Arroyo Grande’s water fund lags, but mid-year budget stable, staff says

Arroyo Grande City Hall
Arroyo Grande City Hall The Tribune

Drought isn’t just a drain on water — it also drains money.

Arroyo Grande’s mid-year budget review in general shows positive trends for the city’s finances, except in one notable area: water and sewer funds, where the city staff anticipates about $535,000 less in revenue than budgeted for the year.

Though the situation isn’t dire — the funds both have “strong reserves,” city staff said — it could herald some changes to how much water residents use in the future.

“There’s no need to panic or make any immediate decisions about the funds, but those funds are diminishing and obviously will not last forever,” Administrative Services Director Debbie Malicoat told the City Council in February.

The water and sewer funds help cover the costs of providing water to city residents, including paying for maintenance of the water delivery system that transports water to residents’ homes and the salaries of the city’s utilities workers. They’re funded largely through residents’ water bills and service fees.

According to city documents, the two funds had a combined $6 million at the start of the fiscal year in July 2016. Staff now expect those to total about $3.8 million at the end of this fiscal year.

Part of the change in fund balances is attributed to a decrease in revenue from residents’ water and sewage bills. Because residents have continued to conserve water during California’s drought, the city receives less money into those funds — despite a water rate increase last summer aimed at helping lessen the impact of changes in water use because of the drought.

“We need to sell more water, and maybe now that we have some, we will be able to,” Malicoat said. “That’s some good news that may come out of all this rain.”

Now that storms have helped to replenish some of that drought deficit, the city could choose to lessen its water restrictions and water use could increase, Malicoat said, which would mean an uptick in revenue. The City Council would need to approve any changes to the drought-related water restrictions, however, and no discussion of doing so has been scheduled.

Meanwhile, the city will need to look into other ways it can help bolster the fund.

Malicoat said the city will likely bring some options before the council in the coming months that could help reduce capital and operating expenditures from funds so that it can continue to operate as usual.

Both funds do have strong reserves, so there’s no need to panic or make any immediate decisions about the funds, but those funds are diminishing and obviously will not last forever.

Debbie Malicoat, Arroyo Grande Administrative Services Director

Going forward, the city can likely expect more expenses in that arena, as it explores how it will provide a long-term, drought-resistant water supply.

The city has been engaged in talks with surrounding cities to build a $29.7 million regional water reclamation and recycling project, spearheaded by Pismo Beach. That project is in the early planning phases.

Voters also approved Measure E in November, which allows the city to pursue buying emergency water from the State Water Project, in the event of a significant water crisis. The cost of that is up in the air, and would depend on when and where the city purchased the water.

Despite its water foibles, the city’s budget check showed some positive trends.

The city’s revised 2016-17 general fund budget anticipates revenues of nearly $16.1 million, and expenditures of just less than $17 million.

The budget began the year with a balance of nearly $6.9 million and is expected to end the year with $5.7 million after setting aside $250,000 for reserves.

According to Malicoat, general fund revenue has so far been higher than expected, and the city expects to have about $128,400 more in revenue this year than budgeted. That includes a $60,100 bump in property taxes and $46,800 more from building and planning permit fees.

Economic activity in the city is healthy, she said, noting new businesses opening, such as Food 4 Less in the former Haggen location.

She also noted Arroyo Grande is saving money in some departments, namely the police force, because of employee vacancies.

Kaytlyn Leslie: 805-781-7928, @kaytyleslie