MWD’s Hopeful Expectations

 Long before financial advice came from Suze Orman and Warren Buffett, there was Mr. Micawber. A character from Charles Dickens’ novel, “David Copperfield,” Mr. Micawber’s “hopeful expectation” that something will turn up wasn’t enough to keep him out of debtor’s prison.

 Now known as the “Micawber Principle,” the simple idea of living within one’s means takes discipline to accomplish. Many cities and public agencies have recently had to make painful budget decisions in order to live within their means. But the Metropolitan Water District of Southern California has been the exception, continuing to ignore troubling warning signs and refusing to make the spending adjustments necessary to live within its means based on realistic long term sales projections. Instead, it continues to base its spending decisions on the hopeful expectation that its water sales will one day return to past levels – this, in spite of statewide conservation mandates and plans by its member agencies to develop alternative local water supplies.

 Over the past several months, the San Diego County Water Authority has written a number of letters to MWD’s executive staff and board members about critical issues that are not being addressed, including Metropolitan’s failure to develop or adopt an update to its outdated 2004 Long Range Finance Plan. Similarly, MWD has failed to update its central resources planning document, its “Integrated Resources Plan” or “IRP” to reflect the substantially reduced demands on its imported water supply system. Because it lacks coherent water resource and finance plans, MWD continues to spend money on projects that may not be needed and no one is willing  to pay for.

 Due to its size and the importance of its mission, MWD’s refusal or inability to grapple with core business issues should be a matter of concern to all,  because the fallout will ultimately impact every Southern California water ratepayer.  That is because, if MWD doesn’t have enough revenue to pay its bills, its board of directors has the power to continue to raise water rates as well as an option to increase taxes under specified circumstances. Either way, Southern California residents will end up paying the tab.

In an effort to bring these  issues to light before the financial crisis hits, the Water Authority is establishing a library of the letters it has sent over the past two years on MWD finances, rates, water sales and other critical issues.  The first set of letters deals with concerns over information that MWD is putting forward about its finances to Wall Street.

 In its Official Statement for a potential refunding of Water Revenue Bonds, the MWD  Board  voted in August  to accept financial projections  that:

  • Fail to adjust current and future spending to reflect the reduced sales projections.
  • Fail to identify the amount of water that will be sold at a discount to meet projections.  For 2012, it sold 225,000 acre-feet at a discount.  Even with these discounted sales, MWD’s firm water sales were 268,000 acre-feet below its budget.
  • Fail to identify the financial and water rate impacts and risks associated with discounted water.

These broad concerns, along with specific comments on the draft Official Statement were submitted to MWD’s board on August 20 by the San Diego County Water Authority’s four MWD board members.  To read the letter, click here:

To read the rest of the Water Authority’s letters on MWD’s Official Statements, click here:

We will continue to post new letters to ensure that the public has more access to information and an opportunity to be heard as important spending decisions are being made that will impact not only today’s water ratepayers but future generations.