Big San Diego water rate hikes are ‘crucial,’ budget experts warn ahead of vote

As San Diego council members prepare to vote on major water and sewer rate hikes, the city’s independent budget analyst warns that higher rates are all but unavoidable in order to keep the Public Utilities Department afloat — and that not raising rates would hurt customers in other ways.

The City Council is scheduled to vote on Tuesday on a proposal that could raise water rates for San Diego customers by more than 60% and sewer rates by more than 30% over the next four years.

City officials say the proposed increases would help cover the rising costs for workers, imported water, chemicals, energy, construction projects and other priorities.

“In the current environment of declining water sales and wastewater flows which generate revenue for the systems, this inevitably means increasing rates,” wrote IBA analyst Jordan More in the report released Friday.

Without additional revenue, the IBA predicts that the PUD will need to cut its expenses by slashing either its operating costs — likely by cutting staff — or its spending on capital improvements.

“These reductions will be felt by customers in potential longer call times to customer service and greater levels of service disruption,” More wrote.

Such cuts could also lead to more expensive emergency repair costs and regulatory fines in the future without revenue support from increased rates.

City officials are proposing cumulative 62% hikes to water rates and 31% hikes to sewer rates over four years — increases that would incrementally kick in between January 2026 and January 2029, if approved Tuesday.

Under the proposal, water rates would rise by 14.7% in January 2026, 14.5% in 2027, 11.5% in 2028 and 11% in 2029. Sewer rates would rise 6% in January 2026, 6% in 2027, 8% in 2028 and 8% in 2029.

The water system is in most urgent need of financial help, according to the IBA, largely due to the rising costs of buying water from the San Diego County Water Authority and the lack of regular rate hikes prior to 2023.

Because the wastewater system has raised rates regularly over the past four years, it’s in a somewhat better financial position.

The IBA’s report builds on the findings from an outside consultant in July, which found that the PUD has already done what it can to soften the impact on rates in the short term and spread out increases over the coming years.

PUD officials said the city’s planned hikes would be much steeper if they hadn’t already taken steps to shrink them, including the use of $100 million in rate stabilization funds.

They’ve also saved $83 million by using more water stored in reservoirs, thanks to rainy winters in 2023 and 2024.

And they have saved $67 million by delaying capital improvement projects and another $90 million by delaying a scheduled assessment of the pipeline to the San Vicente Reservoir.

City budget experts also conducted previous reports on PUD’s financial outlook for both its water and wastewater systems, including in 2022, 2023 and another in January.

In those reports, it found that increased rates would be necessary to offset the increased operating and water purchase costs, combined with the decreased water sales to customers.

The IBA recommends that the City Council approve the proposed rate increases for the next four years, and explains that any delays or decreases in the proposed new rates would result in “significant reductions” to the water system’s operating expenses.

But it especially highlights the urgency for the next two fiscal years — particularly fiscal year 2027, which the report calls “the nadir as far as financial metrics for the system.”

“At a minimum, approving the FY 2026 and FY 2027 rate increases at or near the proposed rates in the (cost-of-service) study is crucial to maintaining the operations of the water system,” the report says.

Staff writer David Garrick contributed to this report.