MWD proposes 7.5% annual rate hikes as federal IRA subsidies dry up

MWD proposes 7.5% annual rate hikes as federal IRA subsidies dry upThe Southern California water wholesaler is projecting consecutive 7.5% rate increases for the upcoming biennium to offset a $47 million revenue gap and fund aging infrastructure repairs.

MWD is projecting a 7.5% annual rate increase for FYs 2026/27 and 2027/28.

The expiration of federal Inflation Reduction Act funding has increased the district's revenue requirement by $47 million.

Projected revenues from the sale of stored water to non-member agencies are being reduced from $60 million to $25 million annually.

The MWD board unanimously certified the Environmental Impact Report for the Pure Water Program for Southern California in early February.

The Metropolitan Water District of Southern California (MWD) is proposing 7.5% annual rate increases for the 2026/27 and 2027/28 fiscal years, driven by the expiration of federal subsidies and a strategic shift away from relying on uncertain water sales revenues. During a March 4, 2026 caucus meeting hosted by the West Basin Municipal Water District, MWD Revenue and Budget Manager Arnout Van den Berg outlined the key drivers behind the proposed biennial budget. The primary catalyst is the end of federal funding under the Inflation Reduction Act (IRA). The loss of these "bucket one" funds, which previously offset supply program costs, has resulted in a $47 million increase in MWD's revenue requirement. Simultaneously, MWD is adjusting its revenue assumptions regarding the sale of stored water to non-member agencies. To avoid relying on one-time or uncertain revenues to reduce short-term rate impacts, the district is lowering its projected water sale revenues from $60 million a year to $25 million a year, with plans to gradually reduce that figure to zero in future budgets. The baseline budget is also absorbing increased departmental operations and maintenance costs—including personnel, materials, utilities, and security—as well as debt service associated with capital supply, conservation, and operating equipment. Beyond the baseline, Van den Berg noted that incremental rate drivers include an increase in base capital improvement program (CIP) spending to address a growing backlog of repair and replacement projects on aging infrastructure. These cost increases are partially offset by lower projected water costs and higher property tax revenues, keeping the proposed rate hikes at 7.5% for each year of the biennium, with gradual moderating increases expected over the remaining forecast period. Alongside the budget presentation, MWD General Manager Shwaji Deshmukh, who assumed the role on January 1, highlighted recent progress on the district's major capital initiatives. Deshmukh noted that the MWD board unanimously certified the Environmental Impact Report for the Pure Water Program for Southern California in early February, marking a critical milestone in determining the project's path forward.