There are a few things missing in the debate about Half Moon Bay's 2023 budget that is playing out in the pages of this paper: about $200 million of them.

What's missing is the value of critical city infrastructure assets that are not shown on the balance sheets of Half Moon Bay and Coastside County Water District (water for city residents). This is because assets are recorded at prices from decades ago, further reduced by “depreciation.”

For example, at June 30, 2021, Half Moon Bay showed $4.6 million in sewer enterprise assets. At the same time, the city has 35 miles of sewer pipes costing $2 million per mile (thus, $70 million), and about a 60 percent share of the expenses of Sewer Authority Mid-coastside, which has about $150 million in assets at current replacement cost. This accounting is not illegal, and Half Moon Bay is not alone in this predicament. It is however, dangerously unsustainable because it leads to failing to accumulate the reserves necessary to sustain those assets. And "sustainability" means "forever."

An analysis of only 20 San Mateo County public works entities showed a deficiency of $2.5 billion in reserves needed to replenish assets without borrowing. Half Moon Bay has $49 million of that deficiency, and CCWD has another $36 million. And borrowing is more dangerous than ever, because it adds to the cost of every asset purchased: at 4 percent it added 73 percent; with recent increases in rates, it now adds 95 percent; at 7 percent debt will add 140 percent.

Yet increasing debt is the path Half Moon Bay is on, because it has less than 18 percent of the reserves required. And that analysis is generous; a detailed

review of the sewer asset inventory would likely place Half Moon Bay, today, in the same condition as Pacifica, which has 4.2 percent of required sewer reserves. Half Moon Bay has about $160 million in sewer asset replacement costs and about $8 million in reserves, not to mention city storm drains and CCWD.

Further, California construction cost inflation was over 13 percent in 2021 and was 24.5 percent from last April to this. More than ever, accumulating reserves is critical to the sustainability of Half Moon Bay, and of our entire society. Yet the Half Moon Bay budget projects deficit spending and declining reserves. This is not just unsustainable, it is potentially ruinous to the city as we know it.

Burdened with both inflation and added borrowing costs, Half Moon Bay will no longer be "affordable" for future generations. The only paths forward will be bankruptcy and declining property values, or gentrification — because at least gentrification might pay for itself.

What to do? Any city budget must break even while accumulating reserves toward the necessary levels for sustainable asset replenishment. Every city purchase and initiative must begin with a fiscal sustainability analysis for the life cycle of the asset or program, and those figures must be blended into an integrated financial model of the city going forward for as many years as the decisions taken will last.

But more than improved financial analysis is required. The essence of what is missing is will power. Elected officials who look good spending money on libraries and lawsuits (and soon, parks?) are doing lasting damage to the city. If the leadership of the city won't manage sustainably, then Half Moon Bay voters will have to find leadership that will — or live somewhere else.

Gregg Dieguez lives in Montara.

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(5) comments

dce

Hi Gregg,

Can you please tell me where you are getting your $4 million from?

According to publicly available filings the City's Net Assets for the Sewer Capital Fund were $20,000,000 and change on June 31, 2021. Yet you are quoting $4 million. Something is wrong here and I am hoping you can shine a thought on your source for this opinion piece.

Many thanks-

dce

Perspective

Certainly DCE. Let's do this in two parts. First, here are links supporting the analysis mentioned:

1. The article containing the partial County Public Works Analysis:

https://www.coastsidebuzz.com/public-works-deficits-how-deep-is-the-hole/

2. The article describing the methodology used, allowing independent confirmation of results:

https://www.coastsidebuzz.com/assessing-public-works-fiscal-sustainability/

3. The HMB 6/30/21 financials:

https://www.half-moon-bay.ca.us/DocumentCenter/View/4661/HMB-CAFR-FY21-122121

Perspective

Part 2 of the explanation:

A. HMB Sewer Reserves come from page 33, which shows the balance sheet for the Sewer Enterprise Fund. This analysis generously considers every dollar of available cash as "reserves", which is an overstatement because there are reasons beyond capital replenishment for reserves. The reserves are calculated as "Net Current Assets" which is Current Assets minus Current Liabilities.

B. The sewer enterprise assets, on the same page, are "Depreciable capital assets, net of accumulated depreciation". Note that land is excluded, which again is generous in assessing sustainability when considering the risks involved in climate change.

I find no wording of "Sewer Capital Fund" in the 2021 ACFR. However, the "net position" of that enterprise balance sheet IS over $20M. However, this position includes a number for SAM assets that was strangely inflated in 2020 with no basis I could find. "In the prior year, the City recognized a

significant gain in the Sewer Authority Mid-Coastside (SAM) investment in the amount of $2

million. " (page 14) By inflating that number, HMB's net position looks better, but it's not relevant for replenishing capital assets - those require actual, spendable dollars, which again is Net Current Assets.

To consider the SAM asset burden, an allocation was done, as described in footnote #1 of the first link I posted above. This allocation was also favorable to HMB, as I used the ownership % rather than the 60% of USAGE which HMB currently consumes. Had I used the probably more relevant USAGE %, HMB's position would appear worse, and those of GCSD and MWSD would appear better.

August West

You are just making stuff up. Comical.

John Charles Ullom

I don't know if he is interpreting things right but he is citing specific numbers that you can look up August West. Something your anonymous self has never bothered to do.

To your credit you are the one who predicted the City would prevail in the p00p tube dust up. We all know that your legal expertise will be validated when we win the Appeal.

He might be wrong but he isn't making stuff up, August West. Your juvenile spit wad tactics are as usual, a fail.

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