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The Vallecitos Water District – which provides water to 97,000 people in and around San Marcos – has kept rates so low it’s now selling water at a loss. The shenanigans within the small district offer a window into the lengths some California water officials will go to avoid raising rates.
It’s a good deal if you can get it: Some North County water customers are paying less for their water than it’s worth.
The Vallecitos Water District – which provides water to 97,000 people in and around San Marcos – has kept rates so low it’s now selling water at a loss.
The shenanigans within the small district offer a window into the lengths some California water officials will go to avoid raising rates.
In Vallecitos, the low rates have become an issue in this fall’s water board elections. Depending on who you ask, the low rates are a prudent move to protect ratepayers, a political stunt, or a long-term problem that endangers the whole district’s financial health.
Whatever the case, it’s certainly peculiar.
“You can’t have your one product not breaking even, at least – it blows my mind,” said A.J. Van de Ven, a candidate who is challenging sitting board member Mike Sannella.
Sannella is the board’s chairman and he voted against a rate increase this year. He believes the board and the district’s staff should work harder to save money before it asks for money from customers.
“We haven’t gone through the process to make the cuts yet, and staff has been reluctant to do so, and in some cases refuses to do so,” Sannella said, though he acknowledges they might not find enough new money and rates may still rise.
Vallecitos doesn’t have any of its own water, so it resells water it buys from distant rivers or from the new desalination plant in Carlsbad. The cost to get water has risen, particularly because of the expensive desalinated water the district pays for, but the board has not passed along those costs to customers.
The average Vallecitos customer uses 12 units of water each month. A unit is 748 gallons. This year, Vallecitos paid $40.32 to buy that much water and then resold the water for $38.72, a $1.60 loss.
That’s pocket change for one customer but adds up for the district. To pay operating costs, the district has been withdrawing millions from its reserve funds.
Other water agencies have taken money out of savings to protect customers from rate shock, but they usually do so with plans to eventually break even. Vallecitos does not yet have such a plan.
On Sept. 21, the district’s board had a chance to approve a rate increase that would allow it to cover its water costs. Instead, in a 3-2 vote, it approved a modest rate increase that passed along only half those costs to customers, which means it will continue selling some water at a loss in 2017.
The district issued a press release touting the decision titled “Vallecitos Board of Directors Denies Proposed Rate Increases.” The release didn’t tout the $5 million the district must take from its $54 million reserve fund next year as a result.
When the district does raise rates in the future, the increase to recoup losses may cause more sticker shock than if they’d started to gradually raise rates beginning now.
“This is going to bite us in the backside,” said board member Jim Hernandez, who is not running for re-election this year. He voted for the modest rate increase this year.
Several people suggest some board members are only keeping rates low to look good as they approach Election Day. Three of the five sitting board members are on the ballot this year, including Sannella and Hal Martin, who both voted against any rate increase this year.
In campaigns for other elected offices, candidates can fight over a variety of issues. In water board elections, the typical issues are over water quantity, water quality or water cost. Cost often ends up being the main issue and it’s easier to campaign on cutting prices than raising them.
Betty Evans, a sitting board member who is running for re-election, voted for the modest rate increase. She also supports a larger increase, one that covers the district’s cost.
She does not think the district can come up with millions of dollars more only by cutting costs. It’s already gotten employee concessions that saved $1.3 million and cut or deferred $4.1 million in spending from the current budget. Evans said she worries about the long-term health of the district, which ultimately affects ratepayers. Evans believes that without a rate increase, the district could eventually go under.
“There is no way you can run the water district without a rate increase, unless you have no staff and lousy infrastructure,” she said.
Evans is facing two opponents, real estate agent Kelly Crews and retired engineer Mike Hunsaker. Crews is campaigning against Evans for supporting a rate increase.
“She doesn’t vote the way that I would vote,” Crews said. “I’m really a ratepayer advocate.”
Vallecitos’ financial reserves are also dwindling for other reasons. For now, the district has enough cash to cover almost a year of operations. But the current board also voted in 2015 to do away with a certain developer fee that helped fund maintenance and expansion of the district’s sewer system.
The move was initiated by Sannella, who did not believe the fees were fair because they penalized developers for adding density.
Tom Scaglione, the district’s interim general manager, said that too may come back to bite the district.
“If it’s not being paid for by developers, it’s either kicking the can down the road to developers in the future, or ratepayers will pay for it,” Scaglione said.
Hunsaker and Wayne Ludwig, the regional director of safety for the Navy who is running against Martin, are both campaigning against development interests. They say that developers have too much sway over the board.
Hunsaker also says developers are getting breaks from the board, but a bigger worry for him is that a lot of new development and the ongoing drought could put water security at risk.
“If you allow these new developments to proceed without tracking what their impacts will be, it is a total disaster for the community,” he said.