Water Rate Increase Just the Tip of the Iceberg

That is the good news.  The bad news is that just means that water rates will have to go up much faster in the future to make up for the smaller increase now.  When asked why that was, staff was unable to provide an adequate answer.  However, as we learned on Tuesday, the residents of Davis are facing increases of 23% for next year, and 20% for the following three years as the result of the smaller increase starting in September.

• Normal and expected repair and replacement costs, which average about $1M/year and water main replacement, controls upgrades, and corrosion control;
• Operation and Maintenance costs; and Other capital outlays (i.e. East Area Tank), totaling about $13 M over the next 10 years
• $143M surface water project that is completed in 2016.

With the 5% hike however, the following are funded:

• Operations and Maintenance 9/10 base expenditures with and added $350,000 for UCD water purchase and $110,000 in increased well maintenance;
• $600,000 for various replacement and repair projects;
• Surface Water Project – $3,000,000 which is the total estimated expenditures for FY10/11.

Why the change?  Staff knows from last fall, that even a modest rate hike is likely to generate sufficient dissent from the public, particularly in a year where money is tight.  Is it coincidence, that as it stands now, only two current members will have to face the public when they come down with a 23% rate hike?

According to the staff report, the water rates will generate $10.9 million in revenue.  Staff had originally considered an 19% rate increase, however, they have reduced that acknowledging that there are ongoing discussions regarding the status of the Surface Water Project.  Thus, the 5% is sufficient to cover the expenditures in 2010-11.  They then note: “the trade off will mean more significant rate increases in the coming years.”

Meanwhile the sewer rate will generate $12.8 million in revenue and assume a $145 million project with construction completed by 2017 (despite the fact council has never approved this project.)

Here is a key piece of information to those who oppose these projects and cannot afford the rate hike.

“Proposition 218 (Prop 218) was voter approved in 1996 and requires that the City give notification to all property owners of rate increases on most utilities. This notification takes the form of a mailing that includes the proposed rate, reasons for the rate increase, information on the public hearing and instructions for those who wish to protest the rate increase. If the majority of property owners protest the rate increase, then the rate increase could not be implemented.

The public hearing is scheduled for May 4, 2010. At that time, Council would be considering actual adoption of the rates.”

While that is a very high bar to establish, it does include a provision to oppose the rate increase now and also in the future.  This first rate hike is likely not to incur significant protest, however, each succeeding rate hike makes that possibility more likely.

The 5% rate increase according to staff estimates equates to an increase from $34.52 to $36.25 per month or $1.73 per month.

While the council has taken a number of steps to reduce the costs of the water supply and wastewater treatment, it remains to be seen what the final cost will be.

As we wrote on Sunday, the Vanguard has been covering the water issue now since our inception, the city council has never voted to authorize the entire project.  Instead it has taken piecemail steps, all the while arguing that the particular step was necessary to advance the project, without ever having an up or down vote on the project itself.

Councilmembers Sue Greenwald and Lamar Heystek has consistently attempted to either stop or slow the progression.  One thing their drumbeating probably accomplished is at least forcing the council majority to seek most cost-effective means to achieve the inevitable.  Still costs will be prohibitive and as I would expect, far higher than estimated.

This is the proverbial frog in the boiling water scenario.  The council are going to cook ratepayers first with a slow heat up in the form of a 5% water rate increase and a 6% sewer rate increase.  That seems like a small amount.  For the average rate payer it is a modest $51 per year.  But understand this is just the first step and it only produces about $22 million, less than a tenth of the current estimated cost of the project.

In fact, it is probably less than one-twentieth of that cost.  Multiply that most $51 dollars by 20 and suddenly you are over $1000 per year, which means about $85 per month, and frankly that seems on the low end of the costs.  However, that conservative estimate jacks the average rate from $109.66 (which seems low from what I’ve heard) to nearly $200 per month for the average user.

Let us put this in comparison to tax increases that are proposed.  The half-cent sales tax is expected to continue to generate around $3 million per year.  On just the water end, this is expected to generate around $3.7 million next year.

The school parcel tax right now stands at $320 per parcel.  An increase to $600 would be a $280 per year increase or roughly $25 per month.  That’s larger than the current water rate hike increase but smaller than what the final water rate hikes will look like.

These services and the fees associated with them go into the city’s Enterprise fund.  We have spend an inordinate amount of time discussing the city’s general fund, but have rarely had the discussion of the Enterprise fund.  THere is a budget session coming in March, perhaps that fund should be scrutinized a bit more closely given the magnitude of the rate hikes.

Per Proposition 218, rate payers can protest it, but the threshold for a city of Davis’ size is too high for that to be an impact yet.  It would require more than half the households to protest.  That could happen in a small neighborhood like El Macero, it is unlikely to happen in Davis – at least not yet.

—David M. Greenwald reporting