Rates & Charges Ordinance Will Include PZ Homeowners Paying Vacant Lot Owners’ $27M Share of Sewer

By ED OCHS

Los Osos “Prohibition Zone” homeowners haven’t received their first monthly sewer bill yet, but it’s already in danger of almost doubling before roll-out in 2011—and the recent USDA loan won’t keep the bills from climbing.The County Board of Supervisors intends to propose a rates & charge ordinance that gives them the option of passing $27 million in unpaid assessments from undeveloped property owners on to the sewer bills of already-assessed Los Osos PZ homeowners.The County’s much-advertised second Proposition 218 vote on whether undeveloped properties agree to tax themselves for their $27 million share of the $166 million sewer project has been shelved for the near term. The obvious reason: fear of failure.

Los Osos “Prohibition Zone” homeowners haven’t received their first monthly sewer bill yet, but it’s already in danger of almost doubling before roll-out in 2011—and the recent USDA loan won’t keep the bills from climbing.

The County Board of Supervisors intends to propose a rates & charge ordinance that gives them the option of passing $27 million in unpaid assessments from undeveloped property owners on to the sewer bills of already-assessed Los Osos PZ homeowners.

The County’s much-advertised second Proposition 218 vote on whether undeveloped properties agree to tax themselves for their $27 million share of the $166 million sewer project has been shelved for the near term. The obvious reason: fear of failure.

Instead of proceeding with the second Prop 218, once hyped as the “next step,” Supervisor Gibson and the Board of Supervisors have agreed in principle to an accelerated project timeline that includes the County option of previously-assessed homeowners picking up the $27 million share of the $166 million project still left unsecured from undeveloped property owners.

Who could blame undeveloped property owners for not voting to assess themselves? Why would vacant lot homeowners vote to tax themselves for a project that offers no immediate or imminent benefit to them since they won’t be able to build on their lots for years?

Gibson Demand
According to Gibson, PZ homeowners and lot owners can do it the easy way or the hard way, but someone is going to pay.

“One way or another we have to come up with financing to afford the entirety of this project and have a plan for paying it back,” said Supervisor Bruce Gibson at the July 27 Los Osos update of the Board of Supervisors. “It will be easier if we can get the capital cost of the portion of the system that will eventually benefit the vacant properties when they develop.”

“If we can get those paid up front, that will be a benefit to everyone,” Gibson said. “So I would submit to the community that it is in their interest to promote this second 218 when it comes, and it will be put forward before we get to operation.”

Even if undeveloped property owners vote down the Prop 218 to be taxed, Gibson said, there are other ways to extract partial payment from them.

“(The Prop 218) just simply secures the capital investment of the system for the vacant properties ahead of time, but there are other ways of doing it,” he said, “whether it’s by charging those vacant properties connection charges as they develop and balancing that off against rates and charges…”

County Counsel Warren Jensen echoed Gibson’s comments: “The only way to cover (general benefits), if we don’t cover them with a grant or with a combination of the two—$127 million plus $27 million—is to increase rates and charges,” he said. “In order to raise rates or charges, you need to go through a different kind of Prop 218 process which is a protest process. So there’s notification of the proposed rates and charges, then a 45-day process where people can object.”

Are Los Osos “Prohibition Zone” homeowners in the political mood to write another blank check to the County in the form of a rates & charges ordinance that will raise their combined property tax and rates & charges payments to between $300 and $350 per month? And that’s just for starters, since there is neither a final price or a cap on the project.

Reading the tea leaves, the County is reluctant to conduct the second Proposition 218 vote. They fear it would fail and slow down the pace of the project. Undeveloped property owners may see no benefit to taxing themselves at this time, perceiving no tangible special benefit to hooking up to a vacant lot they can’t build on for the foreseeable future.

In the cash-strapped “Prohibition Zone” of Los Osos, the very idea of the County even considering the option of forcing homeowners to pick up the sewer bills for undeveloped property owners unwilling to be taxed—understandably—is alarming and stressful. Adding vacant lot owners’ share of sewer costs on to the sewer bills of those already over-taxed through rates & charges—long before the sewer is even built—is demanding blood from a collective stone.

‘Worst-Case Scenarios’
Will Clemens of County Public Works told the Board and public on July 27 that “worst-case scenarios” required by lending agencies have been being misread by the public.

“The $27 million assessment on vacant parcels, that’s is all going to be part of our rates and charges process so that people can see what the impact of including that $27 million in our rates and charges,” said Clemens, “because we’re going to have to, because the USDA and the SRF want to make sure that the rates are in place before they dole out any money…

“(SRF and USDA) staff want to see the worst-case scenarios so that they can justify rolling out grants … reducing interest rates, or extending the term of the finances,” he said. “They want to see everything that’s going to impact the property owners so that they can justify giving some favorable financing.

“That being said,” Clemens added, “that doesn’t mean we have to impose those rates because this project is not going to go into operation for two to three years. So when that $27 million second 218 assessment vote on undeveloped properties occurs, and if it’s successful, we don’t impose that rate. So it’s going to be very clear in the process…”

What Clemens did make very clear is that if the Prop 218 assessment on undeveloped properties does not pass, the County can stick Los Osos “Prohibition Zone” homeowners with the unpaid bill on to rates & charges. As the County bails on Plan “A”—the Prop 218 vote on undeveloped properties—Plan “B” has become “Plan A.” “Plan B” is to hang over-taxed PZ homeowners with the responsibility of making up the $27 million shortfall… just in case.

If that “worst-case scenario” comes to pass, a community protest of a proposed rates & charges could temporarily halt the project and set the County back to the drawing boards to configure a new rate structure for a new ordinance.

Given a second chance to vote on a blank check, and having been lied to and bullied by the County the first time around, PZ homeowners will soon face an open-ended rates & charges ordinance with eyes open wider. Los Osos activists may find more sympathy from within the community this time. The Board has steadfastly refused to accept any other project other than the most expensive, and resentment toward the County for unilaterally eliminating all cost-effective alternatives in April 2009 has built up over the past year and a half.

Based on past history, give Los Osos community activists an opening and they will take it. Ironically, it’s possible that the rates & charges ordinance could fail just as the County feared the second Prop 218 would fail, stymieing the theory of Gibson’s accelerated time.

Either way, thousands of Los Osos homeowners and residents face some gut-wrenching decisions over the next year.

Sewer Bills Climbing
In addition to having to pay a start-up sewer bill of about around $50 a month covering the on-lot cost of connecting to the sewer, PZ homeowners picking up the tab for undeveloped properties could bump the initial bill by another $30 a month. Operations and maintenance costs will also be included on rates & charges as soon as plant operations are 90% ready to start up.

Once a rates & charges ordinance passes the protest period, then the County is no longer req
uired by law to ask for homeowners’ consent, and can impose additional, virtually unlimited cost increases stemming from construction overruns and adjustments and non-budgeted expenses, especially without maximum contracts for contractors to protect homeowners from these typical occurrences.

Next year at this time Los Osos “Prohibition Zone” homeowners will begin paying down on the first Proposition 218 assessment vote conducted in fall 2007—a tax of $25,000 per home, payable on property taxes twice a year, with interest over the 30- or 40-year life of the USDA and/or SRF low-interest loans, bringing the potential lifetime cost of the original $25,000 assessment to each PZ homeowner closer to $100,000.

The County states that the Prop 218 assessment of homeowners will increase property tax bills by $200 a month or $2,400 a year to build the sewer. After assuming the developed property owners debt, monthly sewer operation bills could start at $80 to $100 a month, cash out of pocket, for a grand total of $3,500 for the first year only.

For the majority of Los Osos residents barely making ends meet, having to come up with an additional $3,500 in hard dollars in this jobless economy is a surefire recipe for financial disaster for thousands.

The project is simply too outrageously expensive and should not be built at any cost. To this obvious fatal flaw in the Los Osos sewer project the County barely offers lip-service.