Monday, March 9, 2015

Let's Keep Our Money!

In last week’s chat I voiced a few concerns about the movement to consolidate fire districts within El Dorado County and the potential financial impact on El Dorado Hills.  As mentioned, the Rescue Fire Protection District Board of Directors and our fire board have just voted to explore the merits of EDH Fire annexing Rescue Fire.  Of course it will take some time for both staffs to evaluate all of the issues surrounding this annexation, develop a plan, get their respective board’s approval, EDC Board of Supervisors approval and then LAFCO approval to proceed, but just like the Latrobe Fire annexation, the wheels are set in motion.

I first have to ask the Rescue community:  why support an annexation if there is no elimination of the two fire service special assessments voted for previously?  Similar to Latrobe, Rescue property owners pay special assessments to augment ad valorem property tax fire funding because of their low AB 8 rate.  However, now that the AB 8 rate can be increased as part of the annexation to EDH Fire, why not ask to have the special assessments eliminated as a condition of the annexation?  This takes the form of double taxation if not – paying special assessments for fire service and now fire receiving substantially more property tax funding because of annexation. Rescue Fire receives over $365,000 in special assessments annually.  Would Rescue vote for these special assessments now knowing their AB 8 rate is lifted to a level that would provide the fire service they always wanted?  I think not.

It doesn’t take a CPA to know that migrating to a fully paid firefighter workforce in these outlying areas has a significant financial impact.  Rescue is however a fully paid 24/7/365 firefighter workforce but others like Latrobe are not.  Regardless, although initial annexation staffing projections might mitigate some financial burdens over the first five years, they will begin to become materially significant down the road as increased coverage, OT, retirements and higher salaries plus pension costs start to take hold. Just ask El Dorado County Fire District why they don’t annex anyone into their district.  Unless someone can tell me that these outlying areas will grow in proportion to El Dorado Hills or expense management follows the actual property value growth trajectory in those areas, then EDH is the financial loser in these acquisitions.

It would seem after a Rescue annexation, possibly Diamond Springs/El Dorado down the road (yes that has been brought up too) and Garden Valley not possibly liking a Georgetown marriage, that we could truly become the El Dorado Hills “County” Water District as our actual founding name so states.  It’s also fascinating that the EDC Board of Supervisors is willing to match our 17% AB 8 rate for others, and possibly approve even higher, even when they have a financial crisis of their own.  Truth be told, our funding rate was first established based on the district providing water storage, distribution and water rights to the community and “ancillary” fire protection services (did you notice how our founding name above only includes “water” and not “fire”). 

So, once the district realized they could pawn off the significant expenses of providing water services to EID, all of the funds were freed for just fire services.  Since the funding rate couldn’t be modified downward without the dissolution of the district, EDH went along with all of the money flowing back to the community for fire services alone.  Forget now that we pay EID substantial fees for water and sewer service (geez, did I mentioned anything about double taxation before), throw in the meteoric growth and rise in property values in EDH, and you have one of the best paid fire departments in California.  Should these mostly rural fire districts join this lucrative compensation party?  Seriously, how could this be good for our own firefighters allowing others to take a piece of our financial pie?

Not to use fear inappropriately but it certainly is conceivable that all annexed fire district voters could readily support their own slate of candidates for our fire board at a future election, and take majority control.  I seriously doubt El Dorado Hills wants to wake up one morning and find their substantial fire district cash reserve funds being used to build out new stations in Latrobe and Rescue as well as replace all of their aging fire engines and apparatus to boot.


If we want to be serious about doing what’s right for El Dorado Hills, then let’s explore the merits of consolidating with our own CSD (they have all the governmental powers to provide fire, police and emergency services to our community) and let our tax dollars “subsidize” within the El Dorado Hills community, not beyond.  Frankly, let’s just stick with shared contracts for services with these other fire districts and stop the annexation empire build!

And the Benefits to EDH?

Currently, there are thirteen independent fire districts serving western slope communities within El Dorado County.  A good majority of these fire districts are struggling financially and for a few years now the EDC Board of Supervisors has been encouraging greater unity amongst the fire districts to try to keep them solvent and relevant.  EDH Fire’s annexation of the Latrobe Fire District in November 2014 and a shared contract for services arrangement with Rescue Fire Protection District are some real examples of this unity being encouraged by local leaders.

From a county perspective increased cooperation is good as it can lead to better fiscal management through operational efficiencies and some cost savings.  It further allows many of the fire districts that agree to consolidate or be annexed to obtain county approval for an increase in their AB 8 funding rate.  This funding rate is the primary revenue source for most of these agencies and so far, the county has been willing to match EDH Fire’s 17% rate for the Latrobe annexation, and they might possibly even agree to a higher funding rate for other combinations in the future.  Note:  A change in this AB 8 rate is merely a reclassification of ad valorem property tax revenues from one use by the county to another, and it is not a property tax increase to property owners within the affected districts.

Now, I’m a true believer that we have far too many special districts in communities across America.  With a majority of these special districts as well as cities and counties everywhere fighting for added funding to keep operational, and the financial obligations and commitments of past boards/councils honored, I agree that some consolidations are in order.  The question becomes for each of these special districts: what is best for the citizens and businesses in the areas being served?  Just because local leaders believe fire district consolidation is the right way to go for them, should El Dorado Hills buy-in that this is the right choice for us too?

I can only imagine what the long-term ramifications of such annexation decisions will be.  These fire districts are small for a reason: their property tax revenues are very limited and thus result in skimpy budgets, a combination of paid/volunteer firefighters for cost savings and their budget frugality provides great expense oversight.  The Citygate fire district study done for El Dorado County back in 2010 stated “not all of the districts will likely ever experience enough growth to provide a stable revenue base for more than a very low level of fire services.” Increasing funding through annexation provides greater financial resources initially but so will go the expense control and eventually the same financial troubles will resurface down the road just be that much bigger. 

In private industry, corporate consolidations and mergers generally are negotiated on the merit that the surviving entity will be stronger through increased revenue opportunities and increased operational efficiencies (i.e., layoffs, closures, etc.) thereby reducing expenses to drive greater profits long-term.  Unfortunately, in government, there may be an initial bump in revenues (due to the AB 8 rate modification) but rarely is there a strong commitment to on-going expense management and tight fiscal restraint.  Public safety personnel costs are a serious concern for communities everywhere.  EDH needs to be aware that when there becomes a budget shortfall down the road, and surely there will be, we’re on the hook for the majority of it.

Also, personnel costs are only one piece of future funding obligations too.  There becomes a push for improved facilities, equipment, vehicles, etc. to upgrade rural fire stations to standards in existence at the best funded fire districts.  For example:  the same Citygate fire district study identified Latrobe Fire District as having $1.1 million in “immediate apparatus replacement needs” and this was back in 2010. Thus, without growth in these outlying areas, who pays for these needs?  EDH will for sure. Certainly the more EDH citizens allow annexation of other fire districts the more we’ll be subsidizing these outlying areas.  And, the costs will become enormous when projecting out over the next 10, 20 and 30 years.


At the February 19th fire board meeting your EDH Fire Board voted 3 – 2 to direct staff to explore the merits of an annexation with the Rescue Fire Protection District who’s board the week prior voted 5 – 0 in favor of further exploring an annexation with EDH Fire.  Stay tuned!