The Case for Higher Water Rates

Just about every year, the San Diego County Water Authority uses ratepayer funds to bus local citizens to the Metropolitan Water District of Southern California’s final budget meeting in downtown Los Angeles. They are customers who have ended up with some unfortunate misimpressions about Metropolitan’s financial practices and proposed budget, and they come to urge Metropolitan to collect less revenue than what is proposed. And then the bus goes home.

As a 20-year San Diego resident, San Diego State alum and Metropolitan’s lone representative in San Diego, I welcome the opportunity to explain why Metropolitan plays a vital role in the community as the provider of imported water for a region serving 19 million Southern Californians in six counties, including San Diego County.

Metropolitan has been developing its next two-year budget over many months – multiple workshops, hundreds of pages of detailed financial information, all public and all transparent. Decision day this year is April 12. Metropolitan is proposing overall rate increases of 4 percent for each of the next two years and projecting annual increases of 4.5 percent for the rest of the coming decade. But there is local opposition and calls for a delay or no rate increase. I’d like to share why strong financial practices at Metropolitan are essential to maintaining the backbone of the region’s water infrastructure.

Paying for capital projects: Metropolitan plans to use cash on hand to pay 60 percent of the costs for capital projects over the coming decade. SDCWA, as a comparison, plans to use cash for only 30 percent of its future capital costs. This is a purely local decision, and Metropolitan fully respects how water districts establish their own financial strategies. For Metropolitan, relying too heavily on the credit card would have long-term consequences. It seems like a bad idea.

Paying off the credit card: Metropolitan seeks to have on hand twice the net revenues (annual operating revenues minus annual operating costs) to meet its debt obligations. It helps to assure that Metropolitan can borrow money at low rates. SDCWA’s goal for adequate revenues in this regard is basically half that. For Metropolitan, shaving budgets too closely would have potentially expensive long-term impacts for ratepayers. It seems like a bad idea.

Avoiding ballooning debt payments: Metropolitan is not proposing to borrow money in ways that have lower payments today in exchange for higher payment obligations for future generations. SDCWA opted to significantly shift costs into the future with the new desalination facility in Carlsbad by having the equivalent of a mortgage payment that goes up every year. This move appears to have increased local costs long term by roughly $200 million due to higher payments in future years. That’s a purely local decision. For Metropolitan, avoiding a rate increase today would mean a bigger rate increase in the future. It seems like a bad idea.

Maintaining fund balances: Water districts have various funds for various needs. Metropolitan is projecting its fund balances to remain adequate and be modestly higher in 10 years. SDCWA is projecting its fund balances to be modestly lower. For Metropolitan, avoiding a necessary rate increase would lead to draining the checking account. It seems like a bad idea.

Meeting targets for reserves: Metropolitan has a baseline target and a maximum target for maintaining reserves. So does SDCWA. Metropolitan is projecting to have reserves on hand sufficient to meet its baseline target for the next 10 years. SDCWA is projecting to miss its minimum rate stabilization fund target in coming years. For Metropolitan, failing to meet a minimum reserve target would be a big red flag to lending institutions and credit-rating agencies. It seems like a bad idea.

Metropolitan fully understands the need to keep costs down so that local projects such as San Diego’s Pure Water can advance. If tradition holds true, another bus is about to head from San Diego to Metropolitan headquarters next week. I hope the passengers will consider that there are real reasons why some ideas, no matter how well-intentioned, have financial implications that feel too risky for Metropolitan. I fully expect that 20 years from now, when my son is (hopefully) out of college, Metropolitan is as reliable and affordable a water provider for my hometown as it is today.

Meena Westford is a special projects manager for the Metropolitan Water District of Southern California and represents the district in the San Diego region.