by John Perry
Capistrano Taxpayers Association (CTA)
Recently I requested information from the City about the 2008 cancellation of the Contract with ECO Systems (“ECO”), the company hired by the City to design, build, maintain and operate the Ground Water Recovery Plant (GWRP). I had no recollection of a council vote to terminate the Contract, so I obtained a copy of it and reviewed City Council Agendas to see what I could find.
According to City records, the Contract cancellation was never placed on the agenda, was never reported out of closed session and was never reported in the meeting minutes as required by law. There was no public disclosure and no opportunity for public input, as required by law.
It’s hard to believe since the ECO Contract states that the Contract could only be terminated if either the Company or the City defaulted the terms of the contract, or if either party declared bankruptcy.
I figured that neither of these events occurred, since the bonds used to finance the GWRP were insured and if ECO had defaulted, ECO and the insurers would be required pay off the bonds - not the ratepayers, and the project would then be terminated. But the City let ECO walk away from their contractual commitment without triggering the insurance clause.
Due to this action, the City ratepayers were forced to take over ECO and parent company Southland Water’s contractual obligations to:
· Make all necessary repairs resulting from design defects (in the millions thus far).
· Produce at least 5,231 acre feet of water at a fixed cost of $1.1 million per year (since the takeover, the estimated cost to the taxpayers for the lack of GWRP output is over $15 million because it has never produced this amount).
· Take over the operation, maintenance and the risk of the GWRP, using the newly formed Utilities Department staffed with 22 employees at a cost to ratepayers of more than $2 million per year.
· Assume the expense of repairing and maintaining the GWRP’s infrastructure including replacement of wells, booster pumps, pipelines and support equipment, which has cost millions and remains an on-going expense.
And the spending continues.
Despite its poor performance and design defects, the Council majority voted to expand the water plant using taxpayer money in the hopes that it will somehow reach the original Contract requirement of 5,231 area-feet of water. The Contract required ECO to meet this goal or be fined if it failed.
It’s obvious that the City Council created this mess both when it originally started the Project in 2002 without understanding the financial risks to the City of operating a $38 million water facility, and when they allowed ECO to walk away from its contractual obligations for the design-flawed water plant.
Now the taxpayers continue to pay the price for the City Council missteps, through increasingly higher water rates.
The CTA continues to monitor the GWRP and other City tax-related issues. For more information about the Capistrano Taxpayers Association, please visit our website at: www.capotax.org
Editor’s note: We invited Councilman Sam Allevato to explain the council’s action in canceling ECO’s contract, as he is the only present council member who served on the council in 2008 when the contract was terminated. His response is on page three.