Comments
LA WATCHDOG - The Metropolitan Water District of Southern California initial proposal in February for its biennial budget contemplated a 9.5% increase in its rates in each of the next two years that it charges its 26 agencies. It did not include an increase in the property tax that it levies on the Assessed Value on all the properties (including utilities) in its 5,200 square mile service territory.
The property tax rate of $70 for $1 million of Assessed Value (0.0007%), double the rate of $35 before the 2024 increase, is expected to yield $404 million in the upcoming fiscal year that begins on July 1st.
It is most recent submission to its Board, management is considering alternative proposals, one of which would increase the property tax to $90 (0.0009%), a 29% increase. This would yield almost $520 million. In return, the increase in rates would be lowered to 7% in each of the next two years.
This is a bad alternative because it sends the wrong price signal to end users because higher rates encourage customers to vote with their wallets and conserve scare water resources.
MWD justifies the property tax because it says the tax is “essential to its fiscal integrity.” However, MWD has not shared its analysis with the public, elected officials, and/or the State Legislature. As it is, MWD has $1.6 billion in cash and investments, has interest coverage of three times, is rated AAA by the three international credit rating agencies, and has customers / agencies who can afford to pay higher rates, sending the proper price signals to end users.
There also has not been any independent oversight of MWD’s not very transparent finances and operations since its Board of Directors are political appointees. Over two-thirds of the agencies do not have a direct relationship with end users and are reluctant to pass along rate increases when they can hit up property owners with less than transparent property tax increases.
This is particularly true for Orange and San Diego Counties where the ratio of their Assessed Values is significantly higher than their ratio of water deliveries, penalizing property owners. This allows their politically appointed directors to curry the favor of the directors of the seventy water agencies they serve that consume 26% of the water and represent 34% of the Assessed Value.
Many believe that the property tax is illegal because it has not been approved by the voters. MWD disagrees with this assessment based on its own internal review. But, to paraphrase the former Business Manager of IBEW Local 18, just because MWD says it is so, does not mean it is so.
Rather than proceeding with an increase in the property tax in its service area, MWD should consider eliminating the property tax over the next five to ten years. This will require an increase in the basic rate but send the proper price signal to its 26 agencies, including the twelve wholesalers who represent two-thirds of MWD deliveries, that conservation is a major goal of MWD, its end users, and our elected officials.
The 19 million residents of MWD’s service territory would also benefit from greater independent oversight of MWD, its giant and unaccountable bureaucracy, its budget and finances, its multibillion capital expenditure program, and from greater outreach and transparency.
(Jack Humphreville writes the LA Watchdog column for CityWatch, where he covers city finances, utilities, and accountability at City Hall. He is President of the DWP Advocacy Committee, serves as the Budget and DWP representative for the Greater Wilshire Neighborhood Council, and is a longtime Neighborhood Council Budget Advocate. With a sharp focus on fiscal responsibility and transparency, Jack brings an informed and independent voice to Los Angeles civic affairs. He can be reached at [email protected].)
