San Diego’s Water Department Is Not Alright

Amid handwringing at San Diego City Hall over next week’s vote to hike water rates, city analysts dropped a harrowing report revealing how easily the department that handles water and wastewater could collapse without them. 

There are whispers that Mayor Todd Gloria’s administration is struggling to get the votes to pass a four-year proposed 63 percent rate hike and 31 percent wastewater rate hike Tuesday. But the city’s independent budget analysts sharply warned against doing anything that would starve the Public Utilities Department of more revenue. 

“At this point, any decrease in revenue due to either approvals of a lower rate increase, delays in the rate increase, or not approving the rate increase at all will require significant reductions to the operating expenses of the water system,” analysts wrote in their report released Friday.  

City councilmembers’ offices either declined to say or didn’t respond to questions about how they would vote on Tuesday. It’ll be a tough decision after several months of painful fee increases the City Council has approved in the face of a structural budget deficit. 

“We do not have a yes or no answer at this time,” said Daniel Horton, chief of staff for Councilmember Henry Foster who represents District Four. 

Councilmember Sean Elo-Rivera, who represents District Nine, didn’t either. But he said he needs to know the city is doing everything it can do to maximize revenue from sources other than rates, like putting solar on Public Utilities Department property which could generate revenue. 

“San Diego is too expensive and people are struggling to make ends meet,” Elo-Rivera said. “But we also have to adequately resource infrastructure and systems that are as important as water.” 

The analysts’ report says that if councilmembers refuse to raise rates at all, the Public Utilities Department would still have to make an immediate almost 30 percent cut to its budget.  

That would likely come in the form of staff layoffs and disruptions in water or wastewater service, which could be anything from unanswered customer service calls to more frequent water pipe breaks. Then the department wades into the uncharted waters of not having enough resources to address emergency repairs to its system, which could trigger fines from state or federal regulators.  

If the city doesn’t do layoffs, they would risk falling behind on repaying its debts or break its commitments to lenders on long-term loans. And that means collectors come knocking.  

Cuts like this to the Public Utilities Department would reverberate across the city as the revenue it generates repays other city departments like finance, transportation and general services for their support of their operations, analysts wrote. 

How did we get here? Analysts point to higher and higher water prices from the San Diego County Water Authority, from which the city purchases most of its water supply. Almost 93 percent of the total rate increase is due to that, analysts write. Also, in general, San Diegans are using less water over the past years as they get better at conservation. Less water used means less water purchased and less money for water agencies.  

The Public Utilities Department doesn’t have any other resources to draw on. The department proposes to draw-down its emergency cash, called the rate stabilization fund, from $40 million in fiscal year 2025 to just $5 million in fiscal year 2027 — and that’s to avoid an even higher rate hike than what’s already proposed. 

Analysts started sounding alarm bells about the financial stakes facing the Public Utilities Department back in 2023. They said the mayor’s appointees to the Water Authority’s governing board should start pushing the agency to sell off some of its excess water supplies. That’s starting to happen now, and the new leader of the Water Authority has committed to cutting deals with interested buyers.  

These rate increases include funds to begin paying off the now $6 billion wastewater-to-drinking water project called Pure Water. The city committed to building it to avoid a major, more expensive upgrade to the Point Loma Wastewater Treatment Plant. 

Pure Water should save the city money eventually because it will mean the city has to buy less water from the Water Authority, its biggest price driver.  

City staffers recently tried to deflect blame for the proposed water rate increase away from Pure Water and onto the Water Authority. They released a report showing how the water Pure Water produced would still undercut the Water Authority’s prices.  

Another caveat, the Water Authority sets its rates each year as opposed to the city’s current process of locking in water rates over four years. Analysts note that the current proposed rate hikes would keep the Public Utilities Department whole in the short run, unless the Water Authority changes its mind.  

City staff built their proposed rates to City Council based on the assumption that the Water Authority wouldn’t raise its own prices above 8 percent per year. This past year, the Water Authority proposed a 22 percent rate increase, one that the city of San Diego’s Water Authority board appointees had to battle down to 8 percent.  

“If the (Water Authority) raises their rates higher than these assumptions, it will require the Public Utilities Department to either come back and ask Council for an additional rate recovery authority to cover these passthrough charges, or otherwise absorb these costs through their operations,” analysts wrote.  

In other words, if the Water Authority comes back next year asking for another 22 percent rate increase, the Public Utilities Department will have to once again ask the City Council for even more money than it’s asking for right now.