SANTA CRUZ -- The Santa Cruz Water Commission on Monday took one step closer to drafting a first-ever fiscal policy for how the Water Department will set rate increases to cover future costs and establish reserves.
The panel voted unanimously to develop a policy that sets reserves at a minimum of $6.7 million to cover 90 days of operational costs and stabilize rates for the $24 million annual budget in case revenue drops because of shortages in the water supply.
But the panel also asked department officials to bring back in March projections for the impact on rates if the minimum reserve level is set at $9.7 million, also to create a reserve for maintenance expenses. Staff also will bring back a proposal for commissioners to recommend to the City Council for funding an overall rate study.
The department's top financial officer, Piret Harmon, asked the commission to consider at least a $9.7 million reserve level, or $20.7 million as an ideal level, both of which would involve varying rate increases during the next decade. But commissioners were concerned about setting increases of between 5 and 15 percent each year, possibly beginning in 2015, based on the concept of setting reserves versus just covering costs of needed improvements for a system serving 92,000 people.
"I would rather look at a (capital improvement projects) list and gear rates to that," said Commissioner Andy Schiffrin. "I think we need a rate increase but I don't
Although the department's monthly revenue still exceeds its $2 million in costs, the department has had to tap reserves to pay for capital improvements like the Bay Street Reservoir replacement project. The reserves of $30 million have been cut to $25 million in the past six months to cover such costs, and officials would rather not borrow money or tap reserves to cover work needed in the next few years on the North Coast main water transmission line and water treatment plant.
The proposed reserve levels do not include costs associated with a proposed $123 million desalination project.
Officials say the department needs a financial plan regardless of whether the controversial facility eventually is approved. But if the plant is permitted, it will require borrowing, the rates for which will be improved if the department has greater reserves to cover debt payments, officials said.
Also Monday, the commission approved Water Director Bill Kocher's request to propose the City Council eliminate a rule created after the 1976 drought that terminates water connection to properties abandoned for two years.
An increase in foreclosures in recent years could stick new property owners with reconnection fees of $6,700. Meanwhile, other property owners have been skirting the rule by opening a connection, paying for a short period, closing their account and then reopening it before the two-year window runs out -- a period during which the department must leave the connection active.
"More people are going to get burned by it," Kocher said. "It's time to say it isn't working, let it go."
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