Follow the Money

I’m going to spend most of my posts today providing alternatives to water and sewer rate hikes. There’s a basic thrust to the government reform approach we promote across the nation. I call it “moving the money” which essentially means when you are faced with a budget shortfall (say for water and sewer infrastructure) you need to look for inefficiencies in your budget and reform those inefficiencies. In doing so you “free up” money that can be “moved” to the area of your budget needed attention. A pretty simple concept, but so rarely practiced in government.

The city’s water and sewer rate hike proposal contains no reforms to “move the money.” Their solution is to go after “more money” from ratepayers by raising rates. And as I noted in my last post, the city is touting “infrastructure” as the only recipient of monies they are trying to raise through increased fees.

So, before I talk about reforms to “move the money” within existing rate structures, we should probably “follow the money” under the city’s proposed rate increase. Will all of those increased rates really go solely for infrastructure as the city claims?

Unfortunately, a close look at the rate hike proposal demonstrates that the monies aren’t all going to infrastructure. In fact, a significant portion of the rate hikes are going to cover increased labor and pension costs in the water and sewer departments.

On pages 30 and 36 of the city’s rate hike proposal, you can find a five year budget forecast for the Wastewater and Water Departments respectively.

A little context for you as you find those pages: There are essentially two sides to the water and wastewater departments’ budgets: “operations” (which covers labor costs to run the water and sewer systems day-to-day) and “capital” (which covers major infrastructure expenditures for water and sewer lines, pump stations, etc. that the city is now required to fund under court order.) The “capital” side of the budget is typically financed 80 percent through debt and 20 percent through existing system revenues.

Over the next five years, the rate hike proposal includes a massive 70 percent increase in the operations side of the wastewater budget and a 35 percent increase in the operations side of the water budget.

Why such a big increase in the operations side of the budget?

Reading on to pages 31 and 37 respectively, you’ll find the answer as confirmed by the Mayer-Hoffman audit firm. As I’m sure will come as no surprise, the rate increase will go to finance increased pension and retiree healthcare costs in both the water and wastewater departments. Can’t find it in the voluminous package?

Take a look at the budget forecasts for both departments yourself…while we see a decent increase in debt service (to finance the new bonds for new capital projects) you see an alarming increase in the operations and maintenance costs over the same five years.

*This goes to finance 80 percent of the infrastructure costs; rest from annual revenues

**In its audit report of where the increased revenues will go, Mayer-Hoffman notes pension and retiree health benefits explain the bulk of the increase for both the water and wastewater departments.

So “follow the money.” It does not all lead to infrastructure – as the city claims. A good amount of it leads to the big gorilla in the room: skyrocketing pension and health care costs. There’s no doubt San Diegans want and need infrastructure projects. I highly doubt that San Diegans are willing to pay more in water and sewer bills to offset rising pension and retiree health care costs.

That’s why in my next post, I’m going to start the discussion on “moving the money” within the water and sewer departments from the “operations” side of the budget to the “infrastructure” side.

Correction: The wrong lines were transcribed from the city’s original PDF proposal. The O&M increase is 19 percent for wastewater, not 70 percent. We’ve corrected the chart

– CARL DeMAIO