MWD faces pushback on 9.3% rate hike as Los Angeles proposes $150m CIP cut

MWD faces pushback on 9.3% rate hike as Los Angeles proposes $150m CIP cutThe Metropolitan Water District of Southern California board is debating a proposed budget featuring a $1.1 billion capital investment plan against an alternative from Los Angeles that would halve the required rate increase by slashing capital spending and adopting riskier water sales assumptions.

Staff proposed a budget with a 9.3% rate increase in year one and 9.2% in year two to fund increased capital, staffing, and the Pure Water program.

An alternative proposal from Los Angeles seeks to reduce the rate hike to 4.8% by cutting the CIP budget from $950 million to $800 million and reducing PAYGO funding.

Chief Engineer May Hattar pushed back against the cuts, citing an aging system and a $16.7 billion backlog of rehabilitation and replacement projects.

The LA proposal relies on lowering the exceedance assumption from 70% to 60%, a move finance staff warned increases financial risk amid declining water deliveries.

The Metropolitan Water District of Southern California (MWD) is navigating competing financial pressures as it finalizes its biennial budget for fiscal years 2026-2027 and 2027-2028. During a March 24, 2026 workshop, the board weighed a staff-proposed budget requiring rate increases of 9.3% and 9.2% over the next two years against a leaner alternative proposed by the City of Los Angeles. The staff's proposed rate hikes are driven by a $950 million Capital Investment Plan (CIP) and an additional $150 million for the Pure Water Southern California program, bringing total capital and planning investments to $1.1 billion. The budget also maintains the existing property tax rate of 0.007%. However, finance group manager Adam Benson outlined an alternative analysis requested by Los Angeles that would substantially lower the financial burden on ratepayers, reducing the rate increases to 4.8% per year. The LA proposal achieves this by cutting the core CIP budget from $950 million to $800 million and reducing PAYGO funding from approximately 40% to 35% of CIP spending, representing a $105 million reduction over the biennium. The LA alternative also proposes shifting the district's exceedance assumption for water sales from 70% to 60%, which would add 29,000 acre-feet to projected sales and allow costs to be spread over a larger base. Benson warned the board that this less conservative assumption increases the risk of under-recovering revenue, noting that MWD's water transactions have declined significantly from a peak of over 2 million acre-feet in 2014 to a current projection of 1.23 million acre-feet. MWD staff strongly defended the higher capital spending levels. Chief Engineer May Hattar noted that much of the district's infrastructure is over 85 years old. She revealed that the district faces a $16.7 billion backlog of submitted rehabilitation and replacement projects from across its treatment plants, distribution system, and the Colorado River Aqueduct. "We need to increase the budget for the CIP projects, not decrease it," Hattar told the board. The budget debate also encompasses the future of the Pure Water program. Mr. Love, General Manager of Upper Water, urged the board to approve the $150 million planning allocation for the reuse project. He emphasized that MWD's required contribution is only $60 million, which will leverage $90 million in grant funds. Referencing updated 2025 Integrated Resources Plan (IRP) findings, Love noted that the region will need 300,000 acre-feet of new supply by 2045, making continued planning investments in Pure Water and the Delta Conveyance Project essential.