California’s water managers have had their hands full keeping our water systems safe and operational during the COVID-19 pandemic. But their work on addressing the fiscal consequences of the deep economic recession is just beginning. Three lessons from the Great Recession of 2007-09 could guide more effective policy responses today.
Decades of inadequate investment in water infrastructure has exacerbated the economic challenges faced by water and wastewater utilities in the era of COVID-19, according to a new report released Aug. 26 by the American Society of Civil Engineers and the U.S. Water Alliance’s Value of Water Campaign.
Following a public hearing, the San Diego County Water Authority’s Board of Directors today adopted rate increases for 2021 that are 30% lower than proposed last month following a series of refinements by staff. In addition, the Board directed staff to return in September or October with any further opportunities to reduce the 2021 rate increases, such as a decrease in rates set by the Metropolitan Water District of Southern California or the acquisition of federal or state economic stimulus funds.
As adopted June 25, the all-in rates charged to the Water Authority’s 24 member agencies will increase by 4.8% for untreated water and 4.9% for treated water in calendar year 2021. The new rates take effect January 1, 2021.
Rate increases are driven by reduced water sales, higher rates and charges from MWD and continued regional investments in supply reliability.
Since the staff’s rate proposal was released in May, the Water Authority re-evaluated several assumptions driven by COVID-19 recessionary pressures based on new economic data and forecasts. The Water Authority also funded some costs related to the Carlsbad Desalination Plant this year instead of in 2021. The 2021 rates and charges may be further reduced if MWD makes material changes when revisiting its budget and rates this fall.
“We’ve taken a series of strategic steps to minimize rate impacts during this pandemic-induced recession, despite numerous factors putting upward pressure on rates,” said Water Authority Board Chair Jim Madaffer. “At the same time, the Water Authority is maintaining its long-term fiscal stability while ensuring a safe and reliable regional water supply for residents and businesses that will be the foundation of our economic recovery.”
In 2021, the Water Authority will charge its 24 member agencies an all-in municipal and industrial rate of $1,474 per acre-foot for untreated water, or $68 more per acre-foot than they currently pay. Charges would be $1,769 per acre-foot for treated water, or $83 more per acre-foot than in 2020.
Actual figures will vary by member agency, and each member agency will incorporate costs from the Water Authority into the retail rates it charges to residents, businesses and institutions. (Note: An acre-foot is about 325,900 gallons, enough to serve the annual needs of 2.5 typical four-person households in San Diego County.)
In addition, the rates package includes new Permanent Special Agriculture Water Rates, following the Board’s decision late last year to make the temporary program permanent. The program provides farmers with lower rates that correspond to a lower level of water supply reliability. In 2021, the untreated PSAWR will increase from its current level of $755 per acre-foot to $777 per acre-foot and the treated PSAWR will increase from $1,035 per acre-foot to $1,072 per acre-foot.
The fiscal pressures faced by the Water Authority include:
The Water Authority’s 2021 rates were developed in conjunction with an independent cost-of-service study to ensure rates and charges comply with state law, legal requirements, cost-of-service standards and Board policies, and strategic tools such as the Long-Range Financing Plan.
In addition, the 2021 rates are designed to ensure Board-adopted debt coverage ratios that support the Water Authority’s strong credit ratings and minimize the cost of borrowing money for construction projects. The Water Authority has credit ratings of AAA with a stable outlook from S&P, AA+ from Fitch, and Aa2 with a stable outlook from Moody’s.
The rates adopted by the Board are the result of strategic measures that include:
As California begins its recovery from the COVID-19 crisis, the Legislature has a short window to simultaneously address both our current economic losses and ongoing climate challenges. Although these remain unprecedented times, it is also an opportunity to envision a better future and a different way of doing things, particularly regarding fire, drought, water reliability, forest health and how these are entwined with our economic recovery.
The first slide of the Oxnard chief financial officer’s presentation to be given on Tuesday contains this message: “Warning: Estimates subject to change.” No politician, economist or crystal ball can show exactly how deep and how lasting this recession will go. As municipal finance leaders put together a budget for the fiscal year that begins July 1, the best they can do is use projections with limited certainty.
As our leaders in Washington look to create a jobs program focused on national infrastructure investments to sustain the U.S. economy, their decisions will significantly impact our economic future, including the industries that will — and will not — receive a lifeline through federal stimulus dollars.
Paul Johnson farms 450 acres of wine grapes in Monterey County for his family’s Johnson Vineyard Co. Normally, a range of local wineries, under multiyear contracts, buy his Pinot Noir and Chardonnay grapes. But after last year’s harvest, Johnson began to worry when no winery clients renewed their contracts.
The Water News Network is San Diego County’s source for water news and information.
