Wholesale water rates in San Diego County 鈥 a key factor in how much local residents and businesses pay for water 鈥 will rise next year by less than half of what officials were predicting last winter: 8.3% instead of 18%.
But the Jan. 1 increase, which the county water authority鈥檚 board of directors approved Thursday after months of debate and negotiation, is still a substantial hike that brings the cumulative two-year increase to 23.1%.
Board members said they were frustrated that they have to ask residents and businesses to pay so much more for water at a time when everyone is already facing higher costs for groceries and many other things.
鈥淎m I happy about it? No,鈥 board Chair Nick Serrano told his colleagues Thursday. 鈥淏ut it reflects a meaningful downward trend and it shows that this authority is listening and is turning the ship.鈥
Local water agencies typically pass on to their customers any increases in what they pay for wholesale water, but just how much gets passed on could vary widely by local water agency.
Water authority officials are predicting hikes larger than 8.3% in Poway, Lakeside, Del Mar, Olivenhain, San Dieguito and the Santa Fe Irrigation District. They are predicting smaller than 8.3% increases in Sweetwater, Vista, Helix, Vallecitos, Valley Center and Yuima.
The water authority has been raising rates substantially to cope with a financial crisis propelled by a fundamental problem: the water authority borrowed money to build and maintain a significantly larger water storage and delivery system than is now needed.
Officials had expected demand to keep growing as the county鈥檚 population did and as development expanded, but member agencies have instead been buying steadily less wholesale water during the past two decades.
Conservation efforts have also reduced by more than half the amount of water the average person uses per year. And San Diego and some East County cities will soon begin recycling sewage into drinking water.
The 8.3% hike for 2026 is down from 10.4% that was proposed just last month. The main factor in that decrease is the recent settlement of long-running litigation between the water authority and the Metropolitan Water District of Southern California.
The settlement, which is expected to make rates more predictable in coming years, is slated to yield $8.3 million in savings for the authority in 2027 and $23 million in 2028.
But board members voted Tuesday to accelerate the impact of the settlement by tapping millions of reserves next year and then backfilling those reserves in 2027 and 2028 when the savings from the settlement materialize.
That cash will allow the authority to delay a massive bond issue scheduled for next year, in which it will borrow $285 million to pay for some crucial infrastructure projects.
The bond issue, which had been scheduled for January or February, will not be needed until either May, June or July under the new plan 鈥 allowing next year鈥檚 rate increase to be reduced to 8.3%.
Lisa Marie Harris, the water authority鈥檚 finance director, said delaying the bond issue could have another benefit if the Federal Reserve lowers interest rates next year.
鈥淚t鈥檚 likely to be the same or go down, so it鈥檚 actually beneficial to defer it a little further,鈥 Harris said of the Fed鈥檚 rate decisions.
The proposed water-rate increase was lowered from 12% to 10.4% in May thanks to a series of budget cuts at the water authority, including less worker overtime, less money for outside lawyers, less travel and canceling memberships in civic groups like chambers of commerce.
On Thursday, the board also cut its own budget by $122,000 by shrinking travel and sponsorship money.
The main driver of the decrease from the 18% rate hike proposed in January is higher projected water sales to local agencies over the next three years, which lowered the proposal from 18% to 12% in April.
The higher sales projections are based partly on the particularly dry winter and spring San Diego has experienced, which has increased demand for irrigation water from farmers and people with large lawns.
Higher sales help the finances of the water authority because it is contractually obligated to buy more water than its member agencies typically need, forcing it to raise rates to cover its built-in costs.
The 8.3% hike means rates are likely to rise more in 2027 and 2028 than they would if the board had approved the 10.4% hike.
Under the 10.4% scenario, the hike in 2027 would have been 6% and the hike in 2028 would have been 3%. Under the 8.3% scenario, the hike in 2027 is slated to be 8% and the hike in 2028 would be 5%.
Gary Arant, a board member representing Valley Center, worried the move could jeopardize the city鈥檚 credit rating, which can increase interest rates for borrowing.
鈥淚 would just hate to see us do some short-term things to make this less painful that causes us down the road to lose our bond rating, which would cost us more money in the long term,鈥 Arant said.
Water authority officials downplayed that risk.
Environmental groups lobbied for the 8.3% increase versus something higher, but also criticized the water authority for not solving its problems sooner.
鈥淎s demand continues to decline, the water authority must right-size itself,鈥 said Mitch Silverstein of the Surfrider Foundation. 鈥淣o one is saying that will be easy, but it鈥檚 absolutely necessary.鈥
Patrick McDonough of Coastkeeper said rate hikes fall much harder on the poor than the wealthy, reducing social equity.
鈥淓very proposed rate hike further exacerbates an associated equity crisis as every hike disproportionately harms our most vulnerable ratepayers,鈥 he said.
A group called the San Diego Workers Benefit Council lobbied for much lower increases for low-income people, suggesting the water authority could afford that if it sharply increased water rates for technology companies.