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Tuesday, Jan. 16, 2007 | Mayor Jerry Sanders pledged during his 2005 run for office that he would not raise taxes to pay down the pension and retirement healthcare deficits that continue to strain city budgets. But a portion of the hikes to residents’ water and sewer bills — billed as needed funds for legally required repairs to both systems — will be used to help pay down those mounting pension and health care costs.
More than 14 percent of the added service costs that Sanders is proposing for the next four years for water customers will go to paying pension and retirement healthcare costs, according to a voiceofsandiego.org analysis of city data. The review also showed that 15 percent of the sewer fee hike will be going to those retirement costs.
Sanders has characterized the higher bills as an unwanted but unavoidable obligation that will allow the city to avoid fines, comply with health and environmental mandates and prevent an outbreak in pipe breaks, such as the rash of water-main ruptures Sanders has played up in the past several weeks. His proposal to raise water rates by 29 percent and sewer fees by 35 percent over the next four years is also the city’s first pitch to increase those charges since the onset of the city’s financial crisis.
The added fees are needed to make the necessary improvements to the systems’ infrastructure, Sanders says. But a significant chunk of the new revenue will also go toward paying down pension and health care costs.
“It’s appropriate to pass that on because it will be higher than what we pay with the current rates,” Water Department Director Jim Barrett said.
Residents have seen the strain pension and retiree health care costs have had on the city’s day-to-day budget, as library hours and routine repairs have been scaled back in recent years. But this is the first instance where they will be asked to pony up an additional sum outside of the city’s operating budgets on a regular basis to pay down the debt.
The higher water bills are expected to generate about $194.2 million by 2011, and $18 million of that sum would be directed to retiree healthcare while $9.6 million would go toward the pension deficit, an analysis of city data showed. Of the $204.6 million raised over the four-year stretch for the wastewater system, $24.6 million would be set aside for retiree healthcare and $7.6 million would be sent to the pension fund.
As it stands, the city is pressed with a $1 billion pension deficit and a $1.4 billion deficit in retiree health care. Payments to the San Diego City Employees’ Retirement System steadily increased over the past several years — from $85 million in 2004 to $162 million in 2007 — before dipping to an estimated baseline of $138 million for 2008. The mayor has said he will put in extra cash above the bill presented by the pension system in the coming year. The city has yet to stockpile cash for its future retiree health obligation, but is expected to start a trust fund for the benefit in 2008, with annual contributions expected to ramp up to $75 million by 2010.
Payroll costs are broken down between the different city funds. The general fund, supported by such things as property, sales and hotel taxes, pays the salary and benefit costs of those employees who work in basic city services such as libraries, police or fire. Departments such as water have their own budget supported by user fees; it pays separately for the costs of Water Department employees.
Rich Haas, the public works chief for Sanders, said money that would have gone toward other aspects of the water and sewer departments’ operations will be used pay for the recent surges in pension costs. Haas stressed, however, that the primary thrust for the rate increases were to pay for the $1.4 billion in construction and repairs that are needed to comply with state and federal health and environmental orders.
The city currently has a pending settlement with the U.S. Environmental Protection Agency to upgrade the sewer system so that it conforms to the Clean Water Act. Also, the California Department of Health Services has a longstanding order for the Water Department to improve its treatment of the potentially deadly parasite cryptosporidium.
Both the construction improvements and the heightened payroll expenses are a result of the city not keeping up with the real costs of the system, Haas said, noting that fees stayed level between 1987 and 1997.
“Had they had a steady increase over that time, it’d be a different ballgame today,” he said.
Carl DeMaio, president of the tax-adverse Performance Institute, said he will oppose the fee increases until the payroll components of the new rates are minimized.
“The voters are being told that this will be going to infrastructure and that’s clearly not true,” DeMaio said.
He said private companies’ bidding for water and wastewater functions — which is possible under voters’ passage of Proposition C that DeMaio and others backed last fall — should take place before the mayor determined the costs of delivering the services. The City Council, which is scheduled to vote on Sanders’ rate proposal Feb. 26, should hold off on approving the increases until the workforce costs are reined in, DeMaio said.
“Until we solve the health and pension problems, we still feel the rate increases are premature,” he said.
The Mayor’s Office has said that any savings that are generated because of new efficiencies will be kept in a “lockbox” that will offset any increases that may be required in the future.
“This will not be the end. There will be other rate increases beyond that four years,” Haas said.