The city’s water customers will probably pay more for water next
year due to recently declining consumption, growing costs proposed
by Morgan Hill’s supplier, fervent conservation efforts and general
economic woes that continue to affect public agencies throughout
the Bay Area.
The city’s water customers will probably pay more for water next year due to recently declining consumption, growing costs proposed by Morgan Hill’s supplier, fervent conservation efforts and general economic woes that continue to affect public agencies throughout the Bay Area.
An estimate of how much more the city’s 14,000 residential, commercial and industrial customers will pay should be known in a few days, as the results of a local water and sewer rate study are expected to be available.
“We’ve got a structural problem in the water fund,” said Morgan Hill budget manager Jimmy Forbis. “We’re evaluating our staffing levels, and evaluating our rates. We’ll be doing some budget reductions (for the fiscal year that starts July 1).”
Forbis declined to give an estimate how much more the city’s retail customers will be charged, and by how much the water fund budget will have to be cut. But there’s no escaping the fact the city’s revenues from water sales have dropped by about 11 percent since 2007, and its supplier has proposed steadily increasing costs for the next nine years.
The water rate study, which began earlier this year and is being conducted by consultant Bartle Wells Associates, will consider the city’s water supply and infrastructure needs for the foreseeable future, potential economic impacts and many other factors that could affect local water costs and revenues.
One of those factors is the groundwater charge paid by the city to the Santa Clara Valley Water District, the wholesale agency that supplies public and private retailers throughout Santa Clara County. The water district has proposed about a 3.6-percent annual increase in the charge paid by Morgan Hill, starting next year and continuing at least until 2020. The city currently pays $275 per acre foot for water supplied by the SCVWD, and the district has proposed that charge go up to $325 per acre foot by 2020. An acre foot of water is enough to supply a family of five for one year.
Last year the city paid about $2.1 million in the groundwater charge or “pump tax,” Forbis noted. That’s about 25 percent of the water fund’s expenses.
The water district’s need to increase rates is partially similar to that of the city’s – a statewide drought that forced water districts, cities and counties to urge water conservation; and a nationwide economic recession that caused all kinds of public revenues to shrink and consumers to cut back – both of which began about three years ago.
Revenues from water sales in Morgan Hill, which account for about 90 percent of the water fund’s total revenues, have fallen sharply in the last three years. Water sales pulled in about $7.3 million in 2008, and about $6.6 million last year. This year, sales and consumption are expected to decline even further, generating about $6.5 million. That’s an 11-percent drop in water sales since the drought and recession started.
Both fiscally evaporating forces have largely subsided, but the effects on consumers have lagged into the present. Morgan Hill’s water fund’s gaping and growing shortfall, which cannot be subsidized with general revenues like property and sales taxes, is poised to “burn up” the equivalent of its reserve fund – or about $1.6 million, Forbis said. Not all of that subsidy can come from the water fund reserve, which must retain a minimum of $1.3 million per city policy. The shortfall can be drawn from two other water accounts – the rate stabilization fund or the water replacement fund. Collectively, those funds have about $1.4 million in reserves.
For Morgan Hill, that means high-dollar infrastructure projects like new wells and new water mains will have to be delayed, and costs related to maintenance and staff will not go down.
“Since consumption is down we’re not able to fund capital projects, and we’re not investing any money into the (water system’s) infrastructure,” Forbis said. “This fund is starting to see the problems the general fund had. We’ve had three years in deficit spending in the general fund, and we’re doing that in the water fund now. (We have to) charge more in water to make up that difference. It’s a tough problem.”
Other water fund revenues come from account set-up fees, delinquent charges, perchlorate cleanup and other services.
Groundwater charges remained flat from 2009-2011, at the whim of the water district’s board of directors. The conservation effort during the drought was successful as the water district’s customers cut back by about 9.7 percent in 2009. But that spelled falling revenues for the water district as well, according to SCVWD senior project manager Darin Taylor, as the district lost about $9.5 million in revenues that year.
South County’s 2010-11 deficit is estimated at $5 million, according to a April 26 water district staff report.
The district can only recommend conservation levels. Water retailers, such as the cities of Morgan Hill and Gilroy, have final say of what they require of their customers. From 2007 to 2009, Morgan Hill’s customers cut back their water consumption by about 12 percent, according to city staff.
According to the water district, the average household in South County would experience a monthly increase of 34 cents or about 1 cent per day if next year’s 3.6-percent increase is approved – though the amount of change in Morgan Hill could be higher due to factors unique to the city that will be considered in the current rate study.
Other cities and water districts in the Bay Area have proposed significantly higher rates for next year, as the San Francisco Public Utilities Commission proposed a 47 percent rate increase, for example.
“We’re not unlike anybody else,” Forbis said. “All water departments are going through these things.”
