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Vice President of Business Development
Professor of Economics
Claremont McKenna College
Northern California Water Partners LLC
Member of the Editorial Board
Bachelor of Arts
University of California at Los Angeles
University of Chicago
Panel of Experts - Political Donations | NSW Department of Premier and Cabinet
Study Examines Economic and Operational Consequences of Potential Marysville Water System Takeover | California Water Association
After an extensive analysis, Smith concluded, "If the City does manage to acquire the Marysville water system by eminent domain, higher water rates for Marysville residents are a virtual certainty for many years to come.
If the goal of acquiring the system is to charge lower water rates, then the effort should be abandoned because that goal is not a feasible outcome through the condemnation process."
Smith explained that Cal Water's system is regulated by the California Public Utilities Commission (CPUC), which sets standards to protect the public health and safety of water customers and approves all investments to ensure facilities are necessary to meet CPUC water service standards.
In the last five years, Cal Water has spent $5.1 million to maintain and improve the Marysville water system.
Under a municipal takeover, the City and its water customers would be responsible for these costs as well as the long-term bond obligations to purchase the system that could easily reach $50 million.
And unlike Cal Water, the City does not have sufficient reserves or shareholder equity to cover inevitable capital expenditures; therefore, residents would have to bear those costs on a "payas- you-go" basis.
Smith summed up the study's findings by stating, "Marysville's municipal finances will be strained by the indebtedness necessary to pay for the system."
Another major challenge for water system operators is balancing the uncertain economics of variable and fixed costs with fluctuating water demands.
To meet the legislated target of a 20 percent reduction in per capita urban water use statewide by 2020, Cal Water established incentive and educational programs to encourage conservation.
As a result, water demand in Marysville has been declining since 2000, while fixed expenses, such as debt-service obligations and taxes, have remained static.
As Smith pointed out, not only will the City's finances be strained, "The size of City government will have to expand rapidly in an effort to meet the significant technical and managerial demands of operating the system, none of which the City possesses.
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by Rodney T. Smith.
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