Valley cities divert cleanup funds

June 20, 2009 

A handful of San Joaquin Valley cities and public agencies have used millions of dollars meant for filtering contaminated water for entirely unrelated purposes, records and interviews show.

At least 16 cities, school districts and water districts in the region received a total of nearly $7 million in the 1990s from legal settlements with oil and chemical companies that produced a toxic pesticide called DBCP. The oily substance was used by farmers for decades and seeped into underground water sources before it was banned.

But at least five of those agencies, collectively, have spent or loaned out $6 million or more from the settlements on projects unrelated to water quality. Some can't account for how all of the money was spent.

Peter Molligan, a Bay Area attorney who helped some of the cities reach settlements in the DBCP cases, said that despite the fact that many of the settlement agreements said the money was meant for filters and new wells, there were no legal restrictions on how funds could be spent.

But some public health advocates and city officials said using the settlement funds for unrelated projects is irresponsible and could make it more challenging for local governments to pay for ongoing cleanup costs.

"When polluters pay for their messes, local government has the responsibility to take that money and clean it up," said Paul Schramski, the state director of Sacramento-based Pesticide Watch.

Lawsuits bring millions

For two decades starting in 1955, San Joaquin Valley farmers used the sweet-smelling, amber-colored pesticide called DBCP, or dibromochloropropane, to fight root-eating bugs and boost fruits yields by as much as 50%. But the chemical also caused sterility in humans and, in some cases, cancer in laboratory animals.

It was banned in California in 1977, but the pesticide already had contaminated dozens of wells. Fresno alone had to close down 44 -- or about 20% -- of its wells.

In the 1980s and 1990s, Valley cities, water districts and school districts sued DBCP manufacturers. They said cities and districts should be reimbursed for the past and future costs of building new wells and installing massive carbon filters, which can cost hundreds of thousands of dollars.

All of the lawsuits eventually were settled -- ranging from $293,000 for the Biola Community Service District west of Fresno to $31 million for the city of Fresno. The companies also agreed to reimburse many of the cities for ongoing filtration costs for up to 40 years.

Officials from most cities said they spent the settlement money, as intended, on filters or new wells. The Valley still is dealing with DBCP contamination today, spending hundreds of thousands -- and sometimes millions -- of dollars each year to deal with the mess.

Fresno, for example, started with about $23 million after attorney fees were paid. About $10 million went toward reimbursing the city for new wells it already had built because of DBCP contamination, as stipulated in the settlement agreement, said Henry McLaughlin, who is in charge of the city's water budget.

The rest was set aside in a separate "DBCP fund" and much of it was used to build wells, install filters and expand a water plant. The city has about $8.7 million left.

"All the funds have been used for DBCP remediation," McLaughlin said.

The story is similar in other cities. Clovis, which received $7.1 million, used much of it to reimburse itself for the past cost of filters. It also has used the funds to install a dozen new filters.

And some agencies haven't spent any of the money, saving it until they have enough for a new well or some other water-quality project.

Unrelated uses in Reedley

Some agencies, however, have used up all of their settlement money on unrelated projects. They've managed to keep DBCP below dangerous levels, but in some cases have had to dip into city funds to pay for cleanup costs -- taking money from other needs at a time when budgets are strained.

The city of Reedley, for example, reached a settlement in 1997 with Shell Oil Co. and two chemical companies for about $900,000 after attorney fees. The settlement agreement said most of the money was meant to cover the cost of new well filters.

But over the next 10 years, the city spent the money on firefighting gear, property for a police station annex and a sports complex, restoring a historic building, converting old railroad lines into trails and other projects, city officials said. In early 2007, the City Council agreed to use the $370,000 remaining in the fund to make up for a budget shortfall.

In the end, officials said, only $6,000 from the settlement was used to upgrade a water well. The city has, however, spent some money from another fund on well filters, though it's unclear how much of that was reimbursed by the oil and chemical companies as part of the agreement to pay for ongoing costs.

Reedley's city finance manager, Lori Oken, said the DBCP money should have been spent differently.

"The money was for well upgrades," she said. "It seemed to me it should have been used for water-well issues."

About two years ago, the city needed $1 million to build a new well, in part because DBCP had contaminated an old well. But with its settlement funds depleted, the city had to tap other city funds, including its water budget, which is funded by residents' water and sewer fees.

Rocky Rogers, Reedley's city manager, defended the city's use of the money. He said the city attorney, Dale Bacigalupi, advised city council members that they "could spend it on basically whatever they wanted to."

Bacigalupi did not return calls.

Some covered budget gaps

Reedley isn't alone in its questionable use of settlement funds. Last year, the Fresno County Grand Jury found that the Del Rey Community Services District south of Sanger spent at least some of its $651,000 in settlement funds to cover budget shortfalls.

The Sanger Unified School District did the same, putting about $200,000 from its $572,000 DBCP settlement in the general fund, possibly to fill a budget gap, Superintendent Marc Johnson said.

Officials for the city of Parlier, meanwhile, said they were too busy to research how it spent all of its $1.5 million settlement.

The city of Sanger found other uses for the money despite vowing to spend it only on DBCP contamination.

The city received a $15.25 million settlement in 1993 -- more than any other city except Fresno. The settlement agreement said the money "will cover all costs associated with remediating DBCP from the present Sanger well system."

After paying attorney fees and spending about $2.3 million on a well-water filtration system, the city had about $10 million left, said Carlos Sanchez, who has been the finance manager since 1996.

In November 1996, the City Council passed an ordinance that said the money could be used only to address DBCP contamination.

One of the council members at the time, Judy Case -- who is now a Fresno County supervisor -- said she voted for the ordinance because she was worried the money would be spent on unrelated projects.

Over the years, about $5.4 million was spent on wells and filters, according to Sanchez. But the city also borrowed from the fund. Currently, about $4.6 million is tied up in loans for unrelated projects. Only $175,000 is left in the fund.

Some smaller loans have been repaid, but the largest ones have not -- and it's unclear when they will be, especially because Sanger is facing serious budget shortfalls. Most of the loans are essentially interest-free.

"The City Council made it standard practice to borrow from the fund even though the city ordinance prohibited that," said Rodney Nielson, a Sanger resident who sat on a committee this year that found serious problems with the city's finances.

"There was money coming out of the fund, but not enough going back into it."

In at least one instance, the city turned to residents to repay a loan. In 1996, the city borrowed $1.2 million to expand its sewage treatment plant, but it didn't have enough money to pay the loan until the city raised utility rates in 2006.

The city still owes $810,000 and doesn't have a set repayment schedule.

The city also doesn't have a repayment schedule for a $1.2 million loan it took out in 2004 to buy property for a business park. Sanchez said he hopes to repay the loan in two years, but said there are no guarantees.

Sanger also took out a $1.3 million loan last year to remodel an old building for the Police Activities League.

It's scheduled to repay the loan over 10 years, but no payments have been made.

In a report issued last month, the Fresno County grand jury criticized the city's use of the DBCP money, noting that "the settlement has been used as loans for various city projects, resulting in limited funds for future water needs."

Sanchez says the city has done nothing wrong and is confident the loans will be repaid. He also said his interpretation of the 1996 city ordinance is that it does not prohibit borrowing from the DBCP fund.

Sanger Mayor Jose Villarreal, who was elected to his first term in November, said the city is reviewing its policies on borrowing from the DBCP fund.

The reporter can be reached at ccollins@fresnobee.com or (559) 441-6412.

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