Despite double-digit increases for water and sewer rates, an audit released today by City Auditor Laura Doud discovered that the inability to move forward with many of its capital improvement projects has left the Long Beach Water Department with more than $37 million in excess cash reserves, a 566 percent increase in less than four years.

Since 2009, residents of Long Beach have had their water rates and sewer rates increased dramatically. Water rates have gone up 31 percent while sewer rates alone have increased by 56 percent. The money was said to be going towards the Department’s Capital Improvement Program, which has been mainly engaged in strengthening the infrastructure of the city’s 915 miles of water and 765 miles of sewer lines that, according to the department, “are nearing the end of their useful service life” since they were laid in the early 1900s.

But many of the CIP’s projects have been delayed for various reasons and money originally budgeted to fund them has instead sat idle, resulting in the Water Department’s cash reserves ballooning in the last few years well beyond its policy-mandated reserves of $6 million. 

The audit reveals that the Department’s budget process and corresponding rate hikes are not commensurable with how they should be operating. According to Doud’s findings, the department’s cash reserves have increased by an alarming 566 percent between 2009 and 2012, creating a bank of $43 million.

“The report stated that the Department’s budget amounts varied significantly from actual amounts,” said a statement from Doud’s office announcing the audit’s release. “It was noted that while budget shortfalls were being projected each year, even with rate increases, the actual revenues and expenses instead produced large surpluses. A significant portion of the difference was in the CIP.  Project delays were not considered in the budgeting process, resulting in inflated budgets.”

Through the halting of CIP projects—between 2009 and 2011, water CIP projects only spent 57 percent of the amount projected while sewer CIP projects spent a paltry 25 percent of estimated costs—while simultaneously continuing to raise fees and claiming funds for these projects, their cash reserve ballooned. Since these halted projects were not considered within the department’s budgeting process, the inflated budgets put CIP expenses some $18.2 million below the budget projections from 2009 to 2011.

Still, the CIP projects completed by the Department have been successful, improving the overall water and sewage system in our city by decreasing the number of main breaks dramatically (to 22 in fiscal year 2012, compared to the 1990s when it was common to have over 100 main breaks a year).

“I commend the Water Department’s outstanding efforts and success with water conservation and reducing water main breaks and sewer overflows; however, I am very concerned about their budget process and corresponding rate structure,” said Doud in a press release.

Though the audit was limited to analyzing the budget process alone, the findings could possibly put the Water Department in violation of Prop. 218, passed by voters in 1997, which helped create requirements for how rates are set and how funds are used.

The City Auditor’s Office will request that City Council ask the Water Department to, following recommendations of altering its budgeting process as well as its CIP expenditures, report back within nine months regarding how the department had begun to implement said recommendations.

The Post has sent additional questions to Doud’s office as well as the Water Department and is awaiting a response. More information will be posted as it is received.