Water and sewer sale in San Luis Obispo

June 7, 2015

OPINION By RICHARD SCHMIDT

You haven’t heard about it, though, because the city wants you to believe they’re doing the opposite, encouraging you to conserve water with appropriate “conservation pricing.”

Like much at our city hall, that’s smoke and mirrors. After the city council gets done raising rates again this month, if you’re a water-wasting household you’ll get your combined water and sewer service for about half the unit cost a rigorously-conserving household will pay! That’s surely a “sale.”

As surely as swallows once returned to San Juan Capistrano every March 19, each June San Luis Obispo’s Utilities Department swoops down to demand more money for water and sewer. This rate raising, automatically approved by a city council that fearlessly does whatever staff wants, goes on and on and on.

It wasn’t supposed to be like this. Back when water rates were first raised substantially to pay for the Lake Nacimiento pipeline, we were promised stable rates would return after several years of increases. Instead, rates have never become stable, and continue to rise even in the absence of inflationary justification for higher rates.

The “who pays” shift

Not only have rates risen significantly year after year, the city is also doing something positively evil: it is shifting more and more of the burden for operating water and sewer systems onto the shoulders of the smallest users, giving larger users a free ride on those lesser shoulders.

This process escalated two years ago when the council approved, for the first time, a monthly “fixed” fee for water service, levied in addition to water consumption charges, that was the same regardless how much water one uses. This regressive water tax hits the poor and the best conservers hardest while giving a price break to large users, who tend to be rich people with big irrigated yards, multi-head water-wasting showers, spas and pools.

Staff rationalized the “fixed” fee then saying it was “only $5,” and the council bought that. I predicted then (SLO water rates to rise again) this was the camel’s nose in the tent, and this “fixed” fee would rise every single year. Well, guess what? Last year the fixed fee rose to $5.28. This year it goes to $7.63, and next to $9.98. By next year that “fixed” fee will be two-cents less than double what it was two years ago. A 100 percent “fixed” fee increase in just three years!

On top of those proposed “fixed” increases are “drought surcharges” of 37 cents this year and 74 cents next year, which would bring the fixed fee to $10.72 – far more than a 100 percent increase in three years.

So what’s going on?

The city is shifting the water system’s funding away from charges for actual water use into the “fixed” fee. Two years ago the fee provided about 5 percent of total water system revenues; next year it will provide 10.5 percent of total revenues, which represents a doubling of the portion of total costs financed not by charges related to water use, but by a “fixed” surcharge.

All of which raises questions for which one would expect good answers from those proposing these changes.

I have long suspected the “fixed” fee represents a philosophical shift within the city bureaucracy about what constitutes proper pricing. Up till two years ago, one paid for water used, and all system costs were recouped through those charges.

That was fair – one pays for what one uses. Back then the city also claimed to have “conservation pricing” with a three-tier price system in which unit prices increased the more water one used, which is widely recognized as how a pricing system promotes conservation. This is also fair, since the incremental costs of additional water are higher than base costs, so heavier use should cost more per unit. While the city did have three tiers, charge increases from level to level were small, a meekness criticized by the 2011 County Grand Jury.

So, two years ago, staff comes up with a radically different pricing regimen: fixed fee plus only two pricing tiers instead of three. Basically, they lopped off the top tier.

The unfairness of this scheme should have been apparent at the time: water charges for conservers went up a whopping 23 percent, while those for profligate wasters went down 12 percent because of elimination of the top tier and imposition of a “fixed” fee unrelated to quantity of use.

That’s not conservation pricing, and it certainly isn’t fair. But our city council, who are subservient to City Manager Katie Lichtig’s wishes rather than the other way around, approved this without so much as a peep of questioning, let alone dissent.

This year, with more of the same coming our way, I asked staff some questions that had been bothering me.

I wanted to know, first of all, what was the rationale for the amount of the fixed fee, what it’s based on. So I asked Utilities Director Carrie Mattingly, who unlike most of Lichtigs’ underlings I’ve found gives straight answers. I asked her about the fixed charge: “Is it based on something or is it just a number?”

Her response: “Just a number with which City Council felt okay.”

Well, that really wasn’t the response I was expecting! My hunch that instituting the “fixed” fee for water bills was more about instituting a regressive and unfair rate-fixing philosophy than about revenue requirements had been spot on.

I do wonder how “okay” the council will feel about doubling the “fixed” fee and steadily increasing the portion of system costs recovered in this regressive manner. They claim, after all, to be “progressives” not “regressives.”

Water Propaganda

Some weeks back I got a pretty full color four page “Notice of Public Hearing: Proposed Rate Increase for Water and Sewer Service” scheduled for 6 p.m. Wednesday June 16.

Then a bit more than a week later I received a second prettier “Notice of Public Hearing: Proposed Rate Increase for Water and Sewer Service” (this one on slick paper rather than matte, and earthy colors instead of garish pink hues, thus “prettier”), I was puzzled till I noticed the banner headline at the top “Amended Date.” Now, I was informed, the hearing was at 6 p.m. Tuesday June 16 at 6 p.m.

Aside from that and the glossy paper, no other “amendments” were apparent. There was no apology for the double notice or the confusion it creates, and, of course, no note that the dual notifications had cost about $20,000 extra – but don’t worry, that’s just added onto your water bill, as are all the department’s proliferation of unnecessary delivered-to-your-door publications.

Inside the “notice” there is interesting information, if recipients read and understand it.

At the bottom of Page two, for example, we learn how water rates are changing. According to a chart, water consumption charges are going to remain “unchanged” for the next two years. But that’s not quite true: there will be a 14 percent “drought surcharge” this year and a 16 percent “drought surcharge” next year. Those sure sound like rate increases.

There’s also the “fixed” fee which is doubling. Plus another “drought surcharge” on top of the doubled fixed fee.

This is indicative of what’s happening with city water charges: more and more costs picked up through the regressive fixed fee – in effect a water bill tax –, and less and less through charges for quantity of water consumed. How is this fair?

I also wondered about those drought surcharges. I can understand a drought surcharge this year: the city’s water costs are largely debt payments, which must be paid whether water is sold or not, so if the state requires the city to sell 12 percnt less water, a surcharge might be necessary to maintain revenue to cover debt.

But why are even larger drought surcharges being levied for next year when we don’t know whether we’ll still be in a drought? That I found confusing, to say the least, so I asked Ms. Mattingly.

“Because water sales are so volatile right now,” she told me, “and we can’t operate and plan effectively with wild revenue swings, we added the drought surcharge. We intend to ask council for flexibility with the drought surcharge. Because the latest state reduction mandate is 12 percent and not 20 percent (as initially announced), we’re hopeful we don’t need the full amount of the surcharge. But at this point we just aren’t sure how the community is going to respond with water use reductions.

“At the rate hearing on June 16 we’ll be recommending once council declares the drought emergency over the drought surcharge is removed.”

So again, if I may translate, the surcharges don’t seem tied to any firm data, they’re just numbers. But the message, “the less you use the more we’ll charge,” is clear.

There’s also nuance behind her words. Staff is paranoid about loss of utility revenue whatever the cause – and imposing “surcharges,” like imposing the fixed fee, is in their minds insurance against those fears.

Previous city councils created the rationale for this financial squeeze on consumers by subscribing to very costly Nacimiento water, not a drop of which was needed by present residents, to support future development at that time not even contemplated in the general plan – that is, for what pro-development Mayor Dave Romero euphemistically called “unforeseen circumstances.” Even though the General Plan had stated since 1977 (up until 2015 and the current council’s dismantling this fundamental principle about who pays for what) that development must pay its own way and not shove its costs onto residents, current residents have been charged for this water project from which only developers will benefit.

To make that happen, the city promoted increased water use, increased the rates, and caused residents’ water bills to soar. But if people use less water, as they are doing today … You can see the quandary.

At the bottom of page three of the “Notice of Public Hearing” is a chart denoting the “half-price water/sewer sale” I referenced at the top of this story.

This chart compares combined monthly water/sewer charges for conserving, middle of the road, and wasteful households. (Sewer charges consist of another “fixed” fee plus a consumption rate based on winter water use, which presumably measures what a household discharges to the sewer by factoring out summer irrigation.) The consumption spread between low-consumption and high-consumption households shown in the chart is a multiple of 8.3.

The chart is damning of city water/sewer rates. With real “conservation pricing,” costs per unit of water consumed/sewage discharged would increase as water consumption increases. In the city’s rate scheme, however, costs per unit go down the more consumption increases. How is that “conservation pricing?” And how is that fair to people trying to conserve, especially in the middle of a drought?

The chart quantifies the disgusting truth of how the city’s utility charges favor big users. We’ll compare, using the city’s own numbers, the water/sewer charges for a conserving household and a profligate household using more than eighr times as much water.

Under current rates, the profligate household is charged $270 per month for water and sewer, but if billed at rates equal to the unit cost for a conserving household would owe $513. That’s a 47 percent unit rate discount over a small user!

Under proposed 2015 rates, the profligate household is charged $305, while rates equal to those paid by a conserving household would price those utilities at $577.

For proposed 2016 rates, the profligates would pay $313, but at conserving household rates would owe $612.

Any fair “conservation pricing” scheme would impose rates on the profligates higher, not about half of, what conserving households pay per unit. The city’s pricing regimen stinks like the sewage it takes from us.

Further, these gross inequities make a farce of claims of “conservation pricing” and show how the city has tipped its water and sewer charges to benefit the wasteful by imposing “fixed” charges for both water and sewer to replace straight consumption charges.

The fair and decent solution is to return to multi-tiered water pricing, with substantial differences between tiers instead of the current “conservation lite” two-tier system, and to eliminate the fixed charges altogether. If the city did this, higher revenue from bigger users would offset lower charges for good-citizen conservers.

Aren’t tiers illegal?

I can pretty much hear that reaction from some readers.

Well, it’s true, an appellate court in Southern California recently raised questions about legality of a specific city’s tiers, but they didn’t outlaw tiers. The decision is nuanced. (It’s also debatable whether it applies to San Luis Obispo since we’re not in that appellate district.) Further, other district courts have yet to weigh in, and it’s possible they will disagree with what some read as an out-of-the-blue wing-nut decision. Disagreement among appellate courts could send things to the California Supreme Court, which might further define the issue. So, at worst, the validity of tiers is currently confused.

The court said there must be a cost nexus, or connection, between tier charges and the costs of providing that quantity of water, that tiered charges cannot be arbitrary.

If there’s any city that appears able to justify tiers with such a nexus rationale it’s San Luis Obispo. In the “Notice of Public Hearing,” one headline reads “Why Are water rates being Increased?” and the first of four reasons listed is “cost of a multi-source water supply.”

San Luis Obispo has five water sources: ground water (wells), Salinas Reservoir, Whale Rock Reservoir, reclaimed water, and Lake Nacimiento. All five have differing costs – actually radically differing costs ranging from very cheap ground water, where the cost of running a pump is the main cost, to very expensive reclaimed and Nacimiento water.

By figuring the unit costs of each source, and allocating them to tiers, the city could justify up to five pricing tiers that seem to meet the appellate court’s criteria, should those criteria become what matters.

So, it’s bizarre that we’re moving in exactly the opposite direction from what recognized conservation policy, fairness and a conservative court call for towards an ever more inequitable and unfair pricing system that benefits those who use and waste the most.

Why Do Rates Keep Going Up?

The cynics will say because that’s what rates do. But I’d like honest and complete answers, and I’m not getting them. The four reasons for rising water rates listed in the “notice” are unconvincing: cost of a multi-source water supply, maintenance and operations, debts, and reduced water consumption due to drought.

None of those are inflationary. The cost of sources isn’t escalating because we draw from multiple sources; those costs are well established. The costs of maintenance and operation shouldn’t be increasing much if at all in a stagnant non-inflationary economy; besides, maintenance of a well-managed system is a built-in cost averaged out over many years. Debts are fixed, not changing. And drought losses are supposedly covered by the “surcharges,” which are promised to be temporary.

So why is the “fixed” water fee doubling, and sewer charges continuing to escalate as well? Why doesn’t our city council understand something’s wrong here?

There are indications some cost-escalation may stem from bureaucratic empire building rather than any of the listed reasons. We get snippets of insight from time to time indicating this.

For example, the city recently hired a private contractor for meter reading, the contractor taking on duties from staff. This was sold to the council, curiously, not as cost-saving but as cost-neutral (and that’s not very convincing – read on). While the contractor is now paid to read meters, the former meter readers remain on staff doing other things. This is a slick way to increase staff without increasing staff. Clearly it costs more than if city staff were still reading meters. It’s unclear how much more of this sort of bureaucratic sleight-of-hand feeds the need for increased utility charges.

What Are We Paying For?

In the “notice,” we’re told, “Revenues received from water and sewer charges are restricted solely for these purposes.”

That, however, is a matter of someone’s defining what “these purposes” are.

One of the “purposes” I find particularly offensive is the utilities department publications program, which is a stuffed turkey that costs each of us ratepayers at least $30 per year, added onto our bills, for fancy junk mail that serves little purpose beyond tree-killing.

Front and center is the quarterly full color publication “Resource,” a font of PR fluff and misinformation, much of which has nothing to do with furthering the “purposes” of providing water and sewer. It should be completely shut down, and the savings of tens of thousands of dollars per year in staff time, PR agent charges, printing and mailing applied to rate reduction.

There is also an on-going barrage of intermittent publications mailed throughout the year, including a couple of mandated reports to customers, like the annual “Notice of Public Hearing” (necessitated because they keep raising rates), and the annual water quality report, each inflated into a full color multi-page mailer.

These could become plain black and white single sheet flyers inserted into monthly utility bills. That’s how most utilities handle such matters. SLO doesn’t need to be so fancy and profligate with utility “communications.”

Utility bills continue to be an informational disgrace. Ever try to figure out how much you’re being charged for what, or what the tier charges are or how many units of water use put you into what tier? Good luck. The 2011 Grand Jury told the city to fix this – they’ve refused. Compare your city bills to a PG&E bill to see how uninformative they are, how much more informative they could be.

There’s also the waste from silly goofs like having to mail the “Notice of Public Hearing” twice because somebody did a sloppy job of proof reading.

And don’t forget: the cost of billing itself recently doubled because the city went from its long-standing bi-monthly to monthly billing to help disguise ever increasing utility rates. Fellow ratepayers, we pay for that, and the cost isn’t small.

Then there’s the gigantic elephant in the room, which dwarfs all the other questionable expenses, that the public knows nothing about and nobody at the Council cares to do anything about.

Our utility funds are being used as a vast cash cow to finance general city operations. If you look at the city budget (available online) you’ll see your utility payments are being diverted for general city hall maintenance (Utilities are in a separate building, so, of course, that also must be maintained), for funding the city’s information technology system, for this, for that, even for paying a part of City Manager Katie Lichtig’s and City Attorney Christine Dietrick’s ever-inflating compensation!

I can’t see what any of this has to do with providing water and sewer service. Surely Lichtig doesn’t put on her boots and overalls and run out to man the valves that need closing when a water main bursts, or bust up the street with a jackhammer to get to broken pipes. To charge general government costs to the utility accounts and then claim utility funds are used solely for providing utilities is dishonest.

So, that, dear friends, explains a lot about why your water and sewer rates are so high and keep on getting higher, non-inflationary year after non-inflationary year.

Protest?

The legal purpose of the “Notice of Public Hearing” mailer is to inform us of our Proposition 218 right to protest the rate hikes, on a form included in the “notice.”

Maybe several dozen people will bother – that’s the way it is in happy town, with its 70 percent transient population. Maybe if some organized group went door to door with protest forms there’d be a chance for the 50 percent plus one protest needed to stop the latest rate increases. Maybe our somnolent council will wake up and be decent and fair. Or maybe we’ll all just all sit back and let the arrogant carpetbag bureaucrats hired by Lichtig, who’ve stolen our city’s government from us, get away with hurting us again.

Time will tell.

Richard Schmidt is an architect and teacher, and served for 19 years as a volunteer on various city committees and commissions, including eight years on the Planning Commission, terms on the Waterways Planning Board, Environmental Quality Task Force, Election Regulations Committee, and Housing Element Task Force, and is sick about what his city has become in the last decade and a half.