Water and Sewer Rates

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.

water-map

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.

 

7 thoughts on “Water and Sewer Rates

  1. I must say that I have lived in Middletown since 1964 and I have never seen straight forward, nuts and bolts, information coming from the Administration, until now. Keep the information coming. Not emotion. Straight hard factual information; here’s what has to be done, here is why, here is what it will cost.

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  2. Here is an important topic which begs repeated attention, because this issue could finish us off. Adkins would like very much for this issue to be put out of sight … out of mind. It’s fast becoming lost among the quagmire of problems which Adkins and Council keep tossing around; in effect hiding their own contributions to our problems. Their solution to any problem always involves extorting more money from the citizens to make up for their mismanagement and misappropriation.
    Notice how Adkins chooses and poses a “fair question” for himself so that he can present his solution to “an unavoidable +/- $400M problem.” Note that in the “background” he gives us…. we are ACCUSED of having lower water and sewer rates than 2/3 to ¾ of other area communities. BUT he doesn’t mention the DISAPPEARANCE of the millions of dollars in funds collected over the last 40+ years which would have paid for all of the water and sewer issues. Over time our city officials discovered, then gutted, the GOLD MINE that once was the rich water and sewer funds. Just as Adkins admits, those funds are ENTERPRISE funds (funds for their SPECIFIED use only) and were ILLEGALLY siphoned off by transfer checks to the “general slush fund” for ANY UNSPECIFIED use that city officials might choose. If the sewer separation had been accomplished years ago when the funds were collected (thereby avoiding the increased cost of doing so today) we wouldn’t have this problem now!! Here’s some bu$$sh!t’ in your own words … “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….” You are actually presenting an illegal funding maneuver as a solution, just to blow smoke and confuse the issue. It must be pointed out again that the General Fund was the illegal recipient of the water and sewer funds and they should be returned.
    AND obviously, recouping those funds presents a big problem. To paraphrase Adkins, “We just have to figure out the … smartest … most effective way” to get our past and present city officials to repay the citizens of Middletown “without disproportionally affecting either our residents or our business community.”

    Remember his phrase and determine for yourself what is, in his words “no longer sustainable.”
    The question which should be posed to Doug is: Why not use the sewer separation fund that has been COLLECTED FOR 40+ YEARS? … And use the storm water sewer charge that was added to our water bills about 10 to 12 years ago, by falsely stating that it was a federally mandated charge … which IT WAS NOT! The enterprise funds that can only legally be used for sewer separation have disappeared … been misappropriated. Also, we VOTED to use half of the INCOME TAX to subsidize water, sewer and trash to keep rates low and to make Middletown more attractive to businesses and citizens. Can’t use that, it’s ALL GONE … MISAPPROPRIATED!! And that’s CRIMINAL! In Adkins own words: “We have reached a point where that is no longer sustainable.”
    Also, money was taken from the enterprise funds (a million dollars at a time) and transferred to Capital Improvement Fund (a non-restricted fund), to cover up misuse of water and sewer money to pave streets, buy real estate (on Hook Drive), etc. The water and sewer funds have proven to be a GOLD MINE for funding everything except water and sewer. It’s NOT that we’re paying too little for water, sewer and trash; it’s that these are the only rates that council can raise without a vote by the citizens. That’s actually a hidden, illegal tax! COUNCIL … just because this ROBBERY has been perpetrated in the past, does NOT make it right or legal to continue.
    Regarding the combined sewers: What is the purpose of the storage facilities? Have the storage facilities and other band-aid measures been approved by the EPA? Are you going to spend millions of dollars on storage facilities and still have combined sewers? Will the combined sewers still have to be separated? Why not JUST DO THE REQUIRED SEPARATION OF SEWERS and finally be done with it? There is NO NEED for his EXPENSIVE, $116M Long Term Control Plan band-aid which is ¼ to 1/3 of his Grand Total Cost of $395M which would be down to $279M. The money should already be in city coffers. OOP’s, forgot we were robbed! Now we need a REAL AUDIT to see where the money has gone. A budget balance sheet will no longer do.
    Now that city administration has been forced into fiscal transparency, anyone can view what’s called the “check book” in the Financial Transparency Portal, OpenGov, on CityofMiddletown.org. The actual checks can be viewed if you click in the right spot. In the records of 2015 you will find numerous checks paid from one fund to another with no real explanatory notes (looks like a laundering maneuver). One pair of checks in particular had the payer and payee reversed for the exact same large amount on the exact same date. Are they calling this shell game accounting?? It’s a very scrambled mess and difficult to decipher (purposely??). Present and previous councils and administrations can and should be held PERSONALLY responsible for any missing money. Remember the expression “ignorance is no excuse.”

    If Adkins wants to change our “business unfriendly image” to promote financial growth; why does he let his historical bureaucracy prevent the building of new legitimate businesses on the fringe of the downtown area? Middletown is reduced to a beggar level but the historical snobs walk around THEIR downtown with noses in the air. That’s a friendly image?? That will promote financial growth? Not too long ago we voted for a safety levy which was to prevent layoffs of police and fire … and then immediately there were layoffs which resulted in less protection with fewer officers (top heavy with pay grade sergeants & lieutenants). We pay higher taxes for our schools but are academically rated among the lowest. What is really (in Adkins own words) “no longer sustainable” … is the misappropriation, mismanagement nonsense and continual down right CORRUPTION in the city building.

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    • I don’t edit the responses to my blog post. You’re entitled to your opinion, and I’m sure that there is nothing I’m going to say here that will impact how you feel about things. Our finances are online for everyone to see. Our books are audited every year for compliance with Ohio and Federal law. Last year we were audited by the State of Ohio and awarded their Audit with Distinction award for having no questionable costs.

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      • The audit for which you received the cursory award (same as most other communities receive) more resembles a budget balance sheet. The finances on line did not, until very recently, include the more comprehensive and revealing “check book” feature of Ohio’s OpenGov system. Our accounting system was declared incompatible with OpenGov, thus the convenient long delay while making it compatible and finally available to the public. Perhaps a new audit which may soon take place will take note of things like the numerous confusing and illegal fund transfers (by check image) FROM all of the restricted enterprise water and sewer funds TO the unrestricted General Fund or other unrestricted target fund that needs cash.

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      • The audit you speak of happens every year for every city. Whether it is a CPA or a state audit year, the procedure is almost identical. After the books are closed at the end of the year, the audit team comes to Middletown to start their work. The team for the kick-off meeting with city staff included 8-10 members of the audit team. After the meeting and a short burst of activity, the auditors leave a smaller team of 4-5 auditors at the city for several weeks to perform the analysis and review that you are looking for. They then gather additional data and perform additional reviews offsite for several more weeks. If there are any remaining questions, they then come back to the City for a few more weeks and then mid-year finally submit their report. That process happens EVERY year.

        Keep in mind as well, the OpenGov system is far beyond the simple checkbook function suggested by Josh Mandel’s office for the state. We purposely wanted more transparency than the minimum suggested by his office. We insisted on providing more openness than recommended by the State.

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  3. IF what you are saying is true about the audit process, then why is Middletown the only community in the state to receive warning by The State Auditor’s Office of “a pending fiscal cliff”? Are you saying that their lengthy and thorough review at your insistence, and apparently under your watchful eye, found nothing to question concerning our near bankruptcy? Just curious … of the numerous funds floating around our accounting department, how many of those received a thorough audit? Playing shell games with that many funds would make a thorough audit very lengthy and difficult.

    Yes, “keep in mind” that Josh Mandel’s checkbook function is an important part of the OpenGov system which provides more transparency and openness on which you say you insisted.

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    • Middletown was one of 31 communities that the Auditor named in his report. THAT report was based on a quick comparison of account balances from year to year with no analysis. The original article by the Journal is here: http://www.journal-news.com/news/middletown-heading-for-fiscal-cliff-state-auditor-warns/WnARN9TjMBlWIOtyLy5MIL/ My response was listed in an earlier blog post:

      The Auditor’s report lacks the ability to place context in the data presented. The City of Middletown has been completing extensive capital projects and has undertaken a number of deferred maintenance projects during the past two years that weren’t completed during the recession. Our drawdown on reserves is by design and with a flexibility and understanding of which projects and staffing can and cannot be quickly changed in the event of a downturn in the economy. We monitor revenues and expenses on an ongoing basis (and online on our web page for transparency), so any downturn would be seen in no more than 30 days. We are simply not seeing a downturn in Middletown. Quite the opposite.

      In 2016, income tax revenues were up in Middletown by over $700,000. To put that in context, at a 1.75% income tax rate, that $700,000 in new tax revenue represents $40,000,000 in new payroll dollars over 2015. We are adding new housing stock, new businesses and have several hundred manufacturing and health care positions that are open and available at this time. We are hardly in a downturn. There is currently over $750 million in new construction underway in Middletown. The 2017 budget has over $12 million in new capital infrastructure projects.

      Several of the Auditor’s cautionary outlooks are monetary policy that was executed by the city after careful consideration and by design. We are investing in infrastructure needed by our manufacturers to expand their businesses. We have been involved with the land bank on a grant demolition program that reimburses after demolition. We are, therefore, using general fund dollars for demolition but have not received the reimbursement. We’ve opened 32 new downtown businesses in the past two years and three new anchors at our mall. AK Steel is just completing a new $36 million Research and Innovation Center on our east end.

      This was all accomplished despite the discontinuation of the inheritance tax which cost the city of Middletown about $800,000 per year in lost revenue, and with a steep reduction in the local government fund, leaving the city with an additional $900,000 less operating revenue annually than we had in 2010.

      2015 is old news and this report is out of context with the current reality. We all know that at some point we will see another recession. We have the ability to curtail spending at any time as the economy and our revenues dictate. We are not in financial distress and if the Auditor truly stated that we are on the highway to deep trouble, then I sure hope we stay on this current road as long as possible. I’m not sure how we could be improving in all sectors much faster than we are right now.

      The answer is that most funds receive annual review at the level you describe. There is a rotation schedule for the rest and they are tested extensively on the auditor’s schedule. We don’t set that schedule, they do.

      And yes, I am saying clearly and exactly that their lengthy and thorough review found nothing to question on our finances. There are ethical, legal and customary movements of money between funds to pay for large projects that run between many funds and departments. There are certain personnel costs that also are paid by the General Fund and reimbursed by other funds. One example would be health care costs for Water and Sewer employees. We write one check for health care out of the General Fund and then each department reimburses the General Fund for their portion. All cities do this in Ohio and it is a completely legal and normal operation. If you dislike the way money is being spent, that may or may not be a good policy decisions on the city’s part, but it is not unethical or illegal.

      Here’s one last thought. I’m an attorney and your City Manager. What possible reason would I have to jeopardize my job and my law license by committing illegal or unethical acts for the city? My law license is my bread and butter. I’m not putting it at risk for this city… period.

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