West Hollywood water customers of the City of Beverly Hills pay 25% higher rates than Beverly Hills customers. A new study commissioned by Beverly Hills offers two main reasons for the differential and quantifies them. The study does not say whether the combined effect equals the current 25% differential. The study is analyzed in a new report by WeHo by the Numbers.
The first reason for the rate differential is that the rates for Beverly Hills customers are subsidized by contributions from the Beverly Hills general fund, while West Hollywood rates are not.
The biggest contribution from the general fund is $3 million in lease revenue. That is less than 10% of ratepayer revenue, but potentially a big part of the rate differential. The lease revenue comes from two properties the water enterprise owns but no longer uses. One was the site of a water treatment plant and the other, Robertson Yard, was used for storage.
The properties have been leased out. The City of Beverly Hills general fund pays the enterprise market value for the leases. According to the study, the “lease revenue is credited only to the Beverly Hills customers because the land is leased for non-utility purposes.” The study does not say who paid for the properties originally.
Beverly Hill’s general fund has also contributed $5 million in recent years to the development of alternative water sources. The study does not indicate if, when, or how a share of that money will be recovered from West Hollywood customers.
The second reason for the rate differential is that West Hollywood rates need to reimburse Beverly Hills for certain costs currently borne by the general fund. Beverly Hills is willing to cover those costs for Beverly Hills customers, but not for West Hollywood customers.
The estimated amount is $425,000 a year. Over half is for right-of-way maintenance. “Right of way” means streets and sidewalks. Almost a third is for public safety. The rest is for governmental facilities, namely City Hall/Civic Center. The study analyzes each of those costs in detail.
A portion of right-of-way maintenance costs are allocated to water customers because digging up a street to install or repair a water pipe creates long-term street maintenance costs. The calculation starts with $11.7 million in annual street and sidewalk maintenance spending in Beverly Hills. (The cost of right-of-way maintenance in West Hollywood is not part of the calculation.) The study assumes that 33% is due to subsurface activities, mainly underground utilities. About a third of that is then allocated to the water enterprise. West Hollywood customers are assigned 17.4% of the enterprise’s share, or close to $235,000 a year.
The study also estimates the cost of fire and police services that protect water assets in Beverly Hills. The study starts with all Beverly Hills fire and police spending, $125 million, allocates 0.59% to the water enterprise based on property values, and then 17.4% of that to West Hollywood customers, for a total of almost $130,000 per year. The cost of fire and police services in West Hollywood is not part of the calculation.
The City Hall/Civic Center complex houses 35 water enterprise employees. Water customers already pay a share of the facilities’ operating and maintenance costs through an overheard charge. However, they have not explicitly paid for the construction of the facilities. The study estimates that West Hollywood customers should pay a little over $60,000 a year to repay the City of Beverly Hills for building the facilities.
To explore some of the implicit assumptions behind these calculations, see the full report, Why are Beverly Hills water rates higher for West Hollywood customers?