HomeMy WebLinkAbout8 Grand Jury Report � s
Memorandum
To: Board of Directors
From: Mary Chapman, Administrative Services Manager
Date: May 30, 2003
SUBJECT: Response to the Grand Jury Report
I. WHY THIS ITEM IS BEFORE THE BOARD
On April 18, 2003, the Civil Grand Jury of the County of Nevada issued a report on the subject of
Special Districts Revenues and Reserves. Their purpose was to evaluate "if special districts in
Nevada County have unnecessarily large reserves." The Grand Jury has set a deadline of June 23,
2003 for responses from the Special Districts.
2. HISTORY
In October, 2002, the Grand Jury requested a copy of our most recent audit. We sent them a copy of
the 2001 audit report on October 28, 2002.
3. NEW INFORMATION
On April 22, 2003, the District received the Grand Jury's report.
Problems with the report:
A. On the bottom of the third page of the document sent by the Grand Jury, there is a reference to note
"2"which states "For purposes of this report, the terms reserves, retained earnings, and fund
balances are used interchangeably." The report preparer used the District's Retained Earnings
balance of$22,175,137 as the amount of reserves held by the District.
Response: For the District, retained earnings represents something very different than reserves
or fund balances. Retained earnings is an accumulation over time of the investment in the District's
assets paid for by our customers. The only way to turn this amount of money into cash would be to
sell the District's assets. Part of the confusion may come from the fact that the District had asked our
auditors to call "Retained Earnings " "Customers' funds" instead. The other part of the confusion
must have come from the preparer's lack of understanding of financial statements of enterprise
districts.
i
B. There are three sections to the CONCLUSIONS:
I. "The apparent reason "enterprise" district reserves are so high is that in addition to receiving
revenue from the county tax roles, these districts charge fees for their services. In many cases the
customer base is of considerable size, diverse, and unable to obtain comparable services from a
competitive source. These conditions allow the fee structure to remain high with little recourse from
the population served."
Response: The District does not receive any property tax or sales tax revenue from the county
tax roles. The Counties (Placer and Nevada) do, however, collect standby revenue and Donner
Lake Assessment District revenue for the District. The Counties also charge the District a fee for this
service. The District holds public hearings for customer input when it is considering increasing its
rates. There is also a legal process available to voters to challenge a rate increase.
2. "A number of the Special Districts have reserves that appear to be excessive. Two enterprise
districts stand out: Nevada Irrigation District with $167,327,953 which is over eight times its annual
operating revenue, and Truckee Sanitary District with $10,765,946 which is almost five times its
annual operating revenue."
Response: As stated before, the Grand Jury report refers to the District's retained earnings as
our reserves. As of December 31, 2001, the District had a General Fund balance of$225,829 and a
restricted funds balance of $7,534,072, $1,487,497 of this amount is required to be on reserve by
our debt covenants. The balance is restricted for specific projects and purposes. It would be helpful
to have a definition of Reserves in order to categorize our restricted funds properly.
3. "The Grand Jury found that while financial reports may be prepared according to standard
accounting principles, the terminology used is sufficiently inconsistent between districts so as to
make it difficult for the public to understand them."
Response: Over the years, the Board has asked the auditors to change some of the
terminology used in the District's financial statements in order to make it easier for the average
person to read them. My experience has been that the only requests for copies of our annual audit
are from financial analysts, rating agencies, lenders, credit agencies, etc. Because of the unusual
terminology used in the past, I frequently have to translate some of the line items. KPMG has
already told me that there are new accounting standards requiring them to use standard terminology
in the financial statements so that there will be consistency throughout the financial industry.
4. RECOMMENDATION
That the Board authorize the staff to respond to the Grand Jury addressing the accuracy of the
information provided.
Y
{
t
}
f
Y
2
{
` i
TRUCKEE DONNER PUBLIC UTILITY DISTRICT
Balance Sheets
As of December 31, 2001 and 2000
2001 2000
Assets
Plant Serving Consumers (Note 2) $ 38,046,954 $ 30,443,251
r Restricted Funds (Note 3) 7,534,072 6,532,026
Current Assets:
General fund (Note 3) 225,829 844,250
Amounts due from consumers (including amounts not yet billed of
$1,118,064 and$854,661 for 2001 and 2000, respectively), less
reserves for uncollectible amounts of$30,658 and $31,918 for
2001 and 2000, respectively. 2,655,766 1,922,859
Current portion of Special Assessment Receivable (Note 6) 426,587 0
Materials and supplies 530,586 598,823
Prepaid expenses and other current assets 240,733 270,337
Total current assets 4,079,501 3,636,269
Special Assessment Receivable, net of current portion (Note 6) 11,862,710 0
i
Unamortized Financing Costs 835,376 920,090
i
Total assets $ 62,358,613 $41,531,636
Consumers' Funds and Obligations
Consumers' Funds Reinvested in the District $ 22,175,137`
,. $ 19,042,793
Borrowed Funds, less portion due next year(Note 4) 16,366,353 17,028,328
Current Obligations:
Amounts due for power purchases 199,182 455,086
Amounts due for other purchases 1,007,470 982,007
Deposits collected to ensure payment for services 228,750 216,521
Interest due to creditors 191,249 215,628
Standby fees billed and due next year 0 105,115
i Amounts due to employees for payroll 374,755 329,081
Borrowed funds due next year (Note 4) 6,878,387 786,240
1 Total current obligations
8,879,793 3,089,678
Deferred Revenue (Note 5)
14,937,330 p
( Funds Received for Construction of Facilities 0 2,370,837
Total consumers'funds and obligations $ 62,358,613 $ 41,531,636
The accompanying notes are an integral part of these financial statements.
r
s
TRUCKEE DONNER PUBLIC UTILITY DISTRICT
i
Statements of Operations
For the Years Ended December 31, 2001 and 2000
2001 2000
Operating Revenues:
Sales to consumers $14,253,065 $13,240,137
Consumer electric refund 0 (880,924)
Standby fees
297,455 220,598
Connection fees 284,900
Other 0
345,757 432,762
Total operating revenues 15,181,177 13,012,573
Operating Expenses:
Power purchases (Note 1) 3,990,359 4,686,883
Operations and maintenance 3,213,755 2,829,925
Administrative and general 2,541,890 1,916,580
Consumer services 772,839 648,127
Use and deterioration of plant 1,452,408 1,470,228
Total operating expenses 11,971,251 11,551,743
Operating income
3,209,926 1,460,830
Non-Operating Revenue (Expense):
Income from investments 350,156 498,825
Interest expense (926 579)
(986 105)
Total non-operating expense ,42
(5763) (487,280}
Capital contributions (Note 1) 476,42
0
Revenues in excess of expenses 3,132,344
973,550
Consumers' funds, December 31, 2000 19,042,793 18,069,243
Consumers'funds, December 31, 2001 -t
$22,175,137`> $19,042,793
The accompanying notes are an integral part of these financial statements.
1
1
I
RECD APR 2 2 2003
GRAND JURY
COUNTY OF NEVADA
Eric Rood Administration Center
950 Maidu Avenue
cAL" RNJ Nevada City, California 95959
April 18, 2003
Board of Directors
Truckee Donner public Utility District
P. O. Box 309
Truckee, CA 96160
Dear Board Members:
Herewith is a copy of the report prepared by the Civil Grand Jury of Nevada County on
the subject of Special Districts Revenues and Reserves.
The report will be published Wednesday April 23, 2003 at 1 I a.m when it will be posted
on the Superior Court's website:
t ttP://www courts co.nevada.ca.us
Click on"Reports"link.
As you know, the California Penal Code(Section 633.050 prohibits disclosure of any
portion of this report prior to its publication by the Grand Jury.
The California Penal Code requires that responses to Grand Jury reports must be
addressed to the presiding judge of the Superior Court. In our county, the Honorable
Ersel L. Edwards is the presiding judge. His address is 201 Church Street, i
Nevada City, CA 95959. 3
To assist you in writing your response, we are enclosin co
of the California Penal Code. g a PY of Section 933.OSa
i
The Grand Jury appreciates your cooperation.
er Ju i g
oreman
1
i
..
California Penal Code
(excerpt for respondents)
933.05, (a)For purposes of subdivision (b) of Section 933, as to each grand
responding person or entity shall indicate one of the following: jury finding, the
(1) The respondent agrees with the finding.
(2) The respondent disagrees wholly or partially with the finding, in which case the response
shall specify the portion of the finding that is disputed and shall include an explanation of the
reasons therefor.
(b)For purposes of subdivision (b) of Section 933, as to each grand jury recommendation, the
responding person or entity shall report one of the following actions:
(1) The recommendation has been implemented, with a summary regarding the implemented
action-
(2) The recommendation has not yet been implemented, but will be implemented in the future;
with a timeframe for implementation.
(3) The recommendation requires further analysis, with an explanation and the scope and
parameters of an analysis or study, and a timeframe for the matter to be prepared for
discussion by the officer or head of the agency or department being investigated or reviewed,
including the governing body of the public agency when applicable. This timeframe shalt not
exceed six months from the date of publication of the grand jury report.
(4) The recommendation will not be implemented because it is not warranted or is not
reasonable, with an explanation iherefor.
(c)However, if a finding or recommendation of the grand jury addresses budgetary or personnel
matters of county agency or department headed by an elected officer, both the agency or
department head and the board of supervisors shall respond if requested by the grand jury, but
the response of the board of supervisors shall address only those budgetary
over which it has some decisionmaking authority. The response of the elected agency or matters a
department head shall address all aspects of the finding
agency or department s or recommendations affecting his or her
f
r
......:.;: ..
SPECIAL DISTRICTS REVENUES AND RESERVES
REASON FOR INVESTIGATION
The Nevada County Grand Jury, in accordance with California Penal Code Section 933.5, is
authorized to examine the books and records of any special-purpose assessing or taxing
district. The Little Hoover Commission' Report of May 2000 on independent districts in
California stated that they have over$19.4 billion in reservesz and many special districts
have excess reserves. The Grand Jury wished to determine if special districts in Nevada
County have unnecessarily large reserves.
PROCEDURE FOLLOWED
The Grand Jury contacted each of the 25 independent special districts in Nevada County on
October 25, 2002 requesting a copy of the most recent financial audit for the district.
BACKGROUND
The Grand Jury received and reviewed copies of the Little Hoover Commission Report titled
Special Districts: Relics of the Past or Resources for the Future?, published in May 2000.
This report highlighted a lack of governmental control or oversight of special districts within
the state. According to the Report, "California has 58 counties, 474 cities—and more than
3,800 special districts. About two-fifths of those districts are considered dependent' because
they are governed by a larger entity, such as a county board of supervisors. But more than
2,200 of these districts are `independent' governed by their own elected bodies, including
park districts, water districts, hospital districts and sanitation districts. Many independent
districts also are `enterprise' districts, like water and sewer agencies, which directly charge
customers fees for the services they provide. Others, such as library and park districts, are
`non-enterprise' districts, which rely mostly on property tax revenues to serve their
communities."
IThe Little Hoover Commission is a bipartisan,independent state body that promotes efficiency and
effectiveness in state programs. Created in 1962,the commission is formally named the"Milton Marks
Little Hoover Commission on California State Government Organization and Economy." As a member of
the Assembly,former Senator Milton Marks authored legislation that created the commission. The
Commission is modeled after a federal commission created in 1947 to address the growth of government,
chaired by former President Herbert Hoover. The federal panel became known as the"Hoover
Commission," while the California panel has become known as the"Little Hoover Commission."
2For purposes of this report,the terns reserves,retained earnings,and fund haiances are used
interchangeably.
j.
t,
�I
FINDINGS
1. The following tables include a listing of each independent special district in Nevada
County and the date of the audit submitted in response to the Grand Jury's October 25,
2002 request. The tables also show the amount of operating revenue and reserves
reported for the latest audit period, and reserves as a percentage of yearly operating f
"non-enterprise" districts are shown separately.
revenue. "Enterprise" and
r
TABLE 1 s
's
Fiscal Yr. Annual Op. Reserves(a) Reserves as a
ENTERPRISE DISTRICTS of Op.Rev.
Ended Revenue
Donner Summit Public Utility 6130/01 $592,312 $279,446 47%
i7,461 49,556 284°io
Kingsbury Greens Commwircy Service 6l30/0 i d
Nevada ling ation 12131/01 20,876,392 167,327,953 802%
Truckee-Donner Public Utility 12/31/01 15,181,177 22,175,137 466°0
Truckee Sanitary 6/30/02 2,311,741 10,765,946
Washington County Water 6/30/02 $164,025 AVERAGE7I 302%
(a)Unreserved(undesignated)funds if broken out in the financial report provided.
TABLE 2
Fiscal Yr. Annu a l Op. Reserves(a) Reserves as a
NON-ENTERPRISE DISTRICTS %of Op.Rev.
Ended Revenue
Bear River Recreation&Park 6/30/01 $129,154 $76,850 60%
6,617 6,985 106%
Beyers Lane Community Service 6/30100 584,293 177,068 30%
Forty-Niner Fire protection 6/30/02177 068 56%0
Higgins Fir rotection 6/30/02 1,007,479 89 388 56 %
Lake of the Pines Community Service 6/30/01 49,483
11,849 15,319 12 0
Mystic Mlne Road Community Service 6/30/02 42,570 21
Nevada County Resource Conservation 6/30101 200,765 6/30102 247,922 25,07
10%
Nevada Cou ty Cemetery
4%
Nevada County Consolidated Fire Protection 6/30 85,292/01 1,955,634 52,913 33%
North San Juan Fire Protection 6/30/01 161,162
261,929 79,976 30%
Ophir Hill Fire Protection 6l30/00 100,53g 40%
PeardaleChicago Park Fire Protection 6i30/01 252,304
Penn valley Fire Protection 6/30/02 957,305 275,958 29%
444 5 1
Rough&Ready Fire Protection 6/30/02 2�' 1,21 %10 169 69%
San Juan Ridge County Water 6/30102 14,789
Truckee Cemetery 6/30102 80,476 125, 156%
564
%
Truckee Fire Protection 6/30/01 3,429,925 531,585 2 3
Truckee-Donner Recreation&Park 9/30/01 3,344,392 1,078,671 %
Western Gateway RegionatRec.&Park 6/30/01 $143,046 AVERAGE7 65%
(a)Unreserved(undesignated)funds If broken out in the financial reports provided.
2. While a significant amount of reserves are held by both enterprise and non-enterprise
districts in Nevada County, enterprise districts have a much higher average percentage of
reserves to operating revenue (302%) than non-enterprise districts (55%).
3. California Government Code Section 26909(b)requires that an annual audit be
completed within 12 months of the end of the fiscal year for every special district.
A district may, by unanimous request of its governing board, and with unanimous
approval of the Board of Supervisors, replace the annual audit with a biennial audit
covering a two-year period. This exemption,provided for in California Government Code
Section 26909(f), is not currently in effect for any of the reporting districts.
4. As shown in the non-enterprise table, two of the districts (Ophir Hill Fire Protection and
Beyers Lane Community Service)provided audits that are more than two years old. This
is a violation of the California Government Code Section 26909(b) requiring annual audits
of special districts.
5. Both the 2000 and 2001 audits received from the North San Juan Fire Protection
District dated September 30, 2002 were the first audits done by the district since 1999.
This is also a violation of California Government Code Section 26909(b) requiring
an annual audit of every special district within the county..
6. California Government Code Section 26909(a) and(b) also states that if an audit of a
special district is not otherwise provided, the county auditor shall make or contract with
an auditor to do so,the costs thereofbeing charged against the district.
7. The Auditor-Controller's office did remind by letter those districts which were late in
filing their yearly audits, but failed to follow up to ensure that an audit was in fact carried
out within 12 months of the end of the fiscal year.
CONCLUSIONS
1. The apparent reason"enterprise"district reserves are so high is that in addition to
receiving revenue from the county tax roles, these districts charge fees for their services.
In many cases the customer base is of considerable size, diverse, and unable to obtain
comparable services from a competitive source. These conditions allow the fee structure
to remain high with little recourse from the population served.. '
2. A number of the Special Districts have reserves that appear to be excessive.
Two enterprise districts stand out: Nevada Irrigation District with$167,327,953
which is over eight times its annual operating revenue, and Truckee Sanitary District with
$10,765,946 which is almost five times its annual operating revenue.
3. The Grand Jury found that while financial reports may be prepared according to standard
accounting principles, the terminology used is sufficiently inconsistent between districts
so as to make it difficult for the public to understand them. {
x
rr
4. The Auditor-Controller is not fulfilling the follow-up requirements outlined in the
California Government Code Section 26909 to ensure that annual audits are conducted
t
within the proper time frame. {
)Y
RECOMMENDATIONS
r
1. Each of the Special Districts listed in the tables should develop written guidelines
d earnings, and justify to its constituency that
governing the accumulation of retaine
the amount maintained is reasonably prudent. r
�1 «nrr�rr.:cen districts should de•�=1ntn, and a`�Opt plans for rttiliZLn�T., any ,
2 1. air...t..;..
of retate earnings reductions,r the benefit se of th
or other
ofbenefit ic they serve. This could be in the form
reim
3. The Nevada Irrigation District and the Truckee Sanitary District should take actions to
reduce their reserves to a more reasonable amount.
4 Ophir Hill Fire Protection, Beyers Lane Community Service, and North San Juan Fire
ensure that annual
ttiirotecion districts should melytmanner according toaCal California ke steps oGovernment Code Sec ion s are completed in a
on 26909
5. The Auditor-Controller should enforce all provisions of California Government
Code Section 26909.
6. The Auditor-Controller should evaluate the County's authority to mandate clear and
for Special District financial reports.
consistent terminology and formats
7. Smaller Special Districts should consider taking advantage of the provision in California
Government Code Section 26909(f) enabling the replacement of annual audits with
biennial audits in order to lower their audit expense.
REQUIRED RESPONSES
Board of Supervisors—July 22, 2003
Auditor-Controller—June 23, 2003
Special Districts—June 23, 2003