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Water Agency Slashes Spending in Reaction to $8.2-Million Deficit

But the city is not selling as much water as it forecast, so the cuts won't eliminate the red ink.

Rainy weather and damaged wells are wrecking the city’s water budget to the tune of an $8.2-million deficit.

San Juan—which operates its own plant to provide water for residents— is reeling from the lowest water sales it has seen in 15 to 20 years, the city's finance director Cindy Russell said Tuesday morning.

Part of the slowdown stems from this year's cool, wet weather. But the city also faces $6.9-million worth of damage from the shutdown of wells contaminated by a gasoline additive. On Tuesday, the Utilities Commission slashed funding for such projects as the installation of an emergency generator.

“Those projects are not moving forward until we find funding,” said Russell. Projects that are already underway will be completed, including the installation of  granular-activated carbon filters to remove the gasoline additive, MTBE, from the water basin, and a $1.2-million expansion of the groundwater plant to pump more water.

In March, the City Council settled a three-year dispute with Chevron, whose gas station on Del Obispo Street leaked MTBE into the city's water supply. On Tuesday, commission chairman Ray Miller said he was puzzled that the City Council would agree to a settlement that requires Chevron to pay less than half the cost of the actual damage. The first half of Chevron's $3.1-million payment was supposed to be in city coffers by April 7, but Russell said Tuesday the money hasn't yet arrived.

Even with Tuesday's budget trims, erasing the $8.2-million deficit largely hinges on the water plant operating at full capacity. Higher water rates approved in 2009 were supposed to cover some of the slack. But water use is way down.

The new rates—currently $3.88 per 100 cubic feet for a single-family home—were set to cover the costs of the well shutdowns and installing the carbon-filtration system, as well as the cost to issue new debt via $18 million in bonds (those bonds were never issued). But that math depended on the plant producing 5.2 million gallons daily. Currently the plant is producing just 3 million gallons daily.

Assistant utilities director West Curry assured commissioners the plant would pump 5 million gallons daily by mid-summer. Preparations for the carbon-filtration system are underway, with underground piping and a concrete slab already in place, Curry said. Beginning May 21, the filtration tubes will be brought in from an Indiana manufacturer, and two will be installed every week for four weeks.

Eventually, higher water rates will erase the deficit; it will just take longer than initially forecast, Russell said.

"With the [carbon-filtration] treatment facility and [groundwater recovery plant] scheduled to come on-line at full capacity in July 2011, it should be anticipated that low production and excess maintenance and repair costs would cease," she wrote in a report to the commission. "The result would be restored grant revenue, and reduced imported water and maintenance that would result in a surplus even with the lower sales figures."

Resident Jim Reardon offered a contrary view. “You’ve raised [water] rates so high that customers are starting to avoid your product and that’s a serious problem if your [solution to closing the deficit] is premised on selling more water,” he said. He implored commissioners to lower water rates to bring in more revenue.

Clarification: This version of the article more accurately captures resident Jim Reardon's comments to the Utilities Commission.

IAN SMITH April 27, 2011 at 07:22 PM
One more item missing from your report was the revelation that an unacceptable level of arsenic was discovered in the two new wells that are scheduled to be put on line. Staff did say that the levels have already been reduced but are not yet at a level which is acceptable to State standards. These two wells full operation are absolutley necessary for the city to achieve it's previously stated goal of 7 million gallons a day by July of this year IAN SMITH SJC
JessC April 28, 2011 at 06:03 AM
Is there no end to this water enterprise nightmare? Ms. Chandler, do you know what error made by Ms. Russell that is mentioned in Mr. Reardon's comment? This is very disturbing to hear. Mr. Smith, what is the arsenic you are referring to? Very frightening, but even more so is that our city leaders just keep on throwing good money after bad. We should have gotten rid of it a long time ago. Tbord is right, who would buy it now?
Jenna Chandler April 28, 2011 at 05:16 PM
Thanks for pointing out arsenic levels—I plan to write a separate story on that
Mamie May 12, 2011 at 06:01 AM
I would like to know why the water department staff is receiving increases in their salaries and benefits when the department is clearly operating in the red. In 2010, the salary and benefits for the water enterprise amounted to nearly 2.5 million dollars. At a time when companies are freezing salaries and cutting benefits, and people are losing their jobs and homes, our city staff continues to receive raises and better benefits. When is this insanity going to stop?
socalfam May 12, 2011 at 06:05 PM
Staff received INCREASES when the water department is running a deficit of $8 million - are you serious????? What the #*!! is going on in this town?

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