Did the City Sell Short on Rate-Sharing Agreement with Woodland?
Written by David Greenwald Tuesday, 11 December 2012 07:19
Opposition Claims City Pays 30% More Per Gallon Under This Agreement - Right before Thanksgiving, Mayor Pro Tem Dan Wolk and Councilmember Rochelle Swanson made their big announcement that Davis had reached consensus with Woodland on a cost-sharing agreement, under which the cities would equally share all non-consumption-based costs and all consumption-based costs would be shared with Woodland taking up 60% of the costs.
In addition, Woodland agreed to pay for a portion of the pipeline - picking up another $3 million, meaning they paid for half of the pipeline that was within Woodland's urban limit line.
"This resolution represents an estimated savings of $10 million to Davis ratepayers above the current cost allocation," Dan Wolk and Rochelle Swanson said at the time.
They added, "We feel that this is a good and amicable resolution, and we appreciate Woodland's willingness to re-examine the cost allocation. As we have said before, this project is critical to the future of our community - of both our communities. This agreement represents a significant step in achieving that goal."
However, in the ballot arguments submitted against Measure I, the water initiative, Sue Greenwald, Mark Siegler, Michael Bartolic, Michael Harrington and Pamela Nieberg call this arrangement "unfair."
They argue, "Davis will pay 30 percent more per gallon of water than Woodland pays." And they add, "The Davis Water Advisory Committee did not endorse the project with this inequitable cost-sharing agreement."
The opposition told the Vanguard, "As reported by the Enterprise, and confirmed via e-mail with Herb Niederberger, the total project costs are estimated to be $113.77 million for Davis and $131.27 million for Woodland."
Davis is getting 12 mgd and Woodland 18 mgd.
They calculate the following: "The cost per million gallons for Davis is: $113.77/12 = $9.480833 The cost per million gallons for Woodland is: $131.27/18 = $7.292778."
They add, "You could divide each of these by one million to get the cost per gallon, but the ratio wouldn't change. $9.480833/$7.292778 = 1.3003, so Davis will be paying 30 percent more per gallon of water than Woodland will."
There is little doubt that Davis is paying, under this agreement, more for their water in this project per gallon than Woodland is.
The second part of the argument is that the WAC did not endorse the project with this inequitable cost-sharing agreement. This is a bit more tricky. A more accurate statement would have simply been that the WAC endorsed a different cost-sharing arrangement from the one that emerged in the Wolk-Swanson agreement.
As the Vanguard reported in October, the WAC agreed that both cities will share in the cost of the pipelines to convey the treated water to the city limits of each city and that the cost share percentages of the entire project change to reflect the current anticipated reliance on the treatment facility.
Furthermore, the WAC recommended that the council use arbitration or mediation to resolve the equity issues if the councils of the two cities and the JPA could not do so. The numbers show that Wolk-Swanson fell short of the parameters that the WAC felt was an equitable share, but never utilized the mediation process to reach an equitable scenario.
The cost-sharing agreement approved by the WAC would have seen a 60-40 split on all costs except a 50-50 sharing of the pipeline. The resultant cost to the city of Davis would have be $106.72 million.
That would have resulted in an overall 56.4-43.6 split in the costs between the city. Most importantly, the $138.29 million cost to Woodland would have still allowed them to finance the project without running a new Prop 218 vote - a critical consideration for them.
Had Wolk-Swanson stuck with that arrangement, they would have produced a $17 million savings over the original deal - an additional $7 million in savings over what they eventually agreed to.
"This is the deal that WAC members Frank Loge and Matt Williams described as 'fair and equitable' because deal creation costs are split 50/50 and all other costs are split on the same 60/40 proportion as the 18 mgd/12 mgd."
WAC Members Mark Siegler and Bill Kopper argued for a 60-40 cost-share across the board. Under their proposal they would have taken the city's costs down an additional $6 million over the Loge-Williams proposal and $13 million over the current agreement.
Under these terms the city would have paid $100.25 million or 40.9% of the total costs. The drawback to this proposal is that it would have required Woodland to take out another Prop 218 vote.
The Vanguard asked Dan Wolk and Rochelle Swanson to comment on these numbers and the claims made by the opposition.
After delaying this article by a day to allow the city to gather the numbers together, the city ultimately failed to provide the Vanguard with a statement.
Late last night, Mayor Pro Tem Wolk told the Vanguard they would have a response by this morning, however, that it would be too late for inclusion in this article.
While there is no question that, based on a more 50-50 split of fixed costs, the city of Davis pays more per gallon than Woodland, there is room for debate as to what is an equitable split on these costs.
For instance, as one defender noted, "There are some costs for a water system that have nothing to do with consumption. For example, it costs exactly the same amount to print a bill for an account that consumes 1 ccf per month as it does for an account that consumes 1,000 ccf per month."
They added, "The same is true for the costs of collecting the bill, keeping the accounting for the district, etc. There are other costs that are independent of consumption level. Microbiological testing, meter repair, Proposition 218 documentation and filing, legal compliance, SWRCB filings, etc all have to be done at the same level of effort and cost regardless of consumption."
City Manager Steve Pinkerton, in effect, argued that the agreement was fair by reconstructing the question - by assuming a 12 mgd-12 mgd project with an additional 6 mgd going to Woodland. Under that arrangement, he contends, you end up with about the same $113 million figure for Davis once the cost-sharing of the pipeline is factored in.
However, the project opponents have a different view. They believe that Davis retained considerably more bargaining power because Woodland needed this project far more and far sooner than Davis did.
In fact, they noted that Davis could effectively walk away, since there is in their minds a cheaper alternative that exists in West Sacramento.
The city recently estimated that it would cost Woodland tens of millions of additional dollars in order for Woodland to build their 18 mgd plant by themselves.
Under those conditions, the belief is that the city's negotiators could have done better and certainly should have taken Davis at least to the Loge-Williams numbers, that still would have allowed Woodland to finance the project without an additional Prop 218.
---David M. Greenwald reporting
we're not talking about a huge amount of money difference here. it's not going to make much difference in terms of people's rates. but there principle involved here is troublesome. why would the council not get the full agreement when woodland is getting more money and not having to take out an addition 218?
Mr Toad: I think this article is one of the most factual, fair and balanced I have read on this Blog that so often posts in support of the "new CC," "the agents of change" that do nothing, the "tough budget adjustments" that go nowhere, the JPArs, etc. It's refreshing, and indicates David is mellowing as he approaches the holiday season. (Oh ya, and his 29th B/D.)
Toad: I'm still waiting for some nice wine from the city to serve the water committee this holiday season for their efforts in saving the City over $60 million since the Sept 6th rate structure was pulled. A city leader offered us a bottle, but it's not here yet.
I don't know what the DV view is of Wolk and Swanson, but I will say there is not nearly enough critical analysis by the DV of their CC votes, unfortunately.
Hey Mike, give David a break, at least he didn't continue his Bob Dunning crusade today. That's probably coming tomorrow as perhaps Dunning's article came out too late today to parse.
Toad, imo they should've saved the $17 million, so yes, the glass if half empty. Then again, you Davis Obama lovers might like subsudizing Woodland water users, kind of like paying your "fair share" to help the less fortunate to the north.
Please pay attention to why our costs per gallon are higher, it's because our water has to travel farther. Woodland is not paying for any of the pipeline that extends beyond where they need it, they are not helping build the extra distance to Davis. If some of you think that is unfair then so be it, but please do recognize exactly what you are complaining about. Perhaps some think Woodland should pay for more of the extra pipeline that we need because they need the project sooner, anything is negotiable and different people have different views of what's fair.
I suppose one could argue that Woodland does not deserve any credit for happening to be closer to the intake and therefore should pay for half the pipeline since it is a joint project. I am just tossing around possible ways of thinking of it. Initially I saw it as fair for us to pay the extra distance since it is for our water.
"30% more per gallon" does make a great sound bite. Woodland is paying 15% more for the project overall, after Davis originally agreed to a 50-50 split. Many, if not most, of the costs are fixed and not proportional to the amount of water delivered. Some are site-specific, and of those the costs for Davis are higher.
Woodland is paying $30 million less than they were in the 40 mgd model, so I think your argument is misplaced here.
Everyone is paying less because the project is smaller. Woodland is paying more than Davis because they're using a higher percentage. Some, probably most, of the costs are not proportional to water use. So I would not expect the final cost to be exactly proportional to the amount/percentage of water used.
"30% more per gallon" is just a sound bite. It's tactics, not substance (nothing new there). How much would it cost Davis to build a 12 mgd water project alone?
It isn't a cost "per gallon." I don't believe water is going to be metered between the cities**. It is a cost for a particular capacity.
I have no idea if it is more or less "fair" though I fully expect Mike Harrington to exploit that word endlessly. He'll probably seek, each and every time, to link it to growth policies of the two cities, as if somehow we're subsidizing Woodland's growth. Imagine if he tried to make that claim. Wouldn't that be preposterous?
I haven't dug down into the numbers the way others have, and I expect Dan Wolk or Matt Williams will be able to give a longer, much more detailed answer to that question. Long, detailed answers don't lend themselves to sound bites. So let's not perpetuate Mike Harrington's sound bites as if they are accurate.
We're paying for capacity, not gallons.
[**edit: I could be wrong about that!]
100% of the water coming through the extra pipeline distance is coming to Davis. How do you think that fits into the scheme of things? I think reasonable people will think it reasonable for Davis to pay for the part of the pipeline it exclusively uses.
Mike flatly stated the 30% more per gallon will be a big (political) point. My concern is more that we will not have the rate structure as part of the vote.
