City Opposes 8% Metropolitan Water District Rate Increase

Interim City Manager Cynthia Kurtz sent an opposition letter to the Metropolitan Water District (MWD) over rate increases.

“Pasadena does not support rate increases of 8% and 8% for each of the next two years,” Kurtz wrote in the March 21 letter. “Over the past decade, Metropolitan staff has continuously communicated to its member agencies to expect rate increases of 3-5% per annum. And, Metropolitan has stayed that course and managed to operate within those parameters despite some of the most challenging drought years in recorded history.”

The increase is part of the proposed budgets and rate increases for the MWD for fiscal years 2022/23 and 2023/24.

MWD is the primary water wholesaler for Southern California water agencies.
The state is currently experiencing the driest first three months of any year in its recorded history.

The company originally proposed a 3-5% increase for the upcoming decade when the FY 2020/21 and 2021/22 budgets were adopted.

But now those projections have nearly doubled the amount of the proposed rate hike.

City officials used the earlier forecast to develop its own budget and water rate structure to fund its Capital Improvement Plan, and to fund replacement or repairs of aging infrastructure, along with the purchase of imported water from Metropolitan.

Pasadena approved two rate increases for local customers, one in April and the other in January. The city is not planning to revisit its rates for the next two fiscal years.

“The budget proposal currently before the Metropolitan Board has departed without sufficient time for member agencies to adjust their plans accordingly,” according to Kurtz.

Kurtz currently sits on the MWD board.

“Metropolitan needs to live within its forecasts absent extraordinary circumstances. Certainly, inflation is higher than what was predicted, but that should result in a rate proposal closer to 5% not a jump to 8%,” Kurtz said. “Moreover, Metropolitan needs to work more closely with its member agencies when proposing dramatic changes to its projected rate forecasts to allow the member agencies sufficient time to make adjustments to their respective budgets, Capital Improvement Plans and rate proposals.”

Kurtz called on the MWD to limit its rate increases to 5% for each of the next two years. According to the letter, a 5% hike would lead to sufficient funding for MWD and allow member agencies to manage their own budgets and systems.

Cities are still struggling to cope with reduced sales due to drought, conservation and the lingering effects of the COVID-19 pandemic.

Cities have been particularly hard hit by the pandemic, losing not only revenue from reduced water sales but all other sources of revenue such as sales tax, retail business and tourism. Pasadena believes that Metropolitan can take steps to reduce costs and keep its rate increases to no more than 5%.

Kurtz said the company could maintain cost containment by eliminating new positions and reducing demand management spending.

The proposed budget calls for $43 million to be spent during each of the next two years on demand management to be funded solely on increases to the supply cost of water. The budget calls for $25 million each year to come from the General Fund with $18 million to come from borrowing.

The city opposes borrowing to fund the cost.

Pasadena strongly opposes borrowing to fund demand management and questions whether it is appropriate to use bond financing for these expenses. Even if this practice is legal, it has never been Metropolitan’s practice to finance demand management with debt and seems an improper burden to future generations for the short-term mostly.

“Pasadena will support a Metropolitan budget proposal of 5% for each of the next two years,” Kurtz wrote. “We have provided two relatively straightforward ways in which this could be accomplished. If Metropolitan staff has other ideas to reduce the rate increase to 5% or lower and still pursue adding staff and/or higher spending demand management, Pasadena would welcome such a discussion. However, Pasadena needs Metropolitan to hold to its original forecast of state increases between 3-5¾. If there is a need to shift away from this forecast, the Metropolitan Board of Directors should spend the next two years preparing for that shift in the next budget cycle. This proposal for a much higher increase cannot be supported with only two months’ notice and limited discussion.”