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.

rick lyons April 26, 2011 at 07:20 PM
I really enjoyed the comment by Cindy Russel "Eventually, higher water rates will erase the deficit, it will just take longer than initially planned". Is that not one of the more scarier things that you have heard? Wow, Cindy Russell, Laura Freese, Sam Allevato just don't get it do they? But wait, we also have to thank Mark Nielsen for this also.
Tbord April 26, 2011 at 09:17 PM
I thought Joe Tait was Mr. MWD? That big fat double-salary sure paid off didn't it?
rick lyons April 26, 2011 at 10:34 PM
We were so taken by him and continue to be as he is still employed by the City as he heads up the Utilities (water) department. He is like the bad rash that just won't go away.
smoothpuss2 April 27, 2011 at 01:35 AM
I hate use this term, but it is obvious that financially the City is quickly circling the drain....
SJCfamily April 27, 2011 at 04:07 AM
Here's a 3-step plan for "closing the deficit": 1. Fire Cindy Russell 2. Shut down the Ground Water Recovery Plant 3. Eliminate the salaries and benefits of the employees associated with the water enterprise If the City really wanted to get serious about reigning in the huge debt we have (largely thanks to Cindy Russell), there's a 4th step, which is to stop paying 100% of the employees benefits, much less the benefits of their dependents. And trim the staff; we have twice the number of employees than we need or can afford. Our payroll is over $10 million a year!!!
SJCfamily April 27, 2011 at 04:09 AM
Yes - it's very scary, mostly because if it was up to Russell, she'd tax us even more to paper over the debt she's created.
socalfam April 27, 2011 at 05:21 AM
When will our city council and employees like Cindy Russell learn that you can't tax your way out of a deficit? Mr. Reardon's right; the "product" is too expensive for many residents, so they had to stop using as much of it and revenue went down. The City's answer seems to be "tax them more", which will only cause even more of a decrease in revenue. Mr. Miller is right to ask why our City "settled" for less than half what this contamination has cost us just to replace the water from our wells poisoned with MTBE, not to mention the cost of MTBE clean up and legal fees. At least our resident commission/committee members are looking out for us; the council and staff sure aren't.
Tbord April 27, 2011 at 12:03 PM
If you think the Commission is fault free - think again. That 8.2 million dollar deficit is largely from overspending on infrastructure upgrades that Tait and staff passed on to the commission for approval. Add the decision to use city staff to run the GWRP, sprinkle in salaries, consultants upon consultants, and you've just baked a cake made by City CFO Cindy Russell. The only way out of this mess may be to sell the Water Enterprise - But who will be dumb enough to buy it?
Jim Reardon April 27, 2011 at 03:04 PM
Thanks to Patch for reporting on this situation! The story accurately reflects what happened during the Utilities Commission meeting, but for two points: 1. You omitted mention that Mrs. Russell acknowledged under questioning from Commissioner Merkel that past budgets and financial reports presented to the commission were not accurate. In fact, she acknowledged that the budget she presented to the City Council on April 19 was inaccurate and has issued a written correction. 2. I did not suggest that the commission "find more revenue". What I said was, "To find more revenue, you must sell more water (by lowering rates)." Meanwhile, the City continues to spend hundreds of thousands of dollars each year on promoting water conservation -- because it is (or was) politically correct.
Jenna Chandler April 27, 2011 at 03:42 PM
Thanks, Jim. I've updated the story to better reflect your comments to the 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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