August 27, 2016
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East Palo Alto Sanitary District
East Palo Alto Sanitary District
EPASD provides sewer services to approximately 6700 residences and numerous
small businesses. The district does not operate its own sewage treatment
Grand Jury finds that the EPASD needs to take immediate action to increase
rates and reduce costs. Due to the district's small size it should act
on the Local Area Formation Commission's (LAFCo) prior recommendations
to merge the district with another entity.
2000, LAFCo was given significantly more power to effect its recommendations.
LAFCo should pursue all of the remedies provided under the law relative
to its recommendations regarding the EPASD.
Issue: Is the East Palo Alto Sanitary District effectively managing services in a financially sound manner that best serves the needs of its district users?
East Palo Alto Sanitary District (EPASD) was formed in 1939 to provide
sewer services to a two square mile area, primarily east of Highway 101.
Services are provided to approximately 6,700 East Palo Alto and eastern
Menlo Park residences and numerous small businesses. In recent years,
non-recurring sewer connection fees from new commercial development in
the area east of Highway 101 have produced substantial income to EPASD.
maintains approximately 32 miles of sewer mains, and owns approximately
12 % of the capacity of the Palo Alto Sewer Treatment Plant. EPASD pays
the City of Palo Alto (owner of the Palo Alto Sewer Treatment Plant) a
share of plant operating costs based on the volume of sewage flow. In
addition to its own improvements financed by the district, EPASD also
has obligations to pay a portion of the Palo Alto Sewer Treatment Plant
bonded indebtedness and to maintain specific cash flow ratios.
Grand Jury investigated EPASD in 1986 and 1987. The reports made recommendations
to improve internal accounting controls and to explore a merger of the
district into the City of East Palo Alto. The focus of the current investigation
is the efficiency and financial effectiveness of this district.
Local Agency Formation Commission (LAFCo) is a state-mandated agency with
countywide jurisdiction over changes in organization and boundaries of
cities and special districts. One function of the commission is "To
perform and assist in studies of local government agencies with the goal
of improving efficiency and reducing costs of providing urban services."
In the past, LAFCo has studied the feasibility of consolidating EPASD
with other entities. Under the provisions of the Cortese-Knox-Hertzberg
Act of 2000, LAFCo has significantly more power to effect its recommendations
than it had in prior years. LAFCo may, as provided in the Act, conduct
hearings regarding its findings and, under appropriate circumstances,
conduct an election to effect its recommendations.
Grand Jury reviewed financial statements, accounting records, Board of
Directors' meeting minutes, and various contracts and other obligations
of EPASD. The Grand Jury interviewed directors, past and present employees,
accountants and auditors for the district. It also reviewed information
from LAFCo reports and resolutions, media coverage related to EPASD, and
an efficiency study performed by Harvey Rose Accountancy for EPASD.
service fees are billed and collected with the property taxes billed by
San Mateo County.
is governed by a five member elected board that meets at least two times
per month to establish policy. EPASD has six full time nonprofessional
employees. It fully relies on outside experts for engineering, legal,
personnel policy, bookkeeping, and accounting services.
is too small to economically hire expertise in the areas of engineering,
legal, personnel and bookkeeping and accounting.
Revenues from user fees are significantly lower than current operating costs.
upon statements of directors and accountants for the district and accounting
reviews provided, the Grand Jury determined financial reserves are not
sufficient to maintain solvency at its current sewer rates.
has not maintained the cash flow ratios required under the City of Palo
Alto operating agreement or the district's financing agreement.
required audit report for the fiscal year 2000-2001 was not completed
in the required time frame because EPASD did not provide timely information
necessary to the auditors. The deadline for providing the fiscal year
2001-2002 audit report has not been met.
has been involved in protracted and expensive litigation regarding contractual
and personnel matters with litigation continuing at this time.
Rose Study, issued in August 2000, reflected that the non-treatment costs
of EPASD were $30,145 per mile of sewer mains versus $9,229 per mile in
other nearby districts. The study made several recommendations to reduce
costs that were never acted upon by the Board of Directors.
has previously studied the viability of EPASD and at least since 1983
has assigned the district a sphere of influence of zero. A zero sphere
of influence indicates that the district should be reorganized or combined
with another entity. LAFCo recommended a merger of the district with the
West Bay Sanitary District. LAFCo will again conduct a service review
and sphere of influence of EPASD during the 2002-2003 fiscal year.
has removed its website from the Internet.