San Dieguito advances $4m capital budget, signals future rate updates to cover reserve shortfall

San Dieguito advances $4m capital budget, signals future rate updates to cover reserve shortfallThe California water district has approved its fiscal year 2026-2027 budget, prioritizing pipeline infrastructure while preparing to address a significant gap in its capital replacement reserves.

The board unanimously approved a $27.5 million operating budget and a $4 million capital appropriation, primarily earmarked for pipeline infrastructure.

The district expects to hold $2.9 million in its capital replacement reserve at year-end, falling approximately $6 million short of its target.

Staff confirmed that the funding required to meet reserve targets will be incorporated into the utility's next rate update.

Water purchases account for 46% of the district's operating expenditures, with water treatment making up 14%.

The San Dieguito Water District Board of Directors unanimously adopted its fiscal year 2026-2027 operating and capital budget on June 17, advancing $4 million in capital improvement projects while preparing for future rate adjustments to bolster depleted reserves. The district's total revenues for FY27 are projected at $30.8 million, driven primarily by variable water sales (60%) and fixed meter charges (23%). Operating expenditures are proposed at $27.5 million. The bulk of the operating budget is dedicated to purchasing potable and recycled water for customers, which accounts for 46% of expenditures, followed by water treatment at 14%. On the capital side, the $4 million appropriation will largely fund "pipes in the ground" as part of the district's ongoing infrastructure replacement efforts. However, the district is facing a structural gap in its savings. Finance Manager Ali Aguilar reported that the capital replacement reserve is projected to end the year at $2.9 million, leaving it approximately $6 million short of its board-approved target. Aguilar noted that the utility will incorporate the need to meet these reserve targets into its next rate update. The budget adoption coincides with a wetter-than-average water year that has dampened local water demand. Encinitas has recorded 113% of its yearly average precipitation, which has resulted in lower seasonal water sales for the district. To help mitigate future rate pressures at the wholesale level, Aguilar also briefed the board on recent supply strategies by the San Diego County Water Authority, the district's primary supplier. The wholesaler recently approved two transfer agreements to sell excess water to the Western and Eastern Municipal Water Districts in Riverside County. The agreements are expected to generate $27 million annually for the next 21 years, facilitating the transfer of over 420,000 acre-feet of water to help stabilize regional costs.