Special districts are local government agencies that provide essential services to millions of Californians. Local residents form special districts when they want their community to have new or better services and infrastructure. Each special district focuses on a specific set of services, like fire protection, water, healthcare, or parks, among others. It is this focused service that allows for innovation and long-term planning to meet the community's needs. Special districts can be funded primarily by charges for services—enterprise districts such as airport, harbor, utility, health care, sanitation, and water—or are funded by property tax revenue—non-enterprise districts such as fire, police protection, and parks.
With California having thousands of special districts and various categories of special districts, we first identified eleven categories of special districts that are inherently riskier. Our evaluation of inherently riskier special district was based on publicly available information including reports from the California Policy Center, the Little Hoover Commission, and Local Agency Formation Commissions' grand jury reports and municipal services reviews. We performed more detailed analysis on five of the categories—health care, harbor, fire, sanitation, and water—because our preliminary research revealed a higher degree of risk in operations with those districts.
Each type of district has its own unique risk indicators. For example, some districts may be more susceptible to mismanagement due to the questionable nature of their activities. For other districts, the amount of overtime pay and other compensation data could be key indicators of risk, or key indicators of risk could be financial in nature—net income or loss, administration costs, and the size of cash reserves compared to expenses.
After determining the initial lists of potentially high-risk districts within each category, we reviewed each districts' comprehensive annual financial reports, budgets, grand jury reports, municipal services reviews, media coverage, as well as other publicly available information to identify additional risk factors. Based on our initial analysis and due to resource limitations, we identified three districts that exhibited certain potential risk factors: Novato Fire Protection District, Peninsula Health Care District, and Western Hills Water District.
To better understand the factors that caused us concern, we visited each of the three districts and conducted an initial assessment to determine the district's awareness and responses to those issues, and identify any other ongoing issues that could affect our determination of whether the district is high risk.
After conducting our initial assessment, we determined that the districts had taken positive steps to address the risk factors we identified. As a result, we concluded that we would not seek approval to perform an audit at that time, but would continue to monitor two of the districts' progress and may subsequently consider performing additional work. For Peninsula Health Care District, we determined that we did not need to perform further monitoring activities.