Water rate freeze … for now

Santa Clara Valley Water District rates would rise automatically
at a 7.5 percent clip beginning in July 2006 under the latest plan;
proposed increase would cost typical family extra $15 a year
San Jose – Water rates will likely not go up in July, but the one-year freeze will be followed by an annual minimum 7.5 percent bump for South County residents beginning in July 2006.

The rate freeze comes even though the Santa Clara Valley Water District has to hand over $51 million in property tax revenue to the state over the next two years. It is part of a new “baseline” rate-modeling plan introduced Tuesday morning to the district’s board of directors. Under the plan, rates will only go up if retail agencies such as the cities of Gilroy and Morgan Hill, or the San Jose Water Company demand certain projects that force them up. The projected baseline rate for North County users, who pay higher rates, would be four percent.

The proposed increase means the typical South County family will pay at least an extra $15 over the course of one year. South County rates are currently slightly less than half of those in North County. By 2011 South County residents may be paying 60 percent of North County rates.

Board member Sig Sanchez said that the rates are not converging by design.

“They will someday,” he said, “but it’s not going to happen before we get a treatment plant down here. When we provide the same level of services, then the rates can be the same.”

To achieve the rate freeze, the district will scrap or delay some capital improvement projects slated to begin next fiscal year. The $28 million South County recycled water program that the district is financing in conjunction with the South County Regional Wastewater Authority will move ahead with its immediate improvements, but future work may be delayed. The district may also make cuts to its perchlorate monitoring program.

Gilroy City Administrator Jay Baksa said Tuesday that he can’t comment on the rate proposal until city officials discuss it with the district, which he expects to happen Friday. The Wastewater Authority could not be reached for comment.

Walt Wadlow, the district’s chief operating officer, said Tuesday that the new plan is a way to head off the annual controversy over water rates. He said that retail agencies and users have a habit of demanding services like waste water recycling, then complaining about rate hikes to pay for them. Encouraging retailers to ask for the projects they think are most important, Wadlow said, should result in broader support for rate increases.

“In the past, we sought endorsement (from retailers) of what we thought was the best program,” he told the board. “What I’m trying to do now is couple support for rates with the programs they want us to carry out.”

Baseline service includes water delivery, recharging the groundwater and ensuring water quality. All capital improvement projects and asset management programs not mandated by state and federal officials will be subject to the desires of retail agencies.

For example, retail customers will be allowed to choose whether or not they want to pass along to their customers rate increases associated with a water reliability project that will better protect the water supply in a catastrophic event such as an earthquake.

In any given year, rates could fall below the baseline rate. In fiscal 1992, the non-agricultural rate went down from $117 an acre-foot to $108 an acre foot – a year after a prolonged drought. The proposed baseline rates are also lower than last year’s projections, which assumed annual increases of 9 percent in North County and 13 percent in South County.

Several of the board members, notably those representing districts in North County appeared skeptical of the proposal.

“I don’t want to give the impression that we’re going to do bare bones service with maybe a bell here and a whistle there,” said board member Gregory Zlotnick, representing Palo Alto. “We have an obligation to a broader level of service.”

Richard Balocco, vice president of the San Jose Water Company said Tuesday that retailers support the proposal, which he said isn’t that different from how rates have been set in the past.

“We just want to be able to take a hard look at more well-defined projects,” Balocco told the board. “We want better information and a better long-term look at rate control.”

Sanchez supports the plan. “I’m not going to vote for any rate increase,” he said during a break in the meeting. “If we raise rates for retailers, we know what they’re going to do. And I’ll hear from the customers. I think the projections are premature, but I like the idea of a base rate.”

Alterations to the capital improvement project schedule are necessary because last November the state announced it would strip the water district of $51 million in property tax revenue to cover state budget shortfalls. The district had anticipated forfeiting only $11.2 in property tax revenue this year, leaving a $14.3 million hole in this year’s budget.

The district slashed $6 million in the budget by eliminating 90 vacant positions. Tuesday, the board authorized CEO Stan Williams to borrow from the working capital fund to cover the remaining $8.3 million shortfall. Doing so ensures that projects scheduled for the current budget will move along as expected. Williams has said that there will be no layoffs. Any staff cuts will come through attrition.

“This is a quick fix for this year,” Williams said in an interview Tuesday. “Since we’re using those reserves, we won’t have the ability to spend as much money next year.”

Accounting for the money the district is borrowing from its reserve fund, it must save close to $34 million in 2005-06 budget.

“The question is,” Williams said, “do retail agencies want us to do more that what the flat rate budget calls for?”

Retailers will begin answering that question in a meeting with the district this morning. The district will announce its rates for next year in April. A public meeting on the rates will be held in Gilroy April 11.

Water rate increase

Water rates for South County residents have gone up 85 percent since 1998. An acre-foot of water is equal to a football field filled to a depth of one foot, or enough water to serve a family of five for one year. Costs shown in per acre-foot.

Year S. County N. County

1998 $108 $240

1999 $108 $260

2000 $115 $285

2001 $115 $310

2002 $130 $330

2003 $140 $340

2004 $160 $375

2005 $200 $405

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