By Jorge Casuso
March 18, 2025 -- Santa Monica water rates will need to rise in each of the next five years if the City's water fund is expected to stay afloat, a report to the City Council warns.
Under proposed rate hikes the City Council will discuss next Tuesday, single family homes could see monthly rates rise by as much as $19 each year over five years, according to a report from Water Resources staff.
Businesses rates could rise by as much as $73 per month, while multifamily buildings could see monthly increases of $10 per unit.
The new rates are being proposed after the Council doubled the rates in 2020 for five years to eliminate costly imported water and continue to replace the city's water pipes ("City Council Doubles Water Rates," January 30, 2020).
The latest rate structures proposed by the City's consultant, NBS, will be needed after the City's Water Enterprise Fund experienced a total revenue shortfall of some $18.5 million over the past five years, according to staff.
The fund pays for maintaining Santa Monica's water and waste water systems that serve some 93,000 residents and 2,700 businesses and institutions that make up the City’s more than 18,000 water accounts.
Another shortfall of nearly $5 million is projected for the current fiscal year, requiring the City "to dip into the Water Fund reserves" to bridge the gap.
Operating and maintenance expenses and routine and one-time capital projects have been "forecasted to outpace revenues" by between $6 million to $7 million in the upcoming fiscal year starting July 1.
Staff warned that "the gap will continue to grow without a rate adjustment to replenish reserves and keep pace with market escalation rates."
The City Council will be presented with two water rate options during Tuesday's study session. Option 1 "aims to balance rate adjustments with outside funding/financing support to minimize financial impacts on the rate payers."
The option relies on staff "securing grants and low interest loans to pay for at least 49 percent of the total program," which includes capital improvement projects.
The projects include "rehabilitating the City’s four potable water storage reservoirs," and replacing "the water operations center and water quality laboratory."
The second option keeps proposed rate increases down by deferring those major capital projects and eliminating 25 percent of routine Capital Improvement Projects (CIP).
Under Option 1, the average single family home would see an estimated monthly increase of roughly $19 each year over five years, while an average 8-unit multi-family building would see a $10 increase per unit.
An average commercial building would see rates increase by $73 per month each year over five years.
Option 2, which defers the major capital projects, would see monthly rates increase by $13 for single family homes, $6 per unit for multi-family buildings and about $50 for commercial buildings.
City officials attribute the Water Fund's shortfalls in large part to the drop in water use by commercial and multi-family residential customers during the coronavirus shutdown.
In addition, water usage has been affected by "severe drought conditions followed by extreme wet winter periods," staff wrote.
In the meantime, expenditures for operation and construction have risen above projections "due to higher than anticipated market inflation rates caused by chain shortages and increases in material costs."
