EFOC – Finance
Sub Committee
• Financial analysis of
Water & Sewage
Funds within Cost
Allocation-City of
Sebastopol
• By Kate Haug & Mary
Meihaus
• Historical List of Finance Department Costs
Allocated to Water and Sewer. Note there is a
200% increase of allocated overhead from FY
2015 to FY 2023, 8 Year Period, even though
the number of customers and utility bills
remain static. Note significant increase AFTER
SmartMeters are installed even though cost
savings was promoted as reason for increasing
Enterprise Fund Expenses for Syserco Loan.
Historical List
of Legal
Charges
• From Adopted Budget, Legal Fees for
2014/2015 & 2015/2016 were:
• From a Public Records request, attorney's fees range from $8754 to $51,618 from FY 2017 to 2024. In FY 2024/2025 $184,587 was charged to Ratepayers for legal fees. FY 2025-2026 $189,263 was allocated. There are no significant legal challenges to the Water or Sewer activities which would warrant a 250% increase. Note: Attorney services are contracted and would have invoices to match services. No invoices have been produced that match these fees.
Email Correspondence with Finance Director
Kwong re: Audited v. Actual Budgets and the Cost
Allocation Plan:
• Director Kwong's Statement
• Perhaps the grid below may be helpful in illustrating this inquiry. Up until FY 2024–25, the City has annually trued up the cost allocation plan using actual, audited expenditures. Any variance between budgeted allocations and actual costs was addressed through this annual true-up process as you can see in highlighted yellow. I am providing the Finance Department as an initial example to confirm that this approach meets your needs before proceeding with other departments.
• With the current cost allocation plan approved by the City Council, no separate true-ups were performed for FY 2024–25 or FY 2025–26 and cost allocation happens based on the adopted budget. However, the FY 2026– 27 cost allocation plan (the Option A placeholder, as discussed by the Budget Committee and the Enterprise Fund Oversight Committee) is based on FY 2024–25 actual expenditures, which effectively serves as the true-up for FY 2024–25.
Kate Haug Response
•How is the difference between the Adopted and
Actual Budget reconciled? For instance, for
20/21, the General Fund owes the Enterprise
Fund $90.395 for the difference between
Adopted and Actual Budget. Does the General
Fund make a transfer for the $90,395 back to
the Enterprise Funds to reconcile the
difference?
• Cost Allocation Fees are the costs associated with
supporting City Employees who work on Water and
Sewer. These fees include office supplies, toilet
paper, utilities, computer software and other costs
associated with hosting an employee in an office.
Contractors include their office expenses in their
billing and are reflected on their invoices paid by
the City. Therefore any person who is a contractor
should not be in the Cost Allocation Plan. All
contractors should be direct billed.
Cost Allocation Comparisons
• 2014/2015 Cost Allocation
Breakdowns which clearly
show what percentages of
City Administration are
allocated to Water Enterprise
and Sewer Enterprise:
Current Cost
Allocation
• Current Allocation Structure
which shows a dramatic
increase in Council Time and
City Clerk Time allocated to
Enterprise Funds without any
data to back it up. In
2014/2015 City Attorney was
inhouse and was allocated at
8%. In 2025, Attorney is
Contract and allocated
at 29%.
• Contract attorney should be
direct bill and there is no
justification for a significant
increase.
2014/2015 Budget Shows 3.5 FTE attributed to
Public Works
Budget Expenditures
•There is a dramatic increase in the
Cost Allocation Budget from
2014/2015 to 2019/2020. A 66%
increase for Water and a 75% increase
for Wastewater with no explanation or
data to support. See following charts:
Top 4 Finance Committee Recommendations
• 1. Recommended Cost Allocation Plan: NONE OF THE
CURRENT SCENARIOS
• 2. Implement Time Tracking Software for Employees to Record Time. There are many applications that charge a small monthly fee for time tracking. Time tracking is the way to avoid lawsuits and to bill Water and Wastewater correctly and to be most Prop. 218 and Prop. 26 compliant.
• 3. Remove Tiered Water Pricing and do not raise water prices until the new Cost Allocation Model supported by time tracking is in place. This has no impact on the General Fund.
• 4. Refund Enterprise Funds $350,354 for excessive Attorney Fees for 24/25 and 25/26. There is no data to justify charged amounts. No invoice records, no historical precedent, no reasonable comparison to other districts.