Sacramento Regional County Sanitation District

INDUSTRIAL INCENTIVES

REASON FOR INVESTIGATION

The Grand Jury was concerned about the impact of economic development on local government and the taxpayer.

BACKGROUND

The Sacramento Regional County Sanitation District (SRCSD) includes a portion of Sacramento County and the cities of Sacramento and Folsom. The District is governed by a seven-member board made up of members from the County Board of Supervisors and members from the city councils of Sacramento and Folsom. The District provides services to more than 400,000 "District equivalent single family dwellings." The District revenues are more than $80 million annually.

Under contract with the 1991-92 Sacramento County Grand Jury, the firm of Coopers & Lybrand prepared a "Special Review Related to Sacramento Regional County Sanitation District - Interim Report" which was issued June 5, 1992. On page 32 of the report it stated the following: "It is clear from our review that the Board's policy has been to provide a subsidy to the industrial customer. Although this policy is not in conformity with the principle of charging rates consistent with the cost of service, we do not recommend that the current methodology be revised. Rather, we recommend that the Grand Jury require the Board of the Sanitation District by June 30, 1993, to formally adopt a policy of providing subsidy to the industrial customer if that is the ultimate goal of the board so that all concerned can fully understand and appreciate the Board's reasoning. We also recommend that the Grand Jury require that the impact of that policy upon customers other than the industrial sector be included in the policy statement."

Service charges have historically been set using "cost-of-service" formulas to reflect the actual costs of treating the waste of each class of customer. In May 1992 the Board directed staff to find out if reduced or "incentive" rates could be offered to industry in a time of economic recession. The County Counsel's opinion of November 5, 1992, stated that the Board may consider economic factors and that any rate that tends to shift costs must be fair and reasonable. The Board adopted a new "incentive" rate in November 1992 predicated on the completion of an "economic impact study" that would prove the economic basis for the policy.

The Board received the Economic Impact Analysis and adopted a resolution that there was an economic justification for industrial incentive rates and charges on April 13, 1993. On June 1, 1993, the Board approved a new service charge structure that eliminated most of the capital charges from industrial sewer rates. As a class, the fifty-five industrial customers saved about $2.2 million in 1995-96 under the provisions of the Industrial Incentive Program. This represents about a 25 percent reduction on their monthly bill. This added about 42 cents per month to the average residential rate payer's bill or about a 4 percent increase. The largest beneficiaries of this policy are Procter and Gamble, and Campbell Soup that accounted for more than 50 percent of the reduction. Folsom State Prison and McClellan Air Force Base benefit by being industrial customers.

PROCEDURES FOLLOWED

The Grand Jury conducted interviews with SRCSD officials and staff, local business interests and reviewed official documents, prior Grand Jury reports and information available on the Internet.

FINDINGS

1. As the District is self-supporting, the cost savings to industry because of the Industrial Incentive Program is be paid for by residential and commercial users.
2. The Industrial Incentive Program is based on two major assumptions: (A) that there is an economic need and (B) that it is "fair and reasonable."
3. The Industrial Incentive Program adopted by the District is not selective.

CONCLUSIONS

1. The Industrial Incentive Policy applies to all industrial users, including agencies of the state and federal government, regardless of economic need.
2. The policy is not "fair and reasonable" as residential and commercial users are charged more than the cost of service and industrial users pay less.
3. An economic impact is insufficient justification to adopt a policy that is unfair and not selective.

RECOMMENDATIONS

The Grand Jury recommends that the District:

1. Change its rate structure so that it charges all customers based on the cost of service.
2. Concentrate on the business of planning, designing, constructing, and operating a regional wastewater treatment system and not economic development.

RESPONSE REQUIRED

The Penal Code requires responses to the recommendations contained in its report be submitted to the Presiding Judge of the Sacramento Superior Court and Municipal Courts by September 30, 1997, from:

Sacramento Regional County Sanitation District