A mistake made by a financial consultant has cost McKinleyville $400,000 – an amount that will raise each customer’s sewer/water bill by nearly $20 per year as the district seeks to recover the lost funds.
The McKinleyville Community Services District Board of Directors discussed the problem during a closed session Wednesday, July 10, when it considered potential litigation against Willdan Financial Services over defects in the company’s 2011 rate analysis. The board did not report any action taken out of the closed session, although it’s likely that more discussions on the matter will take place.
Willdan received a $24,840 contract in May 2011 to conduct a detailed rate analysis for the MCSD’s sewer and water funds.
Based on that analysis, the MCSD raised its water and sewer rates in July 2012, and based its budgets on the anticipated revenues. The increases were intended to keep up with inflation, the increased cost of buying water, and the need for sewer and water upgrades. The rate hike would also allow the district to restore its depleted reserve funds.
However, as soon as the new rates went into effect on July 1, 2012, the MCSD noticed a drop in anticipated revenues.
The district had anticipated a 20 percent increase. The actual increase was less than two percent. This caused a lot of head scratching by MCSD management. Was there a sudden decrease in water use? Did the rate increase result in widespread water conservation?
As the months went by, the MCSD continued to study the problem to find out what was happening. But it wasn’t until after Manager Norman Shopay died of a heart attack in November 2012, and Operations Director Greg Orsini became the acting manager that the cause of the problem was discovered.
According to Orsini, MCSD staff crunched all the numbers since the new rates went into effect and compared them to the numbers from the previous fiscal year. Staff discovered a consistent flaw and was able to further unveil the cause of the problem – the consultant had left out the MCSD’s wholesale cost of buying water from the Humboldt Bay Municipal Water District.
Once the problem was discovered, Orsini emailed Willdan Financial Services of Temecula, Calif. and asked the company to confirm his suspicions about the flaw. The company did so.
At last week’s meeting, Willdan Financial Services agreed to conduct a revised rate study for the MCSD at no additional costs. Willdan representatives were in attendance during the board’s open session. When asked by MCSD President Dennis Mayo if they wanted to make any comments to the board, the representatives shook their heads and declined the offer.
After the rate study is revised, the MCSD will adjust sewer and water rates. The lost $400,000 will likely be amortized over four years, with rate payers seeing an increase of $1.50 per month to cover the loss.