Council takes action in water system acquisition
The Claremont City Council has unanimously approved the use of $350,000 in city funds to prep financial and legal documents needed for the potential purchase of Claremont’s water system.
The elected officials made their decision at a special council meeting held Wednesday night at Claremont’s Taylor Hall. More than 500 people tuned in, both in person and online, as city officials made the highly anticipated move forward with water system acquisition.
A panel of administrators—including City Manager Tony Ramos, attorney Sonia Carvalho and a legal team from Best Best & Krieger—presented a comprehensive analysis of Claremont’s water system and the details surrounding its purchase. A little less than an hour of public comment followed the report with about 20 people getting up to speak.
Though public feedback was split, the council held firm in its resolve to fight for local control.
“Water...provides us with a sense of security long term, and it is better managed locally,” said Mayor Pro Tem Joe Lyons. “The only way that we will ever regain any sense of local control over our destiny is to practice home rule.”
The council took its first step toward local water ownership more than a year ago, with the allotment of $300,000 in general reserve funds to explore replacing Golden State Water company. Among the expenditures was the hiring of an appraiser, utility and financial consultants tasked with determining the value of the water system and the feasibility of its purchase.
Should Claremont acquire its water system, the city will not be expanding its own personnel to manage its operation, according to Mr. Ramos. The city will instead likely contract with a neighboring water management team, like Pomona, La Verne or Upland, he said.
After a review of Golden State Water’s facilities, and an examination of overhead costs among other factors, the city-obtained appraiser estimated the value of Claremont’s water system at around $54 million. This figured was determined based on Golden State Water’s anticipated cash flow and fair market value, according to Ken MacVey, an attorney with Best Best & Krieger. He did note the appraisal was given without a proper examination of the water system’s underground infrastructure, to which several residents took issue.
The city would also need to maintain funds for major repairs and replacements among other costs, Mr. MacVey recognized. With this in mind, the appraiser conservatively estimated the city could afford up to $80 million with little to no impact to existing water rates and without resorting to a water bond or parcel tax. If the water system purchase were to cost $100 or $120, city experts estimate rates would still be lower than existing Golden State Water rates in 9 or 17 years, respectively. Claremont residents would no longer be subject to regional rates and could determine their own rate system at public meetings held locally, Mr. MacVey maintained.
“The city, if it did acquire the system, would be in a better position to control costs in capital investment. There would be no profit incentive guiding that investment, it would be the needs of the community that would direct that investment,” he asserted. “The city and ratepayers would also be able to establish local management strategies and priorities. It may be that there are certain unique needs to this community that cannot be addressed on a region-wide basis.”
While there are recognized perks of water system ownership—local control, community-driven policy, no Water Revenue Adjustment Mechanism (WRAM) or other surcharges—officials made a point to acknowledge the downfalls. To date, Golden State Water has rejected the city’s offers of $54 million and $55 million. In a statement released Thursday afternoon, Denise Kruger, Golden State's senior vice president of regulated utilities, reiterated that $55 million is an "unrealistic offer" that would actually result "in a $469 annual rate increase for every customer."
"The city has a basic math problem, based in part on a gross miscalculation of the system’s value," Ms. Kruger states. "At an accurate purchase price, the rate increase would be substantially more."
If the water company is unwilling to sell, as they have indicated, the city will need to resort to eminent domain proceedings in order to acquire its water system. Doing so would require a 4/5 vote from the city council at a noticed public hearing and the filing of a lawsuit, according to a city report. The ensuing legal battle and pre-acquisition expenses will be extensive, Ms. Carvalho pointed out.
“We know these costs will be in the millions of dollars. Not hundreds of dollars, but millions,” she reiterated. “Already today, with the experts that have been retained and the work that’s been done, the city has incurred great expenses.”
Claremont resident Michael Klein, while impressed with the thoroughness of the city’s report, is unsure he and his family are ready to take on that burden.
“We know what the relationship is between government estimates of cost and the real cost of the system. We are not going to get this system for $55 million, there’s no way. We might get it for $150 million,” he said. “I’m not sure the risk is worth the reward.”
Joe Reyes, a Claremont resident who has worked in the water business for over 30 years, agrees it is going to be costly, and likely more expensive than the city’s estimates. But fighting for local ownership, even if it means a costly legal battle, is a risk well worth it.
“I’d rather we be in charge of our future than allow someone else who will continue to raise rates dictate our future,” he said.
Golden State Water officials, including Foothill District Manager Ben Lewis, were present at the meeting, but did not speak during public comment. Their request to give a presentation at the town hall meeting was denied by the city manager last week. Instead, the water company has announced it will hold its own town hall on Tuesday, November 19, from 6:30 to 8 p.m. in the multipurpose room at 757 College Way.