I was asked the following question last week:
“What will it take job wise, corporate tax wise, additional residents income/payroll wise, to stop the notion of increasing water, sewer, garbage and other residential tax that you can think of? … We only have so much discretionary income to give and we are saving very little if any for emergencies.”
That’s a fair question, and I’ll try to answer it.
First, some background on why I need the money. Every year, the City of Oakwood compiles water rates for over 60 southwest Ohio cities. Middletown has historically been in the lower fourth to lower third of area water and sewer rates. What this means is that 2/3 to 3/4 of southwest Ohio communities have historically had higher water and sewer rates, year after year, than the citizens of Middletown.
We have reached a point where that is no longer sustainable. Due to the age of our city, we will have large expenditures over the next two decades to keep our water and sewer system viable. M in the tables below refer to Millions of Dollars. The early estimates look like this:
Combined Sewers Long Term Control Plan
Downtown Storage Facility $38M
Barnitz Park Area Storage Facility $54M
Lakeside Storm Water Redirection Green Infrastructure $14M
Hydraulic Canal Repairs (Germantown Rd. to river) $10M
Total LTCP $116M
Water/Sewer System and Plant Upgrades
Water Distribution System $100M
Water Treatment Plant $25M
Sewer Collection System $142M
Wastewater Treatment Plant $67M
Total Water/Sewer Upgrades $252M
Miller Road/Sawyers Mill Sewer Infrastructure $2M
Street Paving Assoc. w/ LTCP, Water, Sewer Line Upgrades $25M
GRAND TOTAL $395M
We will bid all of these projects over time and the actual amount could be higher or lower than the early estimates. Below is the map showing our water distribution system by age. The sewer map is almost identical showing large portions of the city with water and sewer distribution systems that are over 75 years old.
So we have an unavoidable +/- $400 million problem over the next 20 years. That gets us back to the original question. Why raise rates? Why don’t we add jobs and families to cover this cost? The answer is twofold. First, because water and sewer are enterprise funds, income tax would not be used for utility service, and second because the math doesn’t work.
Enterprise funds are self sufficient funds designed to pay utility expenses with fees collected from users of the service. The City ordinances establish the funds and set fees. The General Fund does not contribute to utilities, and therefore income tax receipts from new jobs would not be used to support utilities.
Even if they did, however, the math doesn’t work….
$400 million divided by 20 years = $20 million per year for each of the next 20 years.
At a 1.75% income tax rate, it takes $57,142,857 in new payroll to generate $1 million in new income tax revenues.
$57,142,857 divided by $45,000 per job = 1,270 new jobs to generate $1 million in new income tax revenues.
We need $20 million per year for 20 years. So that equates to 1,270 new jobs x 20 = 25,400 new jobs at $45,000 per job to create $20 million in new income tax revenues.
To pay for the water and sewer repairs, then, we would need to immediately add 25,400 new jobs at $45,000 per job, and then sustain them for each of the next 20 years consecutively. While we have capacity for growth, we don’t have enough land available to add 25,400 jobs and certainly couldn’t do it in the space of a year or two.
I’ll ask the follow up question myself: Why don’t we just stick it to the business community with higher rates and go easy on our residents?
We’ve been fighting the image for a while that we can be business unfriendly. I’m doing what I can to change that image over time. Jacking up corporate water and sewer rates will not make it attractive to bring new business here, nor will it help our existing businesses grow and add jobs and taxes to the community.
We do have additional water capacity that is not being used right now. When NTE comes online, they will become our largest water customer and they will pay their share of this bill. As we add other businesses and future water users, they will also help spread out the cost to more customers.
There’s a balance between the residents and the business community and the rates we charge. This is a difficult issue that will require thoughtful answers. The bill is coming due. We just have to figure out how to pay it most effectively as a city.
Staff will be looking at how we bill water and sewer during 2017 to see if there is a smarter way to charge for necessary repairs without disproportionally affecting either our residents or our business community. There’s no easy answer here.