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LA WATCHDOG - The best way to conserve water is by sending the right price signals to the end users. This is especially important in Southern California where a significant amount of our water is imported, whether it is from the water stressed areas of Northern California, the Colorado River, or in the case of Los Angeles, the Owens Valley in the Eastern Sierras.
Unfortunately, the management and politically appointed directors of the Metropolitan Water District of Southern California did not get the memo. Rather than establishing a rate that reflects the true cost of water, MWD has adopted a controversial policy of taxing property in its 5,200 square mile, six county service area.
Under management’s initial proposed rate structure, the price per acre foot would increase by 9.5% in each of the next two years and the property tax would remain at 0.007% of Assessed Value of property in its service area. This equates to $70 for a $1 million property. This tax is expected to yield around $425 million in revenue.
While the impact of the property tax on rates has not been disclosed, it is estimated that it lowers the rate that MWD charges its 26 agencies by 15% to 20%. This sends that wrong message to consumers.
As part of the budget process, the Board Directors representing the City of Los Angeles proposed that MWD consider increasing the budgeted level of sales so as to spread MWD overhead and fixed costs over a larger base, lower the two year capital investment program from $950 million and to $800 million, and hold the property tax at the current rate of 0.007% ($70 per million) of Assessed Value. This would lower the rate increase to 4.8% for each of the next two years.
These proposals were not greeted kindly by the MWD management.
An alternative proposal from the Orange County, Eastern, and Western Water Districts included an increase in the property tax to 0.01% ($100 per million) of Assessed Value and some other changes, reducing the increase in rates to 5.4% a year for each of the next two years. Again, this sends the wrong message to consumers.
Interestingly, while Orange County benefits from the lower rates, property owners are tagged for an estimated $85 million, equivalent to a 1% increase in the property tax, significantly more than the savings from the lower rates.
MWD justifies the property tax because it is “essential to its financial integrity.” Yet MWD has failed to demonstrate why it is essential, especially because it has considerable pricing flexibility, has reserves of over $1.7 billion that represents almost 75% of its annual expenditures, and significant debt capacity since it has a credit rating of AAA.
In developing the biennial budget, MWD and its politically appointed directors should implement the proposal from the City of Los Angeles and begin the process of winding down the property tax because it needs to send users the price signal that conservation is essential because water is an increasingly scarce resource.
(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].)
