A host of San Juan Capistrano businesses could see parts of their monthly water bill go up by as much as 1200% under new bills proposed by their new water district after city leaders put off doing maintenance on the system during previous management. 

The Santa Margarita Water District took over the city’s water system at the end of 2021, and said they need to invest $50 million in the city’s infrastructure over the next five years after city leaders failed to properly maintain the city’s water system.

“It’s been under-invested in for the last few years,” said Daniel Ferons, the water district’s general manager, in a June 16 phone interview. “There was deferred maintenance. Yeah, the city will admit to deferred maintenance.”

City officials didn’t want to discuss their management of the water system with Voice of OC. 

But the water district’s effort to get things back on track again – by raising millions for capital improvements through rate increases – has led to widespread concerns among some local businesses and nonprofits.

The Shea Center – a nonprofit dedicated to assisting disabled people with horse therapy – is projecting the new rates mean $30,000 in additional water payments a year, and increases of over 700% on portions of their bill. 

“I don’t know any individual or business that would be able to withstand even a 10% impact after a pandemic, recession and inflation at this point,” said Sara Booth, a Shea Center staff member, in a Wednesday interview.

Ferons defended the district’s public messaging about the increases in a June 16 phone interview. 

“Obviously, if somebody felt like they were surprised, there may be some more we could have done,” Ferons said.

But he and Nicole Stanfield, a spokesperson for the water district, say they’ve gotten the word out through individual meetings, newsletters and community outreach efforts that resulted in “quite a bit of informing.” 

“Could we always do more?” Stanfield said. “Absolutely.” 

Yet in a private email that was accidentally sent to the Shea Center, Ferons questioned whether businesses would be able to understand what was happening enough to actually fight it. 

 “It will be interesting to see if they roust up someone who can understand it enough to figure how to challenge it,” said Ferons in a June 1 email that accidentally included the Shea Center as a recipient.

In the phone interview, Ferons said he didn’t mean to sound dismissive about potential ratepayer concerns.

“We put a lot of time and effort into the analysis and making sure it’s very fair to all the different groups, so the point was, it’ll be interesting for us to look and see how somebody else looks at this,” Ferons said. “Are we prepared to understand other approaches, and how can it be challenged?”

Who’s Impacted by the Rate Increase? 

The new increases floated by the district’s staff and elected board of directors won’t heavily impact residential lines, with the worst water bills set to go up by as much as $30 a month. 

But water bills could more than double for shopping centers, medical offices, and other large buildings. 

Water district staff studied the issue based on water usage in May 2023, and say there are over 133 ratepayers who will see significant impacts to their water bills. 

To review the district’s analysis, click here

Eighteen of the city’s shopping center businesses will take the brunt of the blow, with staff estimating their bills will increase by nearly $15,000 a year. 

Industrial buildings are set to see their water bills more than double, going from an average of around $9,700 a year to over $24,000 a year according to the district’s calculations. 

Other spots, such as churches and schools, will see an increase as well, with an average of over $10,000 in increases. 

The biggest shift is coming to their private fire service lines, which don’t function on a daily basis, but are set up to ensure that if a fire starts, sprinklers can quickly knock it out. 

Under the old system, the maximum monthly rate was just shy of $169 for any pipes that were 10” or larger, the most expensive option. 

Under the new system, businesses would have to pay nearly $2,100 for the same pipe on their water bill, making it a 1200% increase in one year.  

While the district did send out a notice to businesses and residents that bills would be going up, it did not calculate that increase for individual businesses or residents, or note that the increases could be over ten times what they’re currently paying. 

The current water rates “are not adequate to cover operational costs and the significant capital and infrastructure investments needed throughout the community,” Ferons wrote in a letter to residents. “The average residential monthly bill may increase up to $30.” 

Ferons said the rate increases are “the basic cost of being ready to serve,” and that even for less used water lines, such as those for fire sprinklers, the infrastructure has to be ready to go at a moment’s notice. 

Dana Butler, executive director of the Shea Center, said she doesn’t dispute the need to invest millions of dollars into upgrades.

“But they’re trying to collect in five years what should be spread out over 30 years,” she said in a Thursday phone interview.

Tom Scaligone, an analyst with over 30 years of experience in the water utility industry hired by the Shea Center, said hikes like this are unheard of. 

“I haven’t seen anything to this magnitude of an increase,” Scaligone said. “Most of the cost of service study looks normal, except for that.” 

How Did It Come to This? 

The rate hikes are prompting questions about how the local water infrastructure became so outdated.

“The system has depreciated at $3 million a year, and the investment has been under a million dollars a year,” said Ferons of the city water system under prior management. 

“So when you start building that up, over time, you have to be able to have the dollars to fix the system up, to get it up to snuff and make sure that it works the way it’s supposed to work.”

A week before the phone interview, Ferons said drops in San Juan Creek’s water levels left a pipe exposed as soil moved downstream.

In November, roof rafters collapsed into a tank at a water treatment plant downtown, shutting down the plant for six months while they fixed the tank according to Ferons. 

“It’s those kinds of things that you can’t defer, you gotta fix that kind of stuff,” Ferons said. “And so (the rate increases are) raising capital to, to fix the system and keep it up and operational. “

City leaders declined to address the city’s past work on water infrastructure in a statement to Voice of OC, instead focusing on the positives of shifting taxpayers over to the Santa Margarita Water District. 

“Following a competitive process that included extensive public input, in 2021 the City Council selected Santa Margarita Water District to annex the City’s utility systems,” wrote Matisse Reischl, assistant to the city manager in a statement. “Questions regarding the SMWD rate study should be directed to SMWD.”

Typically, major infrastructure projects built by local governments are financed via bonds, which let municipalities get access to millions of dollars up front that are then paid back over several decades by the taxpayers. 

While Ferons said the question on whether or not to use bonds was “fair,” it wasn’t the choice they opted for. 

“Bonds are great for large intergenerational work,” Ferons said. “Bonds are really not very effective for capital repair and maintenance. And a lot of the work that’s in our capital program is that level of repair and maintenance of smaller facilities that doesn’t rise to the cost of a 20 year bond issue.” 

Since you've made it this far,

You are obviously connected to your community and value good journalism. As an independent and local nonprofit, our news is accessible to all, regardless of what they can afford. Our newsroom centers on Orange County’s civic and cultural life, not ad-driven clickbait. Our reporters hold powerful interests accountable to protect your quality of life. But it’s not free to produce. It depends on donors like you.

Join the conversation: In lieu of comments, we encourage readers to engage with us across a variety of mediums. Join our Facebook discussion. Message us via our website or staff page. Send us a secure tip. Share your thoughts in a community opinion piece.