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A meeting held between administrators at the J.F. Shea Therapeutic Riding Center and representatives for the Santa Margarita Water District on May 15 left Shea Center CEO Dana Butler-Moburg in shock.
Shea Center administrators found out their annual water bill is anticipated to increase by 288%, or up to $45,000 a year—compared to a previous annual price tag of $15,000.
“We knew the rates were going to go up,” Butler-Moburg said. “They basically presented to us that one of our bills would go up, (which) has turned out to be 730%.”
The Shea Center pays numerous separate bills for water services, including for sewer and domestic water. The horse-riding therapy nonprofit’s sewer bill is projected to increase by 40%, though domestic water costs are estimated to decrease by $1,200 a year.
The sharp increases could go into effect this summer for the Shea Center and certain other businesses, nonprofits, and other non-residential properties in San Juan Capistrano if approved by the SMWD Board of Directors in mid-July.
Under the proposed new rates, the monthly charge would be $175.74 for a 3-inch meter; $274.29 for a 4-inch meter; $546.93 for a 6-inch meter; and $875.41 for an 8-inch meter as of Aug. 1. Meters 10 inches or longer would be charged $1,313.93 a month.
Costs would slightly decrease beginning July 1, 2024, though. The meters do not currently have any monthly costs.
Based on fire meter bill impact estimate data from SMWD, the increase could be an additional monthly charge of $1,204 for shopping centers, $1,197 for industrial sites, and $842 for hospitals.
However, the same costs are expected to decrease by $2,707 for golf clubs, $2,534 for government properties, and Mission San Juan Capistrano by $41.
A public hearing will be held by the SMWD Board of Directors on July 12 in the agency’s main office at 26111 Antonio Parkway in Rancho Santa Margarita at 5:30 p.m.
Based on data available from SMWD, more than 100 businesses, churches, schools, and nonprofits in total could experience significant rate increases.
“They’re targeting those of us that have fire sprinklers,” Butler-Moburg said. “The way it’s written is they call them fire meters. What that basically means is that as businesses or schools or churches or nonprofits, when we build, we are required to put in fire sprinklers or fire suppression systems. They are rating heavily, exorbitantly, the pipes that are 3 inches or larger.”
Fees that previously never existed have been added on to fund improvements, Butler-Moburg said.
SMWD became the water utility provider for San Juan in November 2021 following the city’s annexation of water utility operations.
“As we went through the annexation process, we were very clear throughout the whole process that we understood rates were going to need to be looked at and adjusted,” SMWD General Manager Dan Ferons said.
“We took this year and a half to really understand what the system needed, how it operates, where we needed to invest, what kind of investments we needed to do, and also to bring in some third-party experts to help us analyze the rates,” he continued. “We said in the annexation that we would work to have the rate structure match our rate structure.”
Water rates have not increased in San Juan since 2018.
“All the water around us has gone up to 6% to 9% every year since then,” Ferons said.
SMWD spokesperson Nicole Stanfield said the district “knew some challenges needed to be addressed” when the City of San Juan requested water services be taken over because of deferred maintenance on water and wastewater assets.
“Our challenge now is that both the rates and deferred maintenance are confronting us at the same time,” Stanfield said. “After looking under the hood with inspections and being the water provider since November 2021, we found that the maintenance and upgrades required are larger than expected.”
According to Stanfield, the agency has spent more than $7 million on what it identified as “emergency fixes” to maintain water flow and lower risks.
Another $40 million is anticipated in maintenance work over the next five years. Water utility crews have been digging up underground water pipes throughout San Juan and are planning to replace them.
An expectation that fire lines “must always be in top shape for performance” exists “by law,” Stanfield said.
“Our community, Orange County Fire Authority, and state regulators will allow nothing less,” Stanfield said. “We are committed to working with the Shea Center, and all impacted businesses and community groups, to help them understand the reasoning and methodologies for the increases.”
Water district officials are working on articulating their methodology in detail with Shea Center leadership and consultants, Stanfield said.
“We welcome being kept on our toes, as our goal is transparency and understanding,” Stanfield said.
SMWD has undergone a third-party rate study over the past 12 months consistent with Proposition 218, a state-mandated methodology for establishing and setting rates.
“In May, the SMWD board accepted the third-party rate study that proposes maximum rates,” Stanfield said. “The Board is reviewing the rate study and evaluating its next steps. Our board values partnerships and transparency, so public input is encouraged as they consider how to adjust the proposed rates.”
Assistant City Manager Matisse Reischl said a “significant factor” in the City Council’s decision to select SMWD and a “key provision of agreements” was SMWD’s “commitment to make the necessary investment in infrastructure rehabilitation and improvements to ensure long-term safety and reliability.”
“When operated by the city, the then-Utilities Department continually monitored the system’s infrastructure needs and prioritized capital replacement projects annually based upon available funding,” Reischl said.
“However, as a specialized utility district and benefiting from economies of scale, SMWD is better equipped to address necessary infrastructure improvements through long-term capital planning,” she added.
In response to the Shea Center’s concerns, Ferons said he understands the “shock and awe” from seeing a large cost increase.
“Fire services put a big load onto the system,” Ferons said. “In the analysis, they’re being assigned a lot bigger piece of the cost than they were previously assigned.”
Two programs have been developed to assist affected customers: one for residential accounts and another for fire services.
Discounts will be offered for residential accounts. As for fire services, businesses and other affected institutions will be offered rebates so no one will be impacted more than 100% of an increase, Ferons said.
SMWD provides a service whether people use it, Ferons said.
“The fire hydrant in front of your house has to be ready,” Ferons said. “We have to maintain that system, regardless of what the demands on the system are.”
Butler-Moburg said the more the Shea Center found out about the new rate plan and started asking for information to understand it, it got “harder and harder.”
“The more we began to understand about how water districts function, they’re not accountable to anybody except the voters,” Butler-Moburg said. “If we had wanted to rescind the rates by gathering enough signatures, you’d have to have 51% of the ratepayers send a letter. That’s simply not possible.”
Notices of the rate restructuring have been mailed out to affected people.
According to Butler-Moburg, SMWD has not provided assistance to people who asked for help or put a rate calculator on their website for commercial customers. Butler-Moburg also said the Shea Center has had to proactively request information about the rate increases.
When asked about their outreach efforts, Ferons and Stanfield said they have met with businesses and people who will be impacted by higher costs, held outreach events with HOAs and other community sectors, and spoken about coming changes during public Coffee Chat forums.
Butler-Moburg said SMWD does not have the best interests of the community at heart.
“If they did, why would they continue to pursue these increases that will damage our community that’s just getting back up on its feet?” Butler-Moburg said. “I’ve been working in San Juan for 25 years.”
“For 25 years I’ve been here and hearing how there’s great desire for our community to have a robust enough tax base so that our city can have the services and things that we need,” she continued.
Butler-Moburg said while she understood maintenance must be done, she questioned why the burden has been put on businesses—particularly during a period of inflation and recovery from the COVID-19 pandemic.
Ferons said the restructuring is impacting everyone differently and bringing about varying perspectives.
“When we go forward, we won’t have these kinds of great increases because, once the structure’s in place, it can continue to operate and then increases will be a little bit more gradual,” Ferons said. “This one time is rough and we recognize that.”
The Shea Center has hired a water rate consultant, Tom Scaglione, to go through SMWD’s rate restructure study. Scaglione said water rarely goes through fire suppression system units.
“They’re estimating 13 units of water,” Scaglione said. “That’s the same amount of water that a single family uses in one month. For the whole year, that’s what’s going to go through these, but they are recovering $2.4 million from these fire accounts of their $22 million requirement.”
“That’s a huge percentage to put on just a few meters throughout their district that are never used or any water goes through,” Scaglione added.
Other options Scaglione and Butler-Moburg suggested are for SMWD to borrow money from a financial institution or issue a bond.
“It’s very common for a utility, very capital-intensive, to borrow for these projects,” Scaglione said. “These projects have a very long life. They are not repairs. They are replacements. They have a life anywhere from 20 years to a hundred years.”
Most water district boards do what they can to avoid rate increases that are a double-digit percentage, let alone triple-digit hikes, Scaglione said.
Ferons said while capital improvements can be done by a bond, such an option comes with its own costs—such as issuing the bond and paying it back.
“What it does, it defers the potential of these increases a little bit,” Ferons said. “The rate structure we’re set in place is a PAYGO structure. A lot of times, we use bonds for a big project. We don’t necessarily want to bond making repairs and changing valves out because that’s something that’s going to go on continually.”
“We want to set a rate structure that keeps a cash flow coming in that supports the annual investment that we need to make,” Ferons continued.
SMWD Board Member and San Juan resident Laura Freese, who also previously served on the City Council, was at the May 15 meeting with the Shea Center.
“The rate study showed that in the past 10 to 20 years, one entity of the people of SJC had been subsidizing another entity,” Freese said. “Therefore, Santa Margarita Water District needed to restructure and right-size the rates. In other words, have the users pay for their share and not pay the share of others.”
Freese said she only became aware of the impact to fire meter rates in May.
“It was a devastating surprise. Therefore, I requested that we pause immediately,” Freese said. “That is when we reached out to some of the more affected customers, which included the Shea Center.”
Board members are “sensitive” to the changes in rates, Freese said.
“In the long run, the community will benefit from the restructuring,” Freese said. “People will be paying their fair share and not subsidizing others.”
Freese said she has not heard about drastic rate increases from many other people but knows some members of the community “are worried.”
“While some commercial businesses have their rates increasing radically, others have their rates increasing minimally or not at all,” Freese said. “We are trying to reach out to those most effected.”
The Board of Directors is continuing to work on ways that could possibly “soften the impact of these changes,” Freese said.
Larry Kramer, a fellow San Juan resident and former councilmember, said he always suspected there would be discussion that rates might go down when Santa Margarita took over the city’s water and wastewater services but believed that meant rates might just increase less.
His current monthly residential bill for a 10,000-square-foot lot is about $100 and could increase to $115.
“We use, on the average, about 10 CCF (centum cubic feet) of water per month,” Kramer said. “I am sympathetic to the residents and businesses that must pay more for utilities. However, with our aging infrastructure, it is necessary to properly maintain our infrastructure so we have a reliable source of water.”
During his time on the City Council, Kramer said he worked closely with the city’s Utility Commission, then headed up by the late Ray Miller.
“At nearly every meeting of the Commission, he would point out that our maintenance budget was grossly underfunded,” Kramer said. “The city’s rationale was that the costs for water were to be funded only from water revenues and to keep the water rates as low as possible.”
“For those of you who were around then, you may recall that efforts to modestly increase the budget were met with strong opposition and lawsuits,” he added.
Kramer further said he hears horror stories throughout the United States of cities where residents must drink bottled water because of inadequate water utilities.
“I am glad we are not among them,” Kramer said. “I believe that unreliable water would have a greater impact on businesses and residents than higher rates.”
Coming back to the financial impacts on certain San Juan businesses and sectors, Butler-Moburg said SMWD did not ask themselves if such high increases are OK.
“Is 850% OK? It’s just not,” Butler-Moburg said “What about the small businesses just getting back on their feet that are part of a shopping center that’s going to have a huge increase? The shopping center’s not going to take all that on the chin. They’re going to pass it on their tenants.”
