Metropolitan Adopts Two-Year Budget to Address Drought, Climate Change While Mitigating Impacts of Rising Costs, Lower Sales

A two-year budget that strikes a balance between investing in reliable water supplies for Southern California while managing rates to address rising operational costs and reduced revenues due to lower water sales and severe drought was adopted by Metropolitan Water District’s Board of Directors.

The board on Tuesday (April 12) unanimously adopted a $1.9 billion budget for fiscal year 2022-23 and a $2.0 billion budget for 2023-24, with associated 5 percent overall rate increases in Metropolitan’s wholesale water rates in calendar years 2023 and 2024.

“We are in the midst of unprecedented times – we face a deepening drought emergency as we emerge from a worldwide pandemic and confront national supply shortages and high inflation,” said Metropolitan General Manager Adel Hagekhalil. “We must take bold actions today to invest in the future of our region so that we are more resilient to climate change and drought. But we must also limit overall rate increases for our member agencies, which are contending with their own investment needs and affordability concerns.”

The plan serves as a transitional budget as the board deliberates a new direction that will guide Metropolitan’s future rate structure and potentially a new business model while meeting near-term challenges, such as high inflation and a deepening drought emergency. Future rate increases are expected to be higher, including an anticipated rate increase of 7 percent in 2025.

“Our ongoing strategic planning efforts will guide how we adapt to climate change and meet our mission for the next century,” Metropolitan board Chairwoman Gloria D. Gray said. “These efforts will involve major investments in storage, local supplies and water efficiency. As we ask people to use less water and our water sales drop, we have to figure out a way to pay for these investments.”

The approved budget will fund priority operations and maintenance projects as well as important drought-proofing local supply projects. It includes nearly 450 capital projects, including planning activities for Metropolitan’s full-scale Regional Recycled Water Program that, if approved, would deliver enough water to serve roughly 500,000 Southern California households. It also provides continued support for conservation, development of local resource projects and planning for drier years.

To avoid a higher rate increase in 2023 and 2024, the biennial budget cuts $53 million from the agency’s operations budget, with substantial reductions in materials and supplies, research and planning, travel, training, conferences, and director inspection trips of water facilities. In addition, Metropolitan continues its search for new funding sources, which potentially include state and federal grant opportunities, beneficial water exchanges and partnerships that leverage investments in Metropolitan’s system.

“We all must recognize that the cost of providing water is increasing as we face extraordinary challenges,” Hagekhalil said. “We are continuing to work with the state and federal government to advocate for funding that supports Southern California’s water future.”

The Metropolitan Water District of Southern California is a state-established cooperative that, along with its 26 cities and retail suppliers, provide water for 19 million people in six counties. The district imports water from the Colorado River and Northern California to supplement local supplies, and helps its members to develop increased water conservation, recycling, storage and other resource-management programs.