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The city’s Public Utilities Department says without a major rate increase, bad things will happen. Some of the what-ifs are extreme – the city says it could be forced to build a $2 billion water treatment plant if it doesn’t invest in a new water treatment system now.
The City Council will vote Tuesday on a plan to raise water rates by 17 percent next year and 41 percent over the next five years. It seems like a lot, especially when we’re in a drought and people are using less water.
But the city’s worries are justified, according to the city’s independent budget analyst, the president of the City Council and the San Diego CountyTaxpayers Association, which all generally agree with the water department’s concerns about what could happen if the rate hikes don’t go through.
Halla Razak, the head of the utilities department, detailed the parade of horribles in a recent series of memos to the City Council, including one titled “The Real-World Consequences of Not Changing Water Rates.”
“No approved rate change would have immediate consequences, whose impacts would be felt by the residents and businesses of San Diego for many years to come,” Razak wrote.
Charles Modica, an analyst with the city’s independent budget analyst’s office, said Razak’s list included some absolute worst-case scenarios, but they were all plausible.
Here are Razak’s main worries:
Pipes Will Deteriorate
The major reason for the price hike is the drought and the related water-use restrictions. When the city sells less water, the city has to charge more for each drop it sells.
Without raising rates, the utilities department would have to cut spending by $55 million this year and tens of millions more in each of the following years, unless the drought restrictions are lifted and sales rebound.
Because of that lost income, Razak said she’d have to halt much of the city’s water main replacement efforts.
Water main breaks have wasted millions of gallons of water in recent years and upset residents.
The department would also have to stop the rollout of a new “smart meter” system, which would also help curb water waste by making sure the department wasn’t failing to collect money for water it didn’t realize someone used.
Goodbye, Recycled Water Project
The city is embarking on one if its biggest water projects ever, a multibillion-dollar project that aims to use wastewater to produce 30 million gallons a day of drinkable water within the next six years. The project, known as Pure Water, was being sped up because of the drought.
But without money from a rate increase, Razak said, the city will have to suspend work on Pure Water.
That would increase dependence on water imported from the increasingly unreliable Sacramento-San Joaquin Delta and Colorado River.
Worse, though, is the chain reaction that shuttering the project would cause: The federal Environmental Protection Agency has said that as long as the city is making progress on Pure Water, it can avoid replacing the Point Loma Wastewater Treatment Plant. That old plant dumps water into the Pacific Ocean that does not meet federal standards. But the city has successfully avoided having to upgrade the plant – at the cost of roughly $2 billion – by promising it would do the Pure Water project, which will intercept and thoroughly recycle wastewater that would otherwise go to Point Loma and then out into the ocean.
The City Will Have Trouble Paying Its Bills
This year’s $630 million water-related budget calls for spending $68 million on debt.
Without the rate increase, it may be hard to make those payments.
Razak said if her department doesn’t have enough on hand to cover its debt payments, the money might have to come out of the city’s general fund – the same pool of money that is meant to cover most other city services, including police, fire and libraries.
“This could result in serious general fund service reductions to the public,” Razak wrote.
There are also certain levels of cash a public agency should have on hand to keep Wall Street financiers happy. Without the rate increase, Razak says those financiers may not be pleased and would make it harder – and more expensive – for the department to borrow money.
Some ratepayer advocates, including the Utility Consumers’ Action Network, have suggested the city should try to limit itself to just a two-year rate increase, instead of locking in a five-year increase.
The city wants the five-year proposal to be approved, but has agreed to look back every two years to make sure it’s still justified.
“Right now I believe there is a plan to have a review at about the two-year mark,” Elena Schionning, a UCAN attorney, said in an email. “But what good is a review if everything after that is already approved?”
There’s a political reason for the utilities department to go with a five-year plan: It forces the City Council to swallow one rate increase and move on, rather than having to vote every few years on a new plan.
There’s also, Razak said, a few financial reasons for the five-year plan. One of them is that the first rate increase, a 9.8 percent hike in January, would be much larger if there isn’t the guarantee of more money later.
“The rate changes represent an interrelated strategy,” Razak wrote, “which is to minimize the rate changes in the first two years and rebuild reserves in the following years, thus smoothing the rate changes over the five-year period.”
UCAN and Councilmen David Alvarez and Chris Cate have all suggested there are alternatives to the water department’s plan, but it’s unclear if any of them will be able to put forward one that will be approved.