Tustin Won't Fix Water System and Risks Defaulting on Bonds

In a move that benefited no one in Tustin, the Tustin City Council voted 3-2 on all 6 proposals presented by staff to fix the water enterprise system.  Currently, Tustin's water system needs $45 million in improvements, including rebuilding a collapsed reservoir, fixing wells dating back to 1926 and rebuilding cash reserves.  As of tonight, Tustin's water company continues to operate at a loss and is subsidized by the General Fund.  On all motions on the 6 rate proposals, Mayor Doug Davert and Councilmember John Nielsen voted in favor; Councilmembers Jim Palmer, Jerry Amante and Deborah Gavello voted against all proposed fixes to the water system.

Tustin is now is a very difficult and potentially dangerous situation.  The bonds used to finance previous improvements to the water system have covenants regarding the solvency of the water enterprise. Tustin could default on bonds, which can trigger a whole set of financial problems for the City.    Tustin is also left with a potential safety problem if there is a large fire or other disaster requiring large amounts of water in a short period of time.  Tustin is missing a reservoir (the collapsed Rawlings Reservoir) and could lack surge capacity.  Even though there are interconnects to other water systems that could be turned on in an emergency, those valves cannot be opened without permission, and there is no guarantee that permission would always be given.

The possibility of the IRWD taking over the Tustin water enterprise was brought up by Councilmembers Palmer and Gavello.  There are several issues that make the takeover by IRWD difficult.  One is that IRWD receives property taxes from the users of their system.  The other issue if IRWD would actually want to take over the aging Tustin water system.  The reality is if IRWD were to take over the Tustin water company, Tustin users would still see a rate hike to pay for making the $45 million in improvements needed.  Doesn't matter who operates the water system, the water system still needs to be fixed and paid for.  

Councilmember Gavello brought up the takeover of the Orange Park Acres water company by IRWD and made it sound like it happened quickly, easily and with no rate increases.  This is not the way things happened.  The acquisition took several years and Orange Park Acres residents are paying higher rates than the rest of IRWD.  The Orange Park Acres Mutual Water Company (OPAMWC)  was small, had infrastructure dating back to about 1928, poor service and high rates. The water system was at the end of its usable life.  In 2005-06, the need to find an alternative water company became apparent.  In 2006, proposals were requested from companies  to acquire the system. 

The City of Orange did not bid because they did not want to get involved with fixing the aging and deteriorating water system.  Orange was a natural fit because OPA is adjacent to Orange.  IRWD did not want to bid on the system for the same reasons.  

After a few phone calls from, among others, Supervisor Bill Campbell, a deal was reached to have IRWD take over the OPAMWC.  In 2007, a contract for IRWD to provide interim services was reached.

During the first half of 2008, the Local Agency Formation Commission (LAFCO), IRWD, OPAMWC met and worked out the agreement.  LAFCO was involved because Orange Park Acres is in unincorporated Orange County.  

IRWD purchased the physical assets of OPAMWC and the stock (OPAMWC was a stock corporation.)  The system needed about $7.6 million in improvements at the time of purchase.  Each resident who owned stock received $579.94 per share.  

IRWD reset the rates.  OPAMWC rates were almost three times IRWD rates.  IRWD instituted a 20% rate increase  decrease from existing OPAMWC rates, which made the rates for OPA residents only about twice as much as the rest of IRWD.  The higher rate was needed for eight years to fund fixing the failing OPAMWD water system.  About 8 years after acquisition, the former OPAMWC customers will pay the same rates as the rest of IRWD.  A briefing on the acquisition is available here. http://www.opawater.com/MergerPresentation2008_02_13.pdf

Residents of Tustin need to contact their City Council members and tell them to fix the water system before it is too late. 

 

Comments

[Paul Jones]

To the readers of this story - IRWD actually DECREASED, NOT INCREASED Orange Park Acres'(OPA)rates by 20% after they merged with IRWD. OPA's rates still are higher than the rest of IRWD, but as noted above, OPA customers received a 20% reduction when the merger took effect. The difference between OPA's current rates and the rest of IRWD's rates is being applied to fund OPA's infrastructure repairs. When the infrastructure upgrades are paid off, OPA will receive and additional rate decrease and be on-par with the rest of IRWD. There is a presentation attached to this article that describes this financing plan. The article itself is factually incorrect.

[Publisher]

Thank you for pointing out the typographical error. The error has been corrected. Also included in the story was a link to the OPAMWC site which contained the source material. The story is factually correct and details the need for higher rates for former OPAMWC customers due to the deteriorated state of the acquired water system. The article states that rates will be significantly higher for 8 years to fund the repairs and upgrades, the be tapered off to the IRWD rates over several years.