Pico Rivera files lawsuit against its water supplier

City of Pico Rivera acted swiftly and filed a lawsuit against its water supplier over its alarming and illegal rate hikes

In a scathing response to outrageous and illegal water rate hikes, the City of Pico Rivera has filed a lawsuit against the Pico Water District to protect its residents and businesses. The lawsuit filed under Proposition 218 challenges the Water District's recent decision to increase water rates by 110% over the next five years, which the city believes is unlawful and unfairly burdens its residents.

"As Mayor of Pico Rivera, I am deeply concerned about the significant financial burden that the outrageous 110% hike in water rates imposed by the Pico Water District will place on our residents and businesses,” said Andrew Lara, Pico Rivera Mayor. “This unjustifiable increase threatens our community's financial stability and undermines our vulnerable residents' well-being. In these challenging times, it is more important than ever to stand up for the interests of our residents and safeguard their access to essential services. We will continue to pursue legal recourse until justice is served and our community is relieved of this undue financial burden."

In the recently filed lawsuit, the city alleges the Pico Water District (District) failed to proceed in the manner required by law and thus prejudicially abused its discretion in violation of various provisions of the California Constitution. Pico Rivera has a population of roughly 59,000 residents, 90.5% of whom identify as Latino.

The Pico Water District, a significant provider of potable water services and delivery, serves approximately 30% of the city’s residents and businesses, including 53 city-owned accounts. It is governed by a five-member board of directors elected by voters within each of the District’s five service areas. The Board's decision to increase customer water rates by 110 percent over the next five years has sparked this legal action.

The District based its rate hike on a commissioned Rate Study in 2023, which recommended a rate increase purported to “reevaluate” the District’s revenue needs, even though water agencies in California typically conduct water rate studies at least once every five years. The District conducted an earlier rate study in 2020, just in its third year of implementation. Just three years into the 2020 Rate Study implementation period, and without much explanation or justification, the District retained the services of Water Resources Economics, which developed the 2023 Rate Study.

Unlike the reasonable 6% rate increase proposed in their 2020 Rate Study, the 2023 Rate Study recommended a drastic 25% rate increase effective March 1, 2024, another 20% hike on January 1, 2025, and 12% for years 2026 through 2028—an overall rate increase of 110% over just five years.

The city's increase is estimated at $45,000 in the first year, $90,000 in the second year, and $480,000 in years three through five. Once the District’s rate increase takes full effect, it will threaten the financial viability of the City’s publicly owned facilities and severely impact vulnerable residents already hurt by the current economic climate.

The City believes the District’s rate hikes violate the explicit provisions of the California Constitution. They are otherwise unlawful because the District failed to meet its burden of demonstrating that the rate increase does not exceed what it costs to provide the water service. The city also believes the record will show nothing identifying or quantifying historical or projected reserves needed for the District's services. The City wants the Court to stop implementing this rate increase against all District residents and businesses by issuing a peremptory writ of mandate to invalidate the District’s unlawful action.

Aside from generalizing the rising costs and need for various capital improvement projects, the District failed to show what changed from 2020 to 2023, which required a reevaluation of the 2020 Rate Study, justifying a rate increase of 110%. The need and costs associated with capital improvement projects, the inflation rate, and the PFAS cleanup costs were known well before 2020.

The main driver behind the 2023 Rate Study and subsequent water rate hike was the District’s desire to increase its cash reserves to cover unknown and undefined financial risks. To muster challenges against such financial policy, just a few weeks after the adoption of the water rate increase and with little to no time for customer input, the District took action, ushering in a set of new investment policies aimed at maximizing target reserve levels well beyond what is necessary and authorized under the California Constitution.

In its lawsuit, the City also alleges the District failed to provide information that shows that the revenues derived from the fee or charge do not exceed the funds required to provide the property-related service, failed to provide information that shows the revenues derived from the fee or charge are not being used primarily to increase its reserves, nor for any purpose other than that for which the fee or charge was imposed, failed to show that the driving force behind the 2023 Rate Study, and resulting fee increase, were costs associated with future use of services rather than a desire to increase its reserves.

Also, based on the information provided, the District’s fee increases violate several provisions of the California Constitution. This includes failing to provide information that shows the parcels upon which the fee increases are proposed for imposition were identified and also failing to provide information that shows how the amount of the fee increases upon each parcel was calculated.

“The City of Pico Rivera has taken decisive action by filing a lawsuit against the Pico Water District under Proposition 218, challenging the legality of these exorbitant rate hikes,” said Steve Carmona, Pico Rivera City Manager. “We believe that the District has failed to meet its burden of demonstrating that the rate increase is necessary and justified, as required by the California Constitution. Our lawsuit seeks to protect the rights of our residents and hold the Pico Water District accountable for its actions. We are committed to fighting for fair and reasonable water rates that reflect the true cost of service provision and ensure the financial sustainability of our community.”