Following a lengthy discussion on the pros and cons of contracting with an outside firm to pursue a possible sale of the city’s water system and water rights, that at times had city staff repeating information already given, Bell Gardens city council members voted to hold off on making a decision until their next council meeting.
The city’s aging water system has become a financial burden rather than an asset, according to City Manager Philip Wagner who told council members last week he thinks, “It’s time to seriously look at getting out of the water business.”
The city’s purchase of the water system that provides 30 percent of the city’s water was financed in the early 1990s using bonds. Additional bonds were later secured to fund improvements to the system, bringing the water system’s outstanding debt to about $6.1 million.
“I no longer believe it is an operation the city should be in,” Wagner told the council.
The debt service on the bonds is costing the city $593,000 a year, and that’s beginning to “burden the General Fund” which is already facing a $1.1 million deficit, Wagner said.
The city has not increased its rates for 19 years and state mandated costs and maintenance to the aging infrastructure led the city manager to recommend to the council that it either consider a “tremendous” raise in water rates to its customers or selling the system to an investor-owned utility company like the one that services the remaining 70 percent of the city’s water utility customers.
Bell Gardens staff recommended to the council that they approve a contract hiring a consulting firm to help the city determine the feasibility of selling off its water utility system and water rights. The agreement would also retain the team for three years to help in the sale of the system and rights separately or as a package, should the city decide to go in that direction.
The council heard a brief presentation by the potential consulting team, after which Mayor Pro Tem Sergio Infanzon asked whether this meant that the city had decided to sell the water system and rights, or whether the city had any other options.
“How objective can the process be when there’s a financial incentive to sell,” he asked.
Councilman Daniel Crespo expressed concern that if an outside company is brought in to take over the water system, it could potentially increase water rates to a level that some residents “cannot afford.”
But according to Wagner, they are eventually going to “have to look at raising rates because the cost for us to produce water is much more expensive than what we’re charging the consumer.”
Without a rate increase, the city would have to pay for maintenance required to upgrade the system using the city’s General Funds or face an increase in their overall liability.
The consulting team pointed out that they have never seen another system with 19 years of flat rates.
Councilwoman Priscilla Flores echoed Crespo’s concerns, and asked if there is a way to limit how much rates could be increased. The 30 percent of city residents, who get their water from the city-run utility and have not had a rate increase since 1994, are currently being subsidized by the other 70 percent of water customers, according to Wagner. The city also spends about $20,000 a month on maintenance on top of the $500,000 it pays annually on its bond debt, Wagner said.
“That’s a good part of our deficit,” he said. “So either way we will have to come back and address the water rates because it’s bleeding us.”
According to city documents, the sale of the system and rights is expected to generate enough money to pay off the outstanding debt, recoup the city’s investment and potentially repay a portion of subsidies previously paid by the General Fund. If approved, the analysis of the water system would be completed within six weeks.