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Outlook murky for town water system |
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Monday, 02 July 2007 |
With interest
waning & no capital improvement funds, county unlikely to turn systems over to local CSDs
By Jon Klusmire
Register Staff
Hopeful predictions about small towns being able to take over and run their own domestic water systems appear to have run aground on rocky financial realities.
It’s probably time to abandon the goal of having Inyo County turn over control of the drinking-water systems in Lone Pine, Independence and Laws to Community Service Districts in those communities. That appeared to be the general direction of the Board of Supervisors on Tuesday.
The board approved a three-year operations and maintenance contract with Owenyo Services to actually run the three water systems. Owenyo will receive up to $323,830 a year, for a total of $971,490 over the next three years, to handle all aspects of keeping the three domestic water systems running. But only one aspect of the contract’s costs and details generated much debate: income from water users will cover the cost of the contract at least for the coming year, but the current water rates don’t generate enough income to add to the current, small-capital reserve fund to pay for any emergency repairs or make any long-term improvements to the three water systems.
The county is basically treading water, in other words, when it comes to covering just the operating costs for the systems, and has little hope of building up a reserve fund based on current rates and water usage.
Later this year, the county will start discussing a rate study and possible water rate hikes so it doesn’t have to subsidize the water systems with money from the General Fund.
With that financial outline in mind, when the supervisors turned to the future of the water systems, they made some sobering assessments of what the county and the CSDs can and can’t do with the small water systems.
“The question is if and when” the CSDs might be able to take over the systems, and First District Supervisor Linda Arcularius said she was beginning to doubt that the small towns would ever be able to do so.
“The potential takeover of the water systems by CSDs is getting less and less likely every day,” said Arcularius, who suggested the county start looking at the ramifications of the county running the three water systems “in the long term.”
“I’m extremely concerned” the current expenses and income projections will not allow for increasing the capital improvement reserves for the systems, she said.
Without being able to build up a capital reserve or improvement fund to hand over to the CSDs along with the responsibility for running their respective water systems, “I don’t see it happening … with no capital improvement funds, no CSD” will take over a water system, Arcularius said.
The Laws system, with only 14 connections, “is a big drain” on the overall costs to run all three systems, said Fourth District Supervisor Jim Bilyeu. That drain will likely continue, he added, since there “is no CSD at all” in Laws willing to take on the water system.
The lack of cash reserves to go along with the water systems, he agreed, made it less likely the CSDs in Independence and Lone Pine would be willing to take over the systems. “Without a rate hike, it will be difficult” to increase the reserve fund, he said.
Public Works Director Ron Chegwidden said that he had not discussed the water system with the Lone Pine CSD for about eight months, and it had been about six months since the Independence CSD had talked with him about its water system.
“The interest level has waned considerably” from the CSDs when it comes to actually taking control of the water systems, he said.
About a decade ago, there was plenty of enthusiasm in the county and both towns to wrest control of the local water systems away from the Los Angeles Department of Water and Power. As part of the terms of the Long-Term Water Agreement, LADWP quickly turned over the water systems to the county after completing a capital improvement and upgrade program.
Ever since, the county’s goal has been for each town to create a CSD that would in turn run its system. The county agreed to run all three systems until the CSDs could get up to speed and take over the systems.
However, over the years, the county used reserve funds to cover operating expenses instead of raising water rates. Then the county had to raise rates anyway, in 2005, in an effort to both cover daily operating expenses and create a reserve fund for emergencies.
Now, even that rate hike will not cover operating expenses in the years to come.
Chegwidden said revenue from water customers in the next year will cover the $323,830 a year paid to Owenyo Services to run all three systems. But the revenues will just cover operating and routine maintenance, he noted, and not generate enough money to undertake any improvement projects.
Under terms of the contract, Owenyo will operate the water plants, read water meters, bill customers and collect payments. In addition, the Lone Pine company will conduct “routine maintenance,” which means it will fix leaky pipes or broken valves, for example, and keep the system operating. But it will not install new water lines, for instance, or make other improvements to the network of water lines or wells, pumps and water plants.
The contract is about 8.4 percent more a year than the current contract, noted Chegwidden. Owenyo has been the winning bidder to operate the systems since 1999. This new contract, however, relieves the county of all tasks associated with the water systems, he noted. Previously, one county employee had worked on the water systems.
Owenyo was chosen as the preferred bidder even though Wilder Barton submitted a bid for $298,500 a year. Chegwidden said Wilder Barton had no previous experience with billing and collections, while Owenyo had more certified water plant operators and emergency response personnel, had more experience making water pipe repairs and was more centrally located to the water systems.
The board approved the three-year contract by a vote of 3-1, with Bilyeu voting no because the amount of profit for Owenyo was not revealed (Supervisor Beverly Brown was absent).
The talk of possible rate increases was conducted almost in a whisper. The last rate hike, in 2005, brought howls of protest from residents in Lone Pine and Independence, and the rate hikes were eventually reduced a bit, but that only reduced the amount earmarked for capital improvements.
But handing over the systems to CSDs could result in the state mandating large rate hikes that could possibly double the charges currently imposed by the county.
In March, 2005, the county raised residential rates for Lone Pine, Independence and Laws to a Basic Service Charge of $22.89 a month, plus a Commodity Charge of 33 cents for every 100 cubic feet of water used.
Last year, at about this time, state regulators from the Department of Health Services determined that rates would have to jump to about $60 a month for every customer in Independence to bring the system into compliance with state financial guidelines for water systems. Monthly bills in Lone Pine would have to be jacked up to about $75 per household to meet state guidelines.
The state bases its rate studies on both operating and routine maintenance expenses along with the ability to put aside a prudent capital reserve fund to pay for ongoing, scheduled system upgrades and emergencies.
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Last Updated ( Friday, 26 October 2007 )
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