wrote that the city was in violation of both the city code and a state a law that says that a city must identify uses of fees collected for development and that these water in-lieu fees were specifically to “develop or acquire additional water rights or water resources,” as written in the city code.

The VCTA wrote a letter to both the Santa Paula City Council and City Manager Michael Rock on the subject in September 2018 in which the specific codes violated are named, two city (SPMC § 52.021(A) and SPMC § 52.021(E)) and one state (Government Code section 66001).

The VCTA asked that the city clarify how the monies taken from the fund were to be spent, but VCTA President David Grau says that weeks passed and no response was given.

In October, the Association released an article penned by Grau questioning the city’s fiscal future, noting that the city has less than one-third of a healthy emergency reserve ($735,000 of a needed $2.2 million, writes Grau) and that “Anyone who lives or works in Santa Paula should be concerned.” Referencing the September letter, Grau wrote that the city had yet to respond to whether or not the transfer of water in-lieu funds had violated city and state codes.

Santa Paula officials responded to the VCTA following the second public letter. In January, two representatives from the Association met with Rock, Santa Paula City Mayor Clint Garman and the city’s attorney to discuss the issue. Grau was one of those in attendance.

Grau says that at that meeting, everyone was in agreement that the funds should not have been included in the budget and that it had been a mistake to do so.

“I’ll take it at their word that it was a mistake but they clearly admitted that they should not be using that money to pay their water bill,” said Grau. On Feb. 26, the VCTA penned a third letter. Grau says that the Association sent the letter to the city three weeks before publicizing it, and receiving no response, posted it to the VCTA website and sent it via newsletter to subscribers.

In the letter, Grau writes, “At the meeting, both the City Manager and City Attorney agreed with VCTA that it was a violation of Santa Paula’s ordinance and the Government Code to use water in-lieu fees to pay city water bills, or for any general operating expense” and that the City Manager recognized the “serious error” and that it needed correction.

On Feb. 28, the city of Santa Paula disputed what happened at the January meeting, taking issue with the VCTA’s usage of such words as “gimmick” or “misuse” in the newsletter.

“While City staff never agreed that the appropriation violated the water resource in-lieu fee ordinance or the Government Code to use water-in-lieu fees to pay city water bills or for any general operating expense as asserted by the VCTA, the City did agree to reallocate the budget appropriation to the water operations fund,” wrote City Manager Michael Rock.

Rock notes that the $500,000 had not been spent.

Grau says that he was surprised when the city released the statement in disagreement.

“We pointed it out, we had the facts on our side, and after the meeting everybody agreed, the only thing we left open at that point was we were curious where they’d come up with half a million bucks, and we left it at that,” said Grau.

“To say that it was a violation is not something that all legal scholars would agree on,” said Rock. “We all had our own legal opinion on it and could not come to a crystal clear resolution on how that money could be spent so we decided in the abundance of caution to put the money back into the in-lieu fund.”

Rock says that bill will be paid out of the water operations budget via a capital reserve fund, which he says totals around $6 million, adding that the city has several capital water projects that will be funded via the water in-lieu fees and will be discussed in May.

The City of Santa Paula does in fact have much to think about in regard to budgeting for the future. In 2018, the city joined the Ventura County Fire Protection District, and in doing so, agreed to transfer 79 percent of the city’s property tax revenue annually, as well as a $4 million development impact fee and a $1 million 1.5 acre lot. This comes two years after city voters approved Measure T in 2016, which increased sales tax by 1 percent, and the City Council allocated most of the funds generated from the tax toward wage increases for city employees.

Rock says that the city budgeted $3 million annually for the Santa Paula Fire Department and now, without that expense, pays $2.9 million to the county as being part of the District.

“It’s not that we’re losing money or having to make up money in to the general fund, we’re simply paying for fire services in a different way and it’s a wash,” said Rock.

Grau says that the water in-lieu fund being tapped was more than likely done in order to balance a budget that is growing increasingly harder to balance.

“Like a lot of the cities, they’re having difficulties balancing their budget and this one might have slipped through,” said Grau.