West Basin Fiscal Year 2020-2021 Operating Budget

General Manager’s Message June 22, 2020 To the Honorable Board of Directors and Customers of West Basin Municipal Water District It is my pleasure to present West Basin Municipal Water District’s (West Basin) budget and supplemental information for the Fiscal Year (FY) beginning July 1, 2020 and ending June 30, 2021 (FY 2020-21). Each year staff carefully considers key drivers in its budget development to ensure the District’s mission, strategic goals, and commitments are being financially supported by appropriately setting its rates and charges. This message strives to articulate priorities and issues facing West Basin in the coming fiscal years and to describe short-term factors that influenced decisions made in the development of the FY 2020-21 budget. Further, this message will also provide a summary of FY 2020-21 revenues and expenditures, the resulting financial position, and highlight the major changes in this budget compared to current year FY 2019-20 budget. The following objectives were considered in the development of the FY 2020-21 budget including: 1) meeting the strategic plan goals set by the Board of Directors (Board) in their Strategic Business Plan 2017-2022; 2) addressing the end of a substantial fixed revenue source; 3) striving to achieve the targeted debt service coverage ratio; 4) evaluating potential ongoing impacts from the COVID-19 pandemic; 5) implementing of cost containment measures; and 6) having sufficient net revenues and access to a low- cost line of credit to pay for Rehabilitation and Replacement (R&R) projects. The Capital Improvement Program (CIP) for FY 2020-21 is a supplement to the budget. The budgeted total revenue for FY 2020-21 is $224.1 million, representing a decrease of $5.7 million (2.5%) from the prior fiscal year. The sunset of the Metropolitan Water District of Southern California’s (MET) Local Resources Program (LRP) resulted in a loss of $6.5 million annually. The ending of the LRP is the largest contributor to the reduction in budgeted revenues. For the past 25 years, the LRP provided up to a $250/acre-foot (AF) rebate for each AF to help cover operational and capital costs of recycled water produced and sold. Recycled water represents a new drought-proof local water resource supply that decreases the reliance on imported water. The combination of a MET Tier 1 imported water rate increase of $26/AF, an effective increase in the MET Readiness-to-Serve Charge (RTS) of $10/AF, and an anticipated decrease in imported water sales of 4,400 AF, results in a $2.7 million decrease in budgeted imported water revenues. Another significant change in budgeted operating revenue is the continued phase-in of the Fixed Service Charge. The Fixed Service Charge was introduced in FY 2018-19 as a result of a study performed to explore rate structure alternatives with the objective of maintaining revenues and promoting rate stability. The 3-year phase-in of the Fixed Revenue Charge is in the final year of its implementation. This revenue source will generate $7.5 million in FY 2020-21, a $3.5 million increase from FY 2019-20. The budgeted total operating expense for FY 2020-21 is $224.1 million, representing a decrease of $5.7 million (2.5%) from the prior fiscal year. With a decline in revenues, finding ways to streamline 1-1