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State budget threatens local water agencies

State may snatch millions from Castaic Lake Water Agency

Posted: June 29, 2009 10:17 p.m.
Updated: June 30, 2009 4:55 a.m.
Water rates will spike and capital improvement project will be frozen if the state snatches $17 million in property tax from Castaic Lake Water Agency, a water official said.

"Under the worse possible scenario, we would raise rates for retailers and we would indefinitely suspend some of our capital improvement projects," said Dan Masnada, Castaic Lake Water Agency general manager.

The Water Agency sells state project water to the four water retailers in the Santa Clarita Valley.

While the state Legislature has not proposed using proposition 1A, which allows it to raid the coffers of special districts to help balance the state budget, the weakened state finances makes such a move possible, Masnada said.

"There's always the possibility," Masnada said. "If the state doesn't get its finances in order, we could be in jeopardy."

The California Senate on Monday approved a Democratic budget-balancing plan that faced a certain veto from Republican Gov. Arnold Schwarzenegger. A state budget impasse frightens Newhall County Water District General Manager Steve Cole.

The resolution may be borrowing property tax revenue from water districts to balance the budget, Cole said.

Masnada's nightmare scenario would be the state borrowing all of the Water Agency's $17 million in property tax revenues. The state is allowed to borrow property tax revenue to balance its budget.

The money borrowed from special districts must be repaid within three years.

Public water agencies are often in the state's crosshairs during fiscal crisis because the agencies have the ability to recover lost property tax revenue through water rate increases, Masnada said.

The Water Agency plans to propose a rate increase in July. However, the proposed increase won't make up for a $17 million loss.
"There would need to be a steeper rate increase," Masnada said.

Any increase by the Water Agency would eventually trickle down to customers through increases at retail water rates, he said.

The Water Agency would have to look beyond rate increases to balance the books if the state borrows all $17 million in tax revenues. Several capital improvement projects planned for the near future would be scrapped.

"We couldn't start those projects until we knew we're getting the money back from the state," Masnada said.

The Water Agency would delay upgrades to its headquarters and to improvements to its computer systems. However, the Water Agency won't postpone any improvements to water infrastructure.

"We wouldn't delay our Rio Vista Treatment Plant upgrade," Masnada said.

The planned $45 million upgrade will help the Water Agency meet peak demand.

Raiding the Water Agency coffers for $17 million isn't the only option the state has to help balance its budget, Masnada said.

Cole said the water district can only wait and see what the state budget looks like before planning capital projects for fiscal year 2009-10. "We have a pipeline project planned to start within the next two months," he said. "If the state decides to take the $500,000 in property tax revenue, the project will be put on hold."

Newhall County Water District's property tax allotment is much smaller than the Water Agency. But the money goes directly into capital improvements, Cole said. Without the money, all capital improvement projects would be suspended indefinitely, he added.
The other alternative is only borrowing a portion of the property tax assessment. In that scenario, the state would borrow $1.8 million, Masnada said.

"We could survive that hit with a little belt tightening," he said.

The capital improvement projects would be delayed until fiscal year 2010-11 when the Water Agency could adjust its budget, Masnada added.

Masnada vehemently opposes any option that allows the state to raid the special district to balance its budget.

"It's a form of taxation without representation," Masnada said. "Just because our finances are in order, the state shouldn't look to us to put their finances in order."

The Associated Press contributed to this report.


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