On Tuesday the Vanguard analyzed the project costs, noting not only the steep rate hikes for the next five years, but also the potential continued steep rate hikes as the city had to increase its total revenue to about $42 million by 2032, a four-fold increase in revenue over a 30-year-period.
Former Councilmember Stephen Souza noted and posted a number of links to rate subsidies including one that the Davis City Council looked at back on November 27, 2012.
The Davis City Council back in 2011 began investigating the options for establishing a Low Income Lifeline Utility Rate Program. As the staff noted, “The five year sewer rate plan was approved in 2011, and updated water rates will be considered in 2013 that could increase water rates beyond normal annual adjustments. Therefore, staff is recommending that the City Council approve this program now so that the community will have access to a utility rate assistance program when updated water rates are considered in 2013.”
A number of communities have put low income utility rate programs in place to assist their low-income ratepayers to cover increased monthly utility bill charges.
The problem is that the city cannot use the enterprise fund, i.e. water fund revenues, as the funding source.
Wrote city staff, “In accordance with articles XIIIC and XIIID of the California Constitution (also referred to as Proposition 218) which establish the procedures required to adopt changes for certain property-related charges, including water rates, fee revenues are only used for purpose of the fee; fee revenues may not exceed the cost of providing service; and the amount of the fee shall not exceed proportional costs of service to each parcel.”
That means the city will need to utilize limited general fund monies or grants to subsidize.
The limitations of this program become obvious. The first year funding would only be $15,000.
Under the program, the only eligible residents would be homeowners in owner-occupied parcels who are listed as the owner in the tax roll or a resident-owner in a “limited equity housing cooperative.”
That immediately precludes any renters who live in single-family homes and therefore directly pay their water rates.
Worse yet, “Homeowners who meet the low-income requirements would be eligible to receive up to $60 per year discount on their utility bills.”
In other words, people whose water bills will triple will be eligible to receive $5 a month in subsidy.
And the income eligibility is very low, as well. A household of one is only eligible if they earn less than $25,400. That goes up to $29,050 for a family of two, $36,300 for a family of four and $47,900 for a family of eight.
At the rate we are looking at, $15,000 would fund a total of 250 families up to $5 a month, or $60 a year.
In a city of 65,000 thousand, that is 0.38 percent of the people. To get the subsidy to a more realistic number of people, 2500, you are looking at $150,000 a year. 5000, you are looking at $300,000. That means to get the subsidy to a more realistic level, you are looking at between $1.5 million and $3 million, not $15,000.
While that it is not an impossibility, in the current budget climate, those kinds of expenditures seem extremely unlikely.
The city has clearly given some thought to the impact on low-income people, but as we noted previously, these rate hikes are going to have a huge and detrimental impact on people of low and fixed incomes.
The amazing thing is that we really do not have good data on the number of people who would be impacted by this. How many ratepayers are on fixed incomes? How many renters of homes are there who are families and have relatively low incomes?
What is the impact of these rate hikes on someone making less than median income? What is the impact of these rate hikes on someone making low income or very low income? And how many people do we have in this community who fit those profiles?
Is the city prepared to find $1.5 million to $3 million to help keep people from being priced out of their homes due to rising water costs?
As we have argued more than once, when the issue of rates comes up, the proponents of the project seem to throw up their hands and concede that the era of cheap water is over.
As we noted, that may well be true, regardless of the outcome of Measure I. But we need to come up with some solutions – otherwise the effect of securing water for our future will be that we price vulnerable people out of their homes in the present, and that is not a good trade off from the community’s perspective.
—David M. Greenwald reporting
David – You mention getting to a “more realistic number” of people in need and I think you mean that 2500 is more realistic. I am curious from where you got that number. Also, you note later on that we really don’t know what a realistic number is. So, that part is a bit confusing to me.
Regardless you are asking the right questions and these are the questions an appointed body that I (and others before me) suggested should be put into place by the CC. [b]As soon as the election results are known–so we know more precisely what the cost increases will be–the CC should put together a task force to begin examining the questions you raise[/b].
One further question that has been confusing me (the answer to which might change our sense of the enormity of the problem) is whether the revenue needs that begin to kick in after 2018 are stated in nominal or real terms. If nominal, and assuming some level of inflation (which would include wage inflation and cost of living adjustments built into SS, for example), the burden of the increases in real terms would be lessened (especially in the out years). I have asked this question before and gotten no responses so maybe I am asking it incorrectly.
David, I would consider myself lower income. My rates will increase, per the water calculator, under $5.00 per month until year 3. This subsidy is comparable to what Sacramento gives and should offset increases of those low income ratepayers who live in apartments and town houses where water use is low already. If people choose a living situation that requires their rates to triple (large house, big thirsty yard, pool, no attempt at conservation) are you really saying that , because their income is low, they shouldn’t have to pay equally for the water they use?
“If people choose a living situation that requires their rates to triple (large house, big thirsty yard, pool, no attempt at conservation) are you really saying that , because their income is low, they shouldn’t have to pay equally for the water they use?”
How about a retired couple on low fixed income who have lived in that house for many years? Are you saying they should be forced to sell and move to a smaller home?
I would guess that the retired couple living on a fixed income likely has no mortgage, don’t have to pay school taxes, and have low water use already. I’m not saying that they should sell and move, but many do anyway for other reasons than water rates going up.
I voted yes on Measure I, but I agree with rusty49. First, “large house” does not have anything to do with water consumption. Large yard and large family are the primary considerations, and these two things often don’t correlate with income levels. Even having a pool does not always correlate with income level. Everyone should be careful assessing potential inappropriate classism associated with these things.
That is the problem with any complex progressive rate structure, and a fundamental problem with top-down attempts at social engineering. Even though the intentions are noble (help the poor, make the wealthy pay more because they can, punish those that waste water, conserve, etc.), it results in unintended consequences that hurt many people unfairly.
Bob Dunning keeps knocking down votes by writing about these unintended consequences. I don’t know him personally, but what I think I do know about him… he has a large family, a larger yard with grass for the kids to play on, and he isn’t exceedingly wealthy. The rate structure will likely cause a big hit to his family budget.
I worry that the consumption-based rate structure adopted by the city is a real prop 218 problem. Also, it might cause Measure I to fail since there are many people in this town that agree with Bob Dunning.
How is having someone who consumes more pay more social engineering? The topic here is the idea of a grant given to low income people and David’s assertion that it isn’t large enough. The rates are already designed so that people who consume less (live in apartments and condos) will unlikely pay at higher tiers. A grant for the lowest income residents will help them even more.
DMG …”The amazing thing is that we really do not have good data on the number of people who would be impacted by this (rate increase). How many ratepayers are on fixed incomes? How many renters of homes are there who are families and have relatively low incomes?…”
David, many of these folks are members of the “Other Davis” you have written so eloquently about previously. By not having a voice within our prolixic community, they will “rolled” financially by the ultimate cost of this project.
It is not just “someone who consumes more pay more”.
If you were to take this rate model to the grocery store for milk, you would charge $3 dollars for the first gallon, and then each successive gallon purchased would be more expensive until the 10th gallon would be priced much higher. And the pricing would change based on the seasons for when milk is in higher and lower demand, even though the dairy farming industry had made adjustments to their production capacity to handle the swings in demand. The excess money received from the higher-priced milk purchases would be used to subsidize and “reward” the lower-consumption milk purchases, and those that conserve more milk during peak demand.
The reason we would establish this type of cost structure is to engineer society to conserve milk and lower the cost for those that consume less, ostensibly because those that consume less are poorer.
This would be social engineering, and it would result in unintended consequences of unfairness.
If you want to get out of the business of social engineering, then just charge a fixed rate per gallon and don’t implement any fake seasonality rate adjustments. Those that consume more will still pay more.
Poor example, Frankly. Milk prices are controlled by a generous subsidy from the government, so as to keep milk prices affordable for families and stable for dairys. Without this subsidy, milk prices would rise and fall just like the price of gas.
I’ll leave it to Matt to explain why we have tiers for water rates.
Ryan Kelly – There is no relevancy to your argument since everyone still pays the same per gallon of milk. We could subsidize water the same way and it would not be social engineering… it would just be a subsidy. The rate plan is social engineering because it attempts to force conservation, and it rewards some families and punishes other families based on a top-down definition for what is reward-able and what is punishable.
I understand why we have tiered water rates. I know that the existing rate structure is also guilty of some social engineering. However, when the cost is low and the variance is small, most people ignore it. With the new system the costs to some people and the variance between low and high rates, will basically explode. The financial hit to large families and those with larger yards will be punitive.
I think there is a prop 218 problem, and there is also the problem the rate plan is punitive and unfair.
I know we can address the rate plan later, but I think it might kill the Measure if we don’t address it now.
Frankly, Didn’t they increase the lowest tier to make it larger to solve this?
I think the tiers are there so the larger consumers who have a greater impact on the system is not subsidized by the consumers who have very little impact. Why should I, who uses under 10 ccf per month, subsidize someone who consumes 4 times that? My impact is less and so I should pay less for the infrastructure costs – not an equal share.
Ryan – for that argument to pass muster, you would need to quantify “impact”. This is a capacity issue. If high-use customers are causing us to have to build a bigger and more expensive system, then I agree that it would be fair that high-use customers bear a larger per-unit cost share. There is also a variable-cost consideration like for power. In the case of electricity, the utility must purchase more expensive capacity during peak volume times. That incremental higher variable cost should be covered by the higher electricity user.
But from what I understand about the proposed surface water system there is little to no additional per-unit variable cost. In fact, the cost per unit actually declines with higher volume because the majority of the costs for the system are fixed. There is an economies-of-scale argument that says higher-users would drive down the cost per unit for everyone. So, in this case it would be economically-desirable to encourage high water use up to our maximum capacity so that everyone could pay a lower per-unit cost. But, the desire to engineer society toward more conservation prevents that approach.
What I am not 100% clear on is if the cost of the system is significantly higher having to provide the capacity that covers all of Davis including our high water users. Said another way, could we develop a significantly less expensive system if we reduced our capacity need to some calculated mean/average use per customer measure (house, family, person, etc.)? My understanding is that we need this new surface water system, and we would not save much building a system that handled lower peak capacity… even if we thought this was a good idea. So then, why punish high water users with punitive rates if their water use does not affect costs? I think the answer is that some cannot control their impulses to use top-down government solutions for engineering society. For them, it seems, that the end justifies the means.
But they might just be over-playing that hand and Measure I will fail.
Frankly said: “So then, why punish high water users with punitive rates if their water use does not affect costs? I think the answer is that some cannot control their impulses to use top-down government solutions for engineering society. For them, it seems, that the end justifies the means. But they might just be over-playing that hand and Measure I will fail.”
Brilliantly stated.
BTW, David, you should post those two United Water letters in their entirety. The summaries on the DV and the DE don’t begin to convey how forcefully United Water pulled out — and how tentatively they agreed to hang around a little longer. The second letter reads like a PR stunt, throwing a crumb to the JPA proponents during this hard-fought election.
What happened to Ken Wagstaff’s article I saw early this morning?
bumped to the fifth spot by the Clinton Parish news
Michael Harrington – Thanks for the complement.
However, I think you and I are on the opposite sides of this argument (please correct me if I am wrong). I support the project, but not the rate plan. And, I don’t support the rate plan primarily because I think it gives the opponents of the project ammunition to defeat the measure.
Assuming you do not support the project/measure, would you be onboard if we had a flatter rate plan?
[quote]That immediately precludes any renters who live in single-family homes and [b]therefore directly pay their water rates[/b][/quote]Basically, untrue (taking instruction from Mr H?). SF property has City utility bill mailed to the OWNER. The lease arrangement may vary… some landlords absorb the costs, some charge their tenants separately (very few, as I understand), and some build in an estimate of the costs, and reconcile with their tenants yearly. THE CITY WILL NOT BILL TENANTS FOR THE CITY UTILITIES. Mr H appears to have taught you well, David
hpierce, come by my office and I’ll show you my bill.
Robb Davis said . . .
[i]”One further question that has been confusing me (the answer to which might change our sense of the enormity of the problem) is whether the revenue needs that begin to kick in after 2018 are stated in nominal or real terms. If nominal, and assuming some level of inflation (which would include wage inflation and cost of living adjustments built into SS, for example), the burden of the increases in real terms would be lessened (especially in the out years). I have asked this question before and gotten no responses so maybe I am asking it incorrectly.”[/i]
Robb, I am far from the definitive source on this issue, but based on all my many meetings and converstions with both Bartle Wells and City Staff, the numbers are nominal.
[quote]hpierce, come by my office and I’ll show you my bill. [/quote]Did you receive it from your landlord, or was it sent [b]directly[/b] to you by the City? If the latter, contact me “off-line” at my e-mail address of record. Billing the tenant goes against my knowledge of City operations.
Oh I see the point your making – you’re disputing the “direct”
Yes, David… at the end of the day, the property owner is responsible for the charges [and they get the billings]… in essence, THEY pay… that doesn’t preclude them from having arrangements with their tenant(s)…. which is what I that I said earlier.
I am one landlord [and I understand there are many] who uses historical averages for City utilities, and put that in my mental calcs in terms of my direct costs (mortgage, taxes, insurance, utilities, etc.) and look at the “market” as to what properties similar to mine are renting for, in setting the lease rate. I have not changed mine [rental rate] in 5 years. I “clear” about $1500/yr, but still consider the SF house a good investment, which I may return to living in, in the future.
rusty49 said . . .
[i]”How about a retired couple on low fixed income who have lived in that house for many years? Are you saying they should be forced to sell and move to a smaller home?”[/i]
rusty, if that retired couple on low fixed income uses 5 ccf per month average, then their 2011 monthly water bill of $19.00 will go to $39.71 in 2018. That is a 109% rise over an 8 year period. Will the $20.71 each month be enough to force them to have to sell?
If that retired couple uses 8 ccf per month average, then their 2011 monthly water bill of $23.50 will go to $52.67 in 2018. That is a 124% rise over an 8 year period. Will the $29.17 each month be enough to force them to have to sell?
Frankly said . . .
[i]”If you were to take this rate model to the grocery store for milk, you would charge $3 dollars for the first gallon, and then each successive gallon purchased would be more expensive until the 10th gallon would be priced much higher.”[/i]
Actually Frank, it would not do anything of the sort. There are two important differences that exist in the “grocery store / milk” scenario. First, the consumer is not a partial owner of the store the way they are in a municipal water system. Second, virtually all the costs that get allocated by the grocery store to that gallon of milk are variable costs. The grocery store purchases the gallon of milk from a milk wholesaler and then marks up the price of the milk and resells it. The grocery store does that with virtually all their products. So instead of the 80% fixed costs that the water system has, the grocery store only has something like 25% fixed costs.
Why is that so? Does the water system purchase any of its product for resale? Not a single gallon. The 45,000 acre feet water right granted by the state costs Davis/Woodland exactly $0.00. The 20% variable costs consist of three components, 1) electrical power to run the pumps, 2) chemicals to treat the water, and 3) conservation program expenses. If less and less water is consumed those are the only three costs that would reduce at the same rate as the consumed water amount reduces. In a grocery store, if the consumption of milk goes down then the store buys less product from the wholesaler. The water system processes less water when consumption reduces, but it can’t save any product purchase costs because those product purchase costs are zero.
Now lets look at the variable use charge for water consumed under the CBFR system. Does it change based on amount used? No it does not. You pay for what you use at the exact same rate for every single gallon . . . and at the exact same rate as every other customer . . . and at the exact same rate regardless of season.
Every single one of the 16,433 owners of the water system all pay the exact same amount for what they use.
They also pay a monthly mortgage for their portion of the fixed costs of the system. What you and Bob are doing is applying your monthly mortgage costs to the highly variable amount of water you use during the 12 months of the year.
Since we are talking about mortgages, lets draw a parallel to how a lender looks at its monthly mortgage costs. Does that lender total up the amount of their new loans each month and then say that the mortgage cost of each loaned dollar is a certain amount, but in a month with low loan volume that the mortgage cost of each loaned dollar is a higher amount? Would the logical next step be that any loan that is made in a low volume month is a worse loan than a loan made in a high volume month?
No, businesses don’t look at their fixed costs through the prism of a variable cost mentality. A wise business knows that changes in sales volume do not make the individual sales transactions either good or bad.
One other thing with respect to milk. Not all grocery stores charge for milk solely by the gallon. What grocery store covers at least some of its milk costs the same way as a water system covers its water costs?
Frankly said . . .
[i]”With the new system the costs to some people and the variance between low and high rates, will basically explode. The financial hit to large families and those with larger yards will be punitive.
I think there is a prop 218 problem, and there is also the problem the rate plan is punitive and unfair.
I know we can address the rate plan later, but I think it might kill the Measure if we don’t address it now.”[/i]
Frank, again your statement is incorrect. Under CBFR for a large family the cost per gallon in the Variable Use Charge is exactly the same amount for every single gallon consumed. It is exactly what Bob Dunning has asked for . . . the charge per gallon for his first child is exactly the same as the charge per gallon for his fourth child and exactly the same as the charge per gallon for the children’s parents. Bob’s aggregate Variable Use Charge will be higher simply because he has six consumers using their typical use of 55 gallons per person per day.
With respect to the Supply Charge that contains the monthly mortgage amount for the system capacity that a large family “reserves” to have reliable water supplied to them any and every day of the year, the charge per gallon “reserved” for Bob’s first child is exactly the same as the charge per gallon for Bob’s fourth child and exactly the same as the charge per gallon for the children’s parents. Bob’s aggregate Supply Charge will be higher simply because he has six consumers “reserving” water.
Since almost everyone who is a ratepayer is also the owner of a home (or business), it is useful to look at the very direct parallel between our decisions about home ownership and our decisions about water use.
* For both home ownership and water use, we start by deciding what our level of need is;
* We then choose to buy the amount of house/water that meets our need; and
* With respect to our house, we have periods of peak use and we have periods of off-peak use.
Many Davis residents are empty nesters living in a house with three or four bedrooms. Unless we have visiting family, our use of our home is almost always “winter” use. Only when friends or family come from out of town to visit do we find ourselves in a “summer” use pattern with bodies in all three or four bedrooms.
When we took out a mortgage when we bought our house, did the bank ask us what our relative proportions of “winter” and “summer” use of the house were going to be? No. The price of the house essentially assumed we would make optimum use of the house 365 days of the year, otherwise we would be buying a different house with less “summer peak” capacity. The monthly mortgage payment for the house we bought is the same month after month regardless of how much of our house we use.
Further, if we go on vacation, whether the vacation is a weekend or multiple weeks, our use of our house drops to zero. Does our monthly mortgage payment drop even a penny?
If any one of us tries to convince a bank that our mortgage payment should adjust each month based on how often we take vacations or how often we have house guests, the bank will laugh and say we are playing fast and loose with numbers that have no relation to reality.
[i]Bob’s aggregate Variable Use Charge will be higher simply because he has six consumers using their typical use of 55 gallons per person per day.[/i]
Matt, so if I live next door to Bob, and I have one child and we both live in a house that is the same size, and we have the same yard and use the same amount of water for our landscaping, Bob will pay [b]more per gallon[/b] than I will just because he has more children using their 55 gallons per person per day. Is this correct?
This is the issue. It is not that Bob would pay more for watering his five additional thirsty children; it is that he would pay more per gallon for any and all water use just because he has more children. This is, in practice, an extra tax on children. Same with yard size and landscaping; it is an extra tax on these things too.
Again, when the cost differential is small most people will not be motivated to complain. However, with the new rate structure there will be a significant variance in the per gallon cost Bob pays and what I pay… and this is not fair to Bob. The fairness problem will result in no votes. If Measure I goes down to defeat, I think we might look back on this fairness problem as being a culprit.
Frankly said . . .
[i]”Matt, so if I live next door to Bob, and I have one child and we both live in a house that is the same size, and we have the same yard and use the same amount of water for our landscaping, Bob will pay more per gallon than I will just because he has more children using their 55 gallons per person per day. Is this correct?”[/i]
No that is incorrect Frankly. Bob will pay exactly the same amount per gallon as you do. Look at the rate structure. [url]http://public-works.cityofdavis.org/water/rates/proposed-water-rates/all-debt-scenario-rates[/url] In the first year of CBFR every user pays $0.86 per ccf as their Variable Use Fee. Further, every user pays the exact same Supply Charge mortgage fee, which is $0.32 per each and every ccf of system capacity that a customer “reserves” for their use.
In your scenario Bob uses more than you do so the Variable Use portion of his bill is higher, but his cost per gallon for his use is exactly the same as yours. Bob also “reserves” more system capacity for his use so the Supply portion of his bill is higher, but again his cost per gallon for his “reserved” use is exactly the same as yours.
Matt, I think you are getting tricky on me.
My cost per gallon calculation is simply:
Number of gallons used / total annual water bill.
I only care about the aggregate amount as most rate payers do/will.
If Bob’s family uses more water because he has a larger family, then his total annual water bill will be higher, and since he is hit with a progressive and seasonable rate structure, his aggregate cost per gallon will be higher.
Correct?
Frank, you don’t just use gallons of water. You also reserve a certain amount of water for use at peak capacity.
The costs for what you actually use are really quite simple in the current system. They are 1) electrical power to run the pumps, and 2) chemicals to treat the water, and 3) any water that the City purchases from UCD through the Intertie between their system and our system.
The costs for what you reserve are also really quite simple in the current system. They are the mortgage costs for the system’s 20 plus wells, the system’s two above ground storage tanks @ Sutter Davis and the Mace Overpass, and soon the $37 million of capital repair and replacement costs that are outlined in the Kennedy-Jenks 2011 system evaluation.
The fact that neither you nor Bob use all the water you reserve does not mean that you get a free pass on any reserved water that you do not process through your water meter. Once you have reserved it, you have used it.
So, “Correct?” No, “Incorrect.”