Fresno-area utility providers face financial crisis. Can they keep the water running?

Unpaid water bills are piling up during the pandemic, as small water providers in the central San Joaquin Valley teeter toward a financial crisis that could affect drinking water quality and affordability.

More than 76,000 customers in Madera, Fresno, Tulare and Kings counties are behind on their water bills for a total debt of more than $15 million — according to the results of a state survey of just a fraction of community water systems. In reality, the collective debt is much larger.

Small community water systems, many already on shaky financial footing, may need a bailout to keep safe and drinkable water running at a price affordable to customers. Some can absorb the loss in revenue, particularly those run by cities that can make budget adjustments and pull resources from existing reserves.

“Some systems lost so much revenue, it looks really bad. They’re just hemorrhaging money,” said Max Gomberg, climate and conservation manager with the State Water Board. “They’ve mostly depleted their reserves.”

Gov. Gavin Newsom signed an order last April prohibiting water shutoffs for nonpayment during the public health emergency. Now, Gomberg and others are asking some water administrators: How are you going to keep the water running?”

‘Frightening’ financial records

To understand the breadth of water debt in California, state officials sent a survey that asked 500 community water systems about month-by-month revenues and expenses as well as delinquent accounts and reserves from April to October.

It is the first time the state reviewed the finances of community water systems. What they found is “illuminating, somewhat frightening, but not surprising,” said Gomberg, who managed the data collection.

Survey data show that the expense of running the water system was greater than revenues brought in between April and October, for about a third of the small-to-medium community water systems surveyed in the central San Joaquin Valley.

The financial impact of COVID-19 policies was not felt equally among water providers.

“The systems that were already financially precarious are even more impacted now, because their rate base, the ability of their community to pay, was already inadequate to safely run the system. It’s only worse now,” Gomberg said.

The Earlimart Public Utility District, for example, spent a total of $651,103 on rent, electricity, staff, chemicals, contract engineers and other various costs to keep the water running, while the district brought in about $483,764 between April and October 2020.

The district serves a population of about 8,800 with 1,545 service connections. Administrators reported that about 43 people were behind on their bill, owing $34,204.

The difference between expenses and income is $167,339, but only less than a fifth of that deficit is from nonpayment of water bills, meaning that the water district was experiencing a financial hardship before the pandemic ever started.

Valley water systems can’t afford to provide clean drinking water

Faced with a financial crisis, some water systems reported they can cut expenses by postponing projects to rehabilitate a well, for example, to “limp along, to keep the water running and keep the lights on,” Gomberg said. Others reported that they’ll consider new rate increases to recuperate lost revenue.

Those solutions threaten to exacerbate existing problems with access to safe and affordable drinking water, which is legally protected in the state of California as a human right but practically out of reach.

Dozens of water systems in Madera, Fresno, Tulare and Kings counties are already unable to afford to provide safe drinking water to their customers, often because the small, mostly low-income populations they serve can’t support the cost of expensive water treatment – including Earlimart, which is considering raising water rates.

“A lot of small water systems were in crisis before the pandemic,” said Michael Claiborne, an attorney with Leadership Counsel for Justice and Accountability. “I’m thinking of systems that had $6,000 or $10,000, no reserves, and they’ve lost revenue in the last year.”

“They’re just not in good shape. They’re already delaying necessary maintenance,” Claiborne said. “Like many things under the pandemic, it’s an existing problem that’s exacerbated.”

A water system in Raisin City reported “the water system does not currently have any funds in reserve. The district operates on a year-to-year basis. Revenues cover operation and maintenance costs, but would not be enough for an emergency expense.”

Similarly, Orosi Public Utility District reported it is “in approximate break even at this time,” and with expenses going up, it will need outside financial assistance within five years.

Federal financial support for water utilities dramatically decreased since the 1970s. A state analysis found the federal government supported over 30% of total spending on water utility infrastructure through the 1970s. By 2014, federal funding accounted for less than 5%.

Because of that ratepayers in smaller districts have increasingly taken on the financial burden of paying for infrastructure to treat contaminated or hard-to-access water with some residents paying up to $180 a month for water service.

“Small systems are more vulnerable. We’re not worried about Fresno able to pay its bills,” Gomberg said.

That’s, in part, because when cities like Fresno and Clovis lose revenue, they are able to balance the budget by relying on reserves and with a larger customer base and they are able to afford diverse sources of water.

In the short-term, water systems in need could potentially get a loan, or city governments could divert money from reserves, Gomberg said. But “for some systems, those aren’t options.”

Community service districts, water mutual companies, utility districts or other small water providers don’t have reserves.

Survey results provide imperfect data

Gomberg originally told The Fresno Bee that around 120 systems in the state are at high risk of financial crisis within the next few months without outside cash assistance, including the city of Dinuba.

That’s inaccurate and demonstrates a weakness in surveys as a data collection method that allows for human error in responding to questions and interpreting budgets. .

The city of Dinuba reported 943 customers owed a total debt of $278,402 as of October. For every $10 spent to keep the water running, the city only brought in $8.80 in revenues in the same time period.

City officials warn that survey data doesn’t necessarily show the whole picture. Daniel James, assistant city manager of Dinuba, told The Fresno Bee the city didn’t lose significant revenue in the water fund due to the pandemic.

“As of January this year, total revenues in the water fund are down by $62,690 from the previous year. This is not unusual at the mid-point in the city’s budget year,” James said.

He said the city can pull from reserves that weren’t reported in the survey, including $2.9 million that includes settlement dollars from a lawsuit over contamination from 123-TCP.

Gomberg said that particular discrepancy doesn’t call into question the overall integrity of the survey results. Rather it’s an example of one city that didn’t report complete information.

If anything, he said, “this survey probably under estimates” water debt.

Solution for at-risk water systems: investment in infrastructure

The state is considering short-term solutions to save water utilities money, like negotiating a reprieve on paying the electric bill, or having the Office of Emergency Services deliver chemicals to treat the water.

Ultimately, solutions have to come from the state legislature or from Congress.

Recognizing that a million Californians don’t have access to clean, safe and affordable drinking water, legislators created a fund to provide $130 million a year to help small systems bring their drinking water into compliance with state and federal drinking water standards.

That was before the pandemic and this new level of revenue loss some reported.

Congress in December passed an appropriations bill that included a $900-billion package for pandemic relief.

It included $683 million nationwide for utility bill assistance and California’s share will be about $62 million, which won’t do much against the state residents’ collective water debt of an estimated $1 billion.

President Joe Biden has stated plans for another $5 billion in relief nationwide, which could lead to additional emergency assistance.

At the state level, Sen. Bill Dodd, D-Napa, introduced legislation to establish a Water Affordability Assistance Fund and a program to provide financial assistance for water and wastewater services to low-income ratepayers.

Dodd also introduced legislation to extend existing protection to low-income households on small water systems, against water shutoffs for nonpayment.

A more effective solution, according to advocates like Claiborne, would be a massive investment in infrastructure from the federal government to bring jobs, growth and clean drinking water to rural communities across the country.

Claiborne said, “The sheer scope of the problem — divestment over a period of 50 years, drinking water systems that should have been replaced years or decades ago — I don’t think the state can do it without federal assistance.”