Residential customers will be getting a credit of about $160 per account after leaders Thursday agreed to refund the full amount that the city owes its own Water Department after a recent legal ruling.
Commercial accounts could receive credits that range between $2,500 and $10,000, officials said. The credits are expected to arrive sometime before September.
The money being returned is due to a lawsuit over Measure M, which voters approved but the courts ruled was unconstitutional. It allowed the city to charge its own water department access fees to water and sewer lines, but the courts found that this amounted to a tax.
While the city legally has until Sept. 20 to transfer the remaining money to the department, Thursday’s vote could see water department reserves front the costs of getting credits out to customers sooner.
“We have enough cash in hand in the water fund to basically fund that money to the customers and backfill with the money we eventually get from the city,” Water Department General Manager Chris Garner said Thursday.
The department’s approach is based on getting more money back to those customers who used more water, like businesses, and to apply the credits as quickly as possible.
The city was illegally collecting about $9 million a year, and must return a total of about $31 million to the department in two installments.
A one-time $100 credit has already been approved for all residential and commercial accounts, with the first $9 million transferred back to the department from the city’s general fund. The remaining $21.8 million will be distributed based on the size of the meter for each account.
The amount of revenue available for credits will not include the nearly $800,000 in attorney fees the department will pay to the plaintiffs who successfully sued to stop the Measure M transfers.
Commissioners also voted to reduce rates for the rest of the fiscal year by 2.54% in accordance with the court ruling.
Department officials gave their first public preview of the upcoming budget that projects decreasing demand as new water rules take effect in June, but rising costs as imported water and delayed infrastructure projects become more expensive.
The department’s sewer reserves are about $3 million over the maximum amount the department keeps on hand, but the water reserves are about $5 million under. The department maintains reserves in order to address unforeseen crises like a water main break or a natural disaster.
The department projects it needs a minimum combined reserve of about $34.7 million and has an estimated $38 million between the two funds at the halfway point of the fiscal year.
Sewer fees are being buoyed by the increase in residential home construction in Downtown and Central Long Beach.
When new homes are built, a developer capacity fee is charged to access the city’s sewer system. Walker said that sewer capacity fees could grow to $2 million in the next fiscal year, which is more than twice as much as the department budgeted for last year.
Brandon Walker, the director of finance for the department, said water revenue could shrink if customers abide by the new water conservation rules, but it would simultaneously reduce the amount of imported water the department needs to buy, which could save some money. And the reduction in water rates to conform with Measure M could result in a $6.8 million deficit.
Projects that were put off this year “saved” $10 million, but Walker said that it’s more of a cost-shifting to next year when planned projects that were delayed by supply chain disruptions and other issues could get more expensive.
Garner said that things “look pretty good” right now in terms of the department not having to raise rates but that it would ultimately be decided in the coming months.
The department is holding a number of public budget workshops with meetings scheduled for May 26, June 9 and June 23, the date that the department expects to adopt its budget and annual rates and forward them to the City Council for approval.
The city’s water and gas utility employees perform similar functions but operate under different departments, leading to inefficiencies like roads being torn up multiple times due to lack of coordination, something that could be fixed if the two services were brought under the same roof.
Garner made the case Thursday for the City Council to consider a charter amendment to move the gas utility out of the Energy Resources department and into the Water Department’s jurisdiction.
The move could save both departments money by cross-training employees to work on gas and water pipes and could improve customer service, he said. It could also allow the public to access the budgeting process for natural gas rates, something that is currently prepared behind closed doors.
“One of the major complaints we get from the public is that the gas department went in and dug up the street and then six months later here comes the water department and they do the same thing,” Garner said about the lack of coordination in fixing underground pipes.
If approved by voters, the city’s gas department would be governed by the existing board that oversees the water and sewer services. It would be rebranded to a more generic title encompassing both utilities.
The department has looked at a merger for years and in 2020 had a feasibility report compiled by Bell Burnett and Edwards that concluded that merging the two utilities could lead to savings, possibly as much as $6.5 million by year five of the merger.
Benefits would come from potential consolidation of jobs that would produce savings for the department and through having one governing body setting all city-run utility rates, something that the report said could increase transparency and efficiency.
Garner said that if a merger was approved by voters it wouldn’t lead to current gas or water department employees being forced out.
“Any type of attrition or reduction in staffing would occur over time,” Garner said. “No current employee would have to worry about losing their jobs.”
The deadline to put any charter amendment on the November ballot is Aug. 9 but two public meetings would have to be noticed and held first, likely in June and July.