By Joe Nelson, The Sun
Posted: 04/30/15, 7:59 PM PDT |

Victorville’s possibly unlawful borrowing and lending practices totaling $41.9 million resulted in $4.6 million of unnecessary interest and a $31 million wastewater treatment plant that served no benefit for ratepayers, the state auditor concluded in a report released Thursday.

The 74-page report, titled Apple Valley Area Water Rates, examined the rate structures of four High Desert water suppliers in San Bernardino County, two private and two public, and why some suppliers charge customers more. The audits, which began last year at the request of former state Sen. Steve Knight, examined the rates and fiscal practices of the public Victorville and Hesperia water districts and the privately operated Apple Valley Ranchos Water Co. and Golden State Water Co., also in Apple Valley.

In a letter dated July 23, 2014, and addressed to the state Assembly chairman and Joint Legislative Audit Committee, Knight said the rates charged by Apple Valley Ranchos Water Co. nearly doubled from 2003 to 2013. More than 400 Apple Valley residents attended a public hearing early last year hosted by the state Public Utilities Commission to express their concerns and frustration over the increasing water rates, Knight said in his letter.

“My constituents have repeatedly stated their concerns about the rising cost of water,” Knight said in his letter.

The state auditor found that, in essence, private water suppliers charge more than public suppliers due to additional overhead, including property and income taxes, and that public agencies can typically keep rates lower because a portion of their revenue is generated from property taxes and fees for new connections.

The State Auditor’s heaviest criticism fell on Victorville, which from 2009 through 2012 was the subject of a grand jury investigation. In its 2012 annual report, the county grand jury accused Victorville of sloppy fiscal practices resulting in millions of dollars of wasted taxpayer money and possible illegal activity. In April 2013, the Securities and Exchange Commission, which had been investigating the city’s bond debt, filed a federal lawsuit alleging the city, the Southern California Logistics Airport Authority and a bond underwriter defrauded investors by inflating municipal bond evaluations. The case is pending and trial is expected to commence in either October or November, Victorville City Manager Doug Robertson said.

According to the state auditor, Victorville increased its water rates in August 2014 and is expected to increase them again in 2015 — increases that may have been unnecessary had it not engaged in risky borrowing and lending practices from 2009 through 2013, state Auditor Elaine Howle said in a letter addressed to Gov. Jerry Brown and state legislators included in the report.

In 2009, the Victorville Water District issued two low-interest loans to the city totaling nearly $21.9 million. While that debt was outstanding, the water district borrowed $20 million from the Southern California Logistics Airport Authority at a high interest rate, resulting in $4.6 million in unnecessary interest, according to the report.

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