Thursday, Jan. 25, 2007 | Mayor Jerry Sanders might have to return to San Diego water customers with pleas for more money within a year of his current proposal to raise fees because of higher expenses trickling down from the city’s water wholesalers.
With the San Diego County Water Authority and its largest supplier, the Metropolitan Water District of Southern California, currently mulling how to deal with unforeseen jumps in their energy and construction expenses, city officials expect that the two regional agencies will pass the elevated costs down to San Diego ratepayers.
The two regional agencies will likely make up their minds about rate increases by July, just as the first wave of fee hikes makes its way into San Diegan’s water bills, assuming the City Council approves the existing proposal to increase rates by 6.5 percent four straight years at its Feb. 26 meeting.
“By July 1, we ought to know, and then we’ll have a certain amount of time to extrapolate the amount that will be passed through and take it before the council,” city Water Department Director Jim Barrett said.
The prospect of another round of fees comes at a time when business and taxpayer groups are scrutinizing Sanders’ plan to increase rates by 29 percent over the four-year span. That potential rate increase would piggyback the current proposal, which foresees increasing water-user fees in order to pay for a slew of construction projects and repairs to the water system’s infrastructure. Improvements to treatment plants, water mains and pump stations must be made in order comply with a longstanding order from the California Department of Health Services to protect water drinkers from potentially deadly bacteria.
Sanders has declared his current water rate proposal — and the companion 35-percent sewer fee increase — as necessary in order to avoid the backlash of regulators and breakdowns in the systems. Some observers have opined that the prospects of a subsequent rise in fees should be discussed in the context of the existing proposal.
“We would like to see the city talk about it now so the public can see what the real increases will be,” San Diego County Taxpayers Association President Lani Lutar said. “What the reality of the numbers will be, at this point, is really unclear.”
Barrett said the city has publicly discussed the likelihood of another increase. “This is not some dark secret,” he said.
Because San Diego is largely an arid region, its water comes from points around the state, with the bulk flowing into the Los Angeles-based metropolitan system to the county authority before reaching the city’s faucets.
Just what expenses will flow downstream along with the city’s imported water is unclear. Both the county authority and the MWD say their budgets are being stretched by unexpected costs.
“I don’t think we’re in a position to make that determination, but certainly as we look at the costs of today, they are different than what they were last year,” said Karen Brust, chief financial officer for the county authority.
The county authority, which provides the city with more than 90 percent of its water, estimated in a Nov. 21 report that its proposed projects, such as heightening the San Vicente Dam, would exceed previous cost estimates by more than $1. Increases in the price of construction materials — cement, copper and fuel — and the demand for skilled workers have contributed to the funding shortfall, according John Economides, the authority’s engineering director.
“Most of these projects are going to be more expensive than what was anticipated 5 years ago,” Economides said. The agency budgeted for inflation, but “construction costs have escalated much higher than that,” he said.
The county authority has not decided how to accommodate the additional expense. Revenue could be raised for the projects through new fees, or the agency could scale back its ambitions for capital improvements to fit its budget, Brust said.
“What gets passed through, we don’t know now, but we do our best to keep rates low,” Brust said.
The agency’s constraints could be compounded by an accelerated fee hike that the MWD’s board will take up in February. The heightened cost of energy is the major factor driving that increase, said Brian Thomas, the agency’s chief financial officer.
“It’s up to our member agencies to determine how to unload those costs,” Thomas said.
Traditionally, the MWD raises its rates by 3 percent to 5 percent annually, Brust said. The nearly 7 percent increase being proposed this year was a surprise, she said.
“We don’t like surprises, and we look at something that’s not planned, we look in and see why,” said Brust, who noted that the county authority projects its finances as far as 60 years into the future.
Brust said her agency, which received 73 percent of its water supply from the MWD last year, and others in Southern California are working with the MWD to see if the rate increases are avoidable. The county agency will make its own decision on rate increases by June, Brust said.
If the city incurs its wholesalers’ upswings in expenses and is forced to raise rates again, Sanders has said San Diego ratepayers may not have to absorb the full brunt of those and other fee increases. With the voters’ approval of Proposition C, Sanders will be able to force the current Water Department employees to compete with private companies for the chance to work at that city agency. The department will be obligated to streamline its operations in order to compete, he argues, and the savings from that reorganization would be squirreled away in “a lockbox” to offset any future increases.
Lutar said the lockbox proposal doesn’t excuse the mayor from not informing the city that another round of increases is on the way.
“It doesn’t really provide the transparency that we need right now,” she said. “It’s only going to frustrate the public.”