Water Industry News

Sacramento raids local taxes, leaves water district budgets high and dry

By Stephanie Hoops, shoops@VenturaCountyStar.com
December 6, 2004

The property tax money that Ventura County's residents paid to keep water flowing efficiently to their homes and businesses is being seized by the state to cover its budget deficit next year, which most probably means higher water rates for residents.

Calleguas Municipal Water District is losing about $4 million of its $9 million operating budget. It is the biggest wholesale seller of water in Ventura County, delivering water through 130 miles of pipe to retailers serving about 75 percent of Ventura County's population.

If Calleguas raises rates, the retailers follow, and consumers pay more. How much more will vary because the retailers are waiting for their boards of directors to decide how to handle the situation.

Water officials are calling it a raid, and it's happening to water districts across the state.

"This is in effect a hidden tax increase," said Steve Hall, executive director of the Association of California Water Agencies. "The Legislature got increased tax revenues and ultimately the way they will do that is by seeing water and sewer rates go up dramatically -- but only for some people. I don't think it's a fair distribution. The whole idea is to shift the blame."

Calleguas is estimating the impact to be an annual increase of $20 to $30 per family. Retailers are expecting to pay Calleguas about 10 percent more for water.

Other water districts across the state are looking at even larger fee increases. In Fallbrook in San Diego County, homeowners were warned a $20 monthly increase in their combined sewer and water bills was possible, according to the San Diego Union-Tribune.

Simi Valley Public Works Director Tim Nanson said any possible increase would be up to the City Council.

The Camarosa Water District had a similar answer.

"We haven't made any decisions yet," said Richard Hajas, general manager of the district. "We're trying to work this out."

Don Nelson, Public Works director for the city of Thousand Oaks, estimates the average customer will see a $2.10 increase per month if Calleguas has to raise prices 10 percent. The city has to see what it can pull from its reserves first, however.

Not everyone pays

Calleguas was targeted by the state because it's an enterprise district. Enterprise districts operate like businesses, charging just the customers who use the services, not everyone in the community. District voters set up the organization in 1953 to increase land value and allow for future development.

"It's the view amongst some people up in Sacramento that your tax money belongs to them," said Don Kendall, general manager of Calleguas. "They view enterprise districts as entities and say, 'You can just raise your rates and recoup it.' "

Enterprise districts are only one type of special district. Special districts are created by a local community to meet a specific need like sewage, water, fire protection and pest abatement.

Enterprise and nonenterprise special districts were supposed to share more equally in the burden of this tax shift. That was discussed when Gov. Arnold Schwarzenegger and legislative leaders met with officials from the special districts early this year. But the nonenterprise districts (fire, police, hospital, library, veterans memorial, mosquito and vector control) talked their way out of contributing and the enterprise districts had to make it up.

More money going north

"It was not intended for us to take the hit we took," Kendall said. "The estimates were we'd take only a third of $4 million. It caught the governor by surprise and all the special districts (because they started allowing the exemptions in)."

Over the next two years, Schwarzenegger and the Legislature plan to take $8 million from Calleguas.

Statewide, the tax shift for special districts will amount to $350 million. The water district paying the most is the Santa Clara Valley Water District, anteing up $25.5 million. Calleguas is 15th.

Water purveyors like Mike Solomon, chief financial officer for the United Water Conservation District, which delivers wholesale water to a third of the county including Oxnard, are calling the tax shift a "raid." They say politicians have figured out a way to raise taxes without calling it that.

"You can have somebody saying, 'I won't raise taxes,' " Solomon said, "but by raiding local governments so they have to raise rates, it is in effect raising taxes."

"We wear the black hats and they wear the white hats," said United's general manager, Dana Wisehart.

United has already raised its rates 51 percent. The district saw the hit coming and notified constituents at a town hall meeting last May.

Court challenge

United is losing about $1.5 million of its budget, which includes $900,000 it was still paying to cover a state budget crisis from the early 1990s. Calleguas challenged the state when it tried to take its money in the early 1990s. In court records Calleguas' lawyers argued that the state was engaging in a scheme.

"The current tax shift legislation is an attempt to create a loophole in the tax limitation provisions of the California Constitution by indirectly increasing the tax burden on California residents (by forcing local agencies to increase fees or decreasing service) without a two-thirds vote," Calleguas argued.

But Calleguas lost its court challenge and decided it would not be worth the cost to appeal.

A court challenge may not be necessary to keep the state from doing this in the future.

Proposition 1A was approved by voters in the November election. It allows the state to borrow -- not permanently take -- local government revenues in the event of a fiscal emergency. It goes into effect in 2006.

"When voters voted for 1A it was a mandate that the taxpayers wanted taxes to stay local," Kendall said.

Because projections are that the state budget won't be straightened out for three years, Kendall expects that in the third year, Calleguas will be handing the state another $4 million, only it will be a loan.

Ventura County Star