Jacked-up sewer rates laid to $33 million of polluter subsidies, San Diego auditor indicates

Residential sewer customers have been subsidizing San Diego's industrial wastewater control program, boosting the financial pain of those already stressed by years of faulty water billing by derelict city officials.

Such are the findings of a July 15 report by Interim City Auditor Kyle Elser, following up on a 2013 audit of the program, determining that "outdated fees, billing lapses, and inadequate controls" are responsible for millions of dollars in possibly illegal subsidies being underwritten by San Diego residents.

"From FY 2010 through FY 2019, [industrial wastewater control program] costs have totaled approximately $38.8 million," according to the document.

"Of these costs, only $5.5 million (14 percent) was recovered from [industrial wastewater] permittees, while the remaining $33.3 million (86 percent) was passed on to other wastewater customers, such as residential and commercial customers, via wastewater rates."

The $33.3 million in subsidies. the audit adds, "came exclusively from City of San Diego wastewater customers, even though [the industrial wastewater program] serves the larger metro area."

According to the report, the anti-pollution program "permits, monitors, and inspects a variety of industries across the city and 12 other participating agencies to detect and minimize the discharge of toxic substances into the sewerage system."

But while expenses of the activity have soared, payments collected from industrial polluters have lagged, causing a wild imbalance in expenses and revenues. All the while, officials have continued to ignore the findings made by the 2013 audit.

"We made a total of 8 recommendations in our public audit and an additional 5 recommendations in our confidential memorandum to ensure that program costs are tracked; fees are regularly reviewed and updated; billing is timely; and cost recovery practices comply with City regulations and policies as well as state law,"

"Since 2013, we have kept the Mayor, the City Council, and the Audit Committee informed of [the Public Utilities Department’s] progress in implementing these recommendations via periodic recommendation follow-up reports."

Despite evidence that problems with the pollution-fighting effort have grown significantly worse by 2019, city administrators "only provided evidence to demonstrate that 3 of the 13 recommendations were fully implemented," the audit says.

"A new fee study is nearing completion, and [the Public Utilities Department] plans to present the results to the City Council by January 2021," the audit notes. "As a result, many fees still remain unadjusted since 1984, and program cost recovery remains very low."

"[Public Utilities] continues to use overly-complex billing processes for [the industrial wastewater program], which is inefficient and has caused billing lapses. Even though PUD implemented our 2013 recommendation to recover unbilled costs from FY 2008 to FY 2012, we found that, since FY 2017, PUD has again failed to bill many [industrial wastewater] permittees outside the City."

"These cost recovery practices remain out of compliance with City regulations and policies," the audit says. "More seriously, the possibility remains that, by passing on most program costs to other wastewater customers, the City may not be complying with Prop 218.:

"Adopted by California voters in 1996, Prop 218 generally requires that property-related 'fees and charges'—including charges for water and sewer service—not exceed the cost of providing the service."

Things could worsen under plans by city administrators to hire more staff and hike the salaries of wastewater inspectors "to address retention issues in the Program," according to the audit.

"These changes are significant to the program's restructuring, but it is important to note that additional staffing will also increase the program's costs. Therefore, if program fees remain the same, there is a risk that cost recovery could become even lower."

Adding to the growing muddle, the anti-pollution effort "has a large backlog of inspections."

As a result of the newly unearthed set of problems, Elser's office "plans to complete another audit of [the industrial wastewater program]; the tentative objectives of that audit will focus on operational issues of the program, such as permitting, monitoring, and enforcement."

For now, officials say they are adequately handling the waste program's long list of shortcomings.

"Public Utilities Department management agrees with recommendations included in the audit and has made considerable progress toward completing several of this audit's recommendations over the past year," says a July 9 memo to Elser from Public Utilities Department Director Shauna Lorance.

"Under the leadership of Mayor Faulconer, a new management structure and team are now in place, and we are committed to continuous improvement throughout our operations."