Water Agency to Continue Seeing Red in Years to Come

It will take about five years for San Juan Capistrano’s water agency to recover from its

But city staffers told the Utilities Commission on Thursday that they’ve learned from the mistakes that, in part, led them to the shortfall. For the first time in a few years, they’re budgeting using conservative projections for revenues based on water production levels in the next fiscal year.

"We’ve got a level of prudence that we’ve not had in the past," said Commissioner Dan Merkle.

In the best case scenario, the water agency's budget will be in the black for the first time in late 2013 by a very slim margin of $576,026. That scenario is based on the city's groundwater recovery plant pumping 4,725 acre feet a year, about 1,000 acre feet more than what is being produced right now.

Although that output is optimistic, it seems more viable now than in recent years. Last month, a long-awaited filtration system that will remove a gasoline additive in the city's water supply was installed behind City Hall. The treatment system will allow the utilities department to turn on two pumps that had been shut down in the wake of a Chevron gas station MTBE leak.

If production levels stay the same as they are now—a conservative estimation—taxpayers can expect the deficit to shrink by about $5 million in five years but still see red by the end of fiscal year 2015-16 with a negative balance of $3.07 million.

At this time last year, staffers based their projections for this year's budget on best-case scenarios provided to them by the City Council: the and a multimillion-dollar settlement over the MTBE leak would be in place by July 2010.

Neither of those happened until only recently, throwing off the staff's projections. Coupled with lower-than expected water sales to residents due to the cold, wet weather and more unexpected equipment failures at the groundwater recovery plant, the agency's deficit grew to $8.2 million.

Also hurting the water budget: a City Council decision to reduce the amount of fees auto dealers and hotel developers pay to hook up to the city's water and sewer lines. Since the decision was enacted last summer, the utilities department has lost nearly $1 million in fees it .

As a result, it may be necessary to transfer money from the sewer budget—which has a reserve of $3.9 million—to the water budget. Commissioners hinted Thursday that they feared the only other option might be to raise water rates beyond the already scheduled increase of 3 percent on July 1.

Each of the scenarios presented Thursday are based on lower sales projections of 7,500 acre feet—the amount of water the city produces in combination with what it purchases from the Metropolitan Water District—and the already approved user rate structure increasing 3 percent on July 1.

The city's five-year water rates were adopted in February 2010 and call for increases each year starting July 1. This year, the approved increase is 3 percent. The current commodity rates were set based on customer usage or demand of 8,500 acre feet per year.

In the past year, the city has sold approximately 7,400 acre feet.