Sebastopol City Hall.
Why would the City of Sebastopol loan itself $1.1 million—and then charge residents 2.99% interest on the loan? That was the burning question west-county residents were asking this week following a Sebastopol City Council meeting June 6 that saw city leaders approve a $14.3 million budget for the 2024-25 fiscal year.
The loan—whose funds are coming from the city general fund into the city’s wastewater fund—has taken place incrementally since last November and was implemented to fiscally float the city’s cash-strapped sewer department until revenues from a recently approved water- and sewer-rate hike kick in. In June, the council approved a 37% rate water/sewer increase this year, followed by 3.5 to 4% increases the following four years. Customers will pay an estimated $43 per month more the first year alone, according to city projections.
The interest on the loan was baked into the new rate beginning in 2025, city officials said.
However, faced with negative community feedback, the city council this week unanimously voted to drop the plan to charge water/sewer ratepayers any interest.
Loans from one city fund to another are common in municipalities struggling to cover their books, and interest on such loans aren’t unprecedented.
Still, the subject of the loan and its interest has been riddled with miscommunication between the council and city staff throughout the process. Council members only seem to have become aware of the months-long transfer of monies between the two funds in March, after staff produced a backlog of late budget reports dating back to November 2023, when the city first began transferring hundreds of thousands of dollars per month from the general fund to the wastewater fund.
While getting council approval for such transfers is advised, it is not legally required, Sebastopol City Attorney Larry McLaughlin wrote in an earlier email to City Manager Don Schwartz, which was obtained by the Santa Rosa Press Democrat.
And since March, while city officials held several meetings about the new rate structure when the interest rate on the loan was brought up, council members this week seemed entirely unaware interest would be covered by rate payers. Councilmember Sandra Maurer conceded Tuesday that the charging of the interest “escaped [her]” and described it as “quite an insult.”
The confusion and consternation over the new water/sewer rates and the intra-fund loan come at a less-than-ideal time for Sebastopol, as city officials are also asking voters to approve a half-cent sales tax increase on the Nov. 5 ballot in order to close a $669,000 budget gap.
