Study concludes proposal “will cause higher water rates for decades, is enormous financial risk”
San Dimas, CA – Dr. Rodney T. Smith today released a study analyzing Claremont’s proposed takeover of the Claremont Water System. Dr. Smith is a former economics professor at Claremont McKenna College who specializes in water resources. The report examines the financial commitments the city and its taxpayers would assume in a takeover of the system, as well as the technical and operational implications of a takeover.
The report was commissioned by Golden State Water Company (Golden State), which owns and operates the Claremont Water System. City officials are considering whether to use the power of eminent domain to take the system from Golden State.
“If Claremont does manage to acquire the Claremont Water System by eminent domain, higher water rates for Claremont residents are a virtual certainty for many years to come,” Dr. Smith said. “If the goal is to charge lower water rates, then the effort should be abandoned because that goal is not a feasible outcome through the condemnation process. The cost of acquiring the system is high, and the problem is that no one can say at this point how high that cost will be.”
“Even accepting the city’s estimate of a $54 million price tag for the system, the city will need to borrow over $72 million from the municipal capital market,” Dr. Smith said. “However, it would be extremely unwise to assume that the city’s estimate of the price will end up being the actual price. A price of roughly double the city’s estimate will result in borrowing of about $130 million, and even that amount could be insufficient. In short, the takeover of the water system is an enormous financial risk for Claremont.”
“My analysis is based on my training as an economist with more than 30 years of experience, and I have provided similar analyses to many water companies, both private and public,” Dr. Smith added.