The city has 2,500 water accounts and most currently pay around $24 per month. The proposed increases will result in estimated monthly bills of $38 to $44 in the first year and up to $82 to $85 by 2029. Photo by Delo via Pixabay

LIVE OAK, CA (MPG) - Live Oak City Council members heard a mid-year budget report and considered amendments to the fiscal year 2024-2025 budget during their March 5 meeting. Finance Director James Ramsey highlighted various changes to revenues and expenditures, with a projected ending balance of approximately $2 million in the General Fund.

When looking at the city’s special funds, Councilmember Ashley Hernandez asked for specifics on the Water Fund deficit. Ramsey acknowledged that the Water Fund had a $2.3-million deficit in December 2024 and by the end of the fiscal year, the deficit is expected to grow to $3.5 million.

Hernandez said she was concerned that staff couldn’t anticipate that the deficit would increase that much in such a short time.

Vice-Mayor Aaron Pamma was also alarmed by the change and said that City Council should have been notified much sooner.

“It’s not acceptable,” Pamma said.

With such a large deficit, Pamma pointed out, the city is ineligible for many grants and loans that could improve the water system.

City Council voted unanimously to adopt the amended 2024-2025 budget. 

The council then heard a presentation on a water rate study, funded by a grant from the State Water Board and conducted by Lechowicz & Tseng Municipal Consulting. Project manager Alison Lechowicz said, as already indicated in the budget report, “your water utility is way behind the cost of service.”

As an enterprise fund, the water fund is supposed to be fully supported by the rates charged for service. But Live Oak has not updated its water rates in many years, so current rates are among the lowest in the region. As a result, annual expenses ($1.8 million) are much higher than revenues ($932,000), resulting in an annual operating deficit of $921,200.

Even with past loans taken out to sustain the water fund, the deficit will hit $3.5 million by the end of June. Current rates cannot cover the cost of operation or pay down existing debt. The water rate study provided options for significant rate increases, which will cover operations, improvements and debt repayment.

To minimize the impact on ratepayers, the proposed rate increases would be phased in over five years, with three schedule options considered: Option 1 would increase rates by 50% the first year and 20% the next four years. Option 2 would have a 60% increase the first year, 30% in the second and third years, and 5% in the fourth and fifth years. Option 3 recommended a 40% increase each year for the first three years and then 5% each year.

Lechowicz recommended Option 2, because it would most quickly move the fund into a net positive position.

Another recommendation was to eliminate the current base water allotment and only charge for actual water usage. Lechowicz said charging for actual cost is fair and reasonable, because then lower usage results in a lower cost for the customer.

The city has 2,500 water accounts and most currently pay around $24 per month. The proposed increases will result in estimated monthly bills of $38 to $44 in the first year and up to $82 to $85 by 2029. Lechowicz said those rates are in line with most neighboring jurisdictions.

City Council can select one of the options to set a legal maximum increase for each year in the schedule. An annual review would consider the rate of inflation and whether any grants or loans were secured. If the financial situation had improved, City Council would have the ability to approve a lower increase for that year. 

Lechowicz outlined the legal guidelines for the process, which include outreach to residents and notification of a public hearing. Ratepayers also have the option to submit written protests against the increase, and if more than 50% do so, then the increase cannot be adopted.

During Public Comment, one resident said, “I don’t want a rate increase. Nobody wants a rate increase. But it seems like we dug ourself into a hole here and we’ve got to get back out of it.” He said increasing rates was a better option than allowing the fund to go under and be forced to use a commercial water supplier, which could increase rates even more.

However, another resident called in to say, “It’s preposterous that they’re proposing 200% increase over five years,” which would be “too much for residents in our disadvantaged community.” He said that City Council should move funds around to balance the deficit and then pursue grants and other funding.

Another caller said the bigger concern was water quality, stating that there are currently issues with discoloration, chlorine and PFAs in the water.

Councilmember Nancy Santana was hesitant to dramatically increase water rates while there are existing quality issues. 

Councilmember Hernandez said she doesn’t want to raise rates but the existing deficit makes the city ineligible for grant funding that could support improvements to the water system.

Vice-Mayor Pamma said the current water rate is the “definition of kicking the can down the road” and is “an example of failed leadership over time.” A study in 2017 recommended rate increases but the council at that time did not approve it. Pamma suggested that the Water Fund would likely be in a better position now if a modest increase had been implemented at that time.

Mayor Jeramy Chapdelaine said the city does not have enough in reserves to cover the deficit. Without rate increases, the water fund will be defunct and then taken over by a regulatory agency that will impose whatever rates are deemed necessary.

“We’re at a critical point now,” said Chapdelaine. “In order to be able to continue to provide this service, action needs to be taken.”

City Council voted 4-1 to move forward with Option 2, with Santana dissenting. The city will now begin the public outreach and notification process for an upcoming public hearing and final vote by City Council.

The next Live Oak City Council meeting is scheduled for 6 p.m. March 19.