WATSONVILLE—As the Watsonville City Council prepares to weigh increases to its utilities fees to fund several high-cost repairs to city of Watsonville facilities, a wrongful termination lawsuit from an ex-employee who claimed the city misappropriated public money from one of its utility funds looms.
In a civil suit (20CV01851) filed against the city last year, Janice Guy claims that she was abruptly fired from her position as wastewater division manager on March 2, 2020, shortly before the end of her year-long probationary period.
In the lawsuit, Guy alleges that she was fired because of various complaints she made to her superiors, which she claims were largely ignored. Perhaps chief among the allegations: the improper use of cash the city collects for the wastewater services it provides its residents that is intended to be used to fund the utility’s operations.
“The City was illegally using the Sewer Enterprise Fund as a de facto slush fund to cover all manner of City expenses, including park maintenance, stormwater expenses, water sampling at Pinto Lake and local wetlands, road maintenance, automotive repairs, and salaries of non-sewer employees,” the lawsuit alleges.
Guy is seeking damages for lost wages, benefits and career opportunities.
The lawsuit also alleges that she informed her superiors multiple times that city employees did not have proper training or equipment “for working on projects involving live electricity.”
In a response to the complaint filed on Dec. 15, 2020, attorneys from San Francisco-based law firm Liebert Cassidy Whitmore representing the city claim that Guy failed to first file a complaint with the California Labor Commissioner before bringing the lawsuit forward, and that the city had “legitimate and good-faith business reasons” for the dismissal.
The two parties were most recently in court for a case management hearing in early March, and are scheduled to reconvene for another on June 8.
The lawsuit alleges that roughly a month before Guy was fired she told Assistant Director of Public Works & Utilities Christian Di Renzo in an email that she was uncomfortable in using funds earmarked for sewer operations to perform park maintenance. Di Renzo, according to the lawsuit, said he also felt uncomfortable with the practice, and suggested that she should forward her concerns to department director Steve Palmisano.
Instead of replying to the email containing her concerns, the lawsuit alleges, Palmisano walked over to her office and asked if “she was ‘stressed’ and whether there was ‘anything going on’ in her personal life.” The complaint alleges that Guy then asked Palmisano if she could receive his written approval for the expense, but Palmisano instead told Guy, according to the complaint, that the practice was “just normal business” before walking out of her office.
A few days later, according to the lawsuit, she again asked Palmisano over email to provide written authorization on a request to use Wastewater Enterprise funds to pay for road repairs. He did not reply to the email, the complaint alleges, nor did he provide written approval for the request.
About two days later, the complaint alleges, Guy sent an email to Palmisano, Di Renzo, Solid Waste Division Manager Gabriel Gordo and Environmental Sustainability Division Manager Jackie McCloud with concerns about using sewer funds to subsidize other departments and salaries for non-sewer employees. She did not receive a response from either of her superiors, according to the lawsuit.
About two weeks later, and two days before her one-year probationary period was over, Guy was fired when she returned to work from vacation. That was despite, the lawsuit alleges, receiving an “unequivocally positive” performance review from McCloud and with no prior “warnings or disciplinary actions.”
City leaders are barred from publicly discussing the lawsuit, and have only done so during closed sessions of City Council meetings.
But when asked to identify city employees that are being paid by the Wastewater Enterprise Fund, Watsonville City Manager Matt Huffaker said that all employees officially charged to that fund are “public works employees that perform Wastewater duties.”
However, there are some city employees who are paid by funds the city pulls in from its wastewater services that do not solely service the utility. Those employees are paid out of a fund that pools cash from all utilities and services that they support, something that Huffaker said is “common municipal budgeting practice.”
According to the city’s 2020-21 approved budget, at least two recreation employees were paid from that fund, called the Engineering and Administration fund, as well as the Environmental Science Workshop Coordinator and two community outreach specialists that work directly with the public works department. Other high-ranking city employees, such as Palmisano and several senior-level analysts and engineers, are also paid from this fund, according to the budget.
Neither Huffaker nor Di Renzo, when asked through email, disclosed exactly how much of those employees’ salary comes from the wastewater utility. But Di Renzo said that the city employs a “cost allocation plan that proportionally allocates expenses” to the various departments that utilize those employees.
Several reports of disbursements approved by the City Council also include uses of Wastewater Enterprise funds that, at first glance, seem unrelated with upkeep of the city’s sewage enterprise. This includes thousands of dollars in landscaping and maintenance, and several contracts with the Watsonville Wetlands Watch for education programs and other services. The Environmental Science Workshop also has thousands of dollars in expenses attributed to the Wastewater Enterprise Fund in nearly every report submitted to the City Council.
But Huffaker said those disbursements often do not give a complete representation of the city’s spending patterns through the Wastewater Enterprise because it does not include revenues, only expenditures. Di Renzo also said that although those costs are attributed to the Wastewater Enterprise Fund in the disbursement reports, that does not mean they are being directly charged to that account, as the Engineering and Administration fund is housed within the sewer budget.
Much of the Environmental Science Workshop’s expenses, Huffaker said, are covered by grants, and the various landscaping and maintenance expenses are needed to upkeep the properties owned by the enterprise. Deals with Watsonville Wetlands Watch for “native plant restoration,” for example, have sought to move to more sustainable landscaping that requires less maintenance, Huffaker said.
“It is ultimately a way to save money for our customers,” he wrote in an email.
The City Council on May 25 will have a public hearing concerning proposed rate increases to its water, wastewater and solid waste services. The new rates would mean a typical single-family household would pay about $40 more per month by 2026, and a medium-sized restaurant would see its bill increase by about $270 per month in the same time.
The proposed increases come from a rate study conducted by consultant Raftelis Financial Inc. that says they are needed for the department to stay fiscally solvent as it undergoes various infrastructure projects that have piled up over the years.
Watsonville has not approved rate increases since 2015, and the city’s rates are among the lowest in the county—the City of Santa Cruz, for example, charged nearly $60 more this fiscal year for its services.
