Problem Identification:
At present, the City of Baltimore is legally restricted from operating its water system in a manner that would generate annual net profits’representing a return on the City’s assets (to include physical piping and facilities along with water rights). The City is only allowed to operate its system at the level of cost, according to current law, whereby revenues collected must almost exactly match all of the system’s operating and capital costs annually.

Recommended Action:
Examine the City’s action for increasing water utility charges to the surrounding counties.

Revenue Enhancement

Functional/Operational Area:
Bureau of Water and Wastewater

Estimated Annual Impact:
Cannot be Estimated

Estimated Implementation Costs:
Not Determined

Barriers to Implementation:
With close to 50 percent of the City’s water being consumed by users in the City’s surrounding counties, their early involvement in changing local law is critical. The City should expect strong opposition from the counties. More than likely, if this recommendation is adopted, the City will have to share any future net profits with subscribing counties as an incentive for their agreement and cooperation.

Projected Implementation:
30 days to convene task force; 90 ‘ 180 days to develop a strategy for pursuing change involving all stakeholders; 190 days to one year to pursue changes in local law.

Next Steps:
The Mayor should appoint a task force comprised of professionals from the City’s departments and private industry experts to develop a strategy for pursuing a change to the current local law. Begin discussions with stakeholders on the advantages and disadvantages of allowing Baltimore’s water system to generate annual net profits.

The laws currently governing rate assessments for Baltimore’s water system primarily include the Metropolitan District Act of 1924, as amended in the 1940’s, along with related bi-county agreements (collectively local law). The system’s service area spans far beyond the City’s borders to include four Maryland counties, thus, requiring bi-county agreements with the City. Water rates charged users in the service area, per local law (especially as it relates to Baltimore County), cannot be set at a level higher than needed to recoup the costs incurred to operate the system. As a result, service area customers have enjoyed water rates that are the lowest on the East Coast (Even with the recent 19 percent rate increase which took effect May 5, 2000). Most other municipalities across the country are not restricted from generating operating profits from their water systems.