Monday, March 26, 2012

Ogden Utility System Discussion Bogs Down in Details - Updated 2x

Council work session reaches less consensus than planned

By Dan Schroeder

Last Wednesday’s city council work session was a disaster in almost every respect. It was unfocused, unpleasant, and unproductive.

The stated purpose of the work session was to reach “consensus” on each of a long list of decisions that will affect Ogden’s utility rates over the next few decades. The city’s consultants, Laura Lewis and Cody Deeter, guided the discussion with the aid of a lengthy slide presentation.

First they brought up each of seven major capital projects that are proposed for the next seven years:
  • Meter replacement, $3,030,000
  • Ogden canyon supply line, $9,000,000
  • Filter plant replacement, $11,616,160
  • Wheeler creek intake to filter plant, $1,515,150
  • Distribution/fire flow/pressure upgrades, $15,814,800
  • Pineview well field protection, $2,000,000
  • New Ogden City wells, $1,675,000
For each of these projects, the city engineer gave a sales pitch—often describing the catastrophes that might occur if the project is eliminated or postponed. The council would then discuss and debate the project, and after the discussion died down, the consultants would ask whether there was consensus to include the project as part of their larger financial plan. (At a work session they’re not allowed to actually vote, so the sign of consensus was head-nodding rather than hand-raising.)

The plan, of course, was for the council to dutifully agree to fund all (or nearly all) of these projects. But the discussions were lengthy and at times contentious. Councilmember Hyer asked how much each project would affect each customer’s bill, and this threw the consultants and the city engineer into disarray as they tried to do quick arithmetic. Councilmember Wicks wouldn’t agree to fund the filter plant through bonding, when residents’ water bills are too high already. Councilmember Van Hooser suggested reversing the group’s consensus on meter replacement, in order to prioritize projects that affect public health and safety. Councilmember Gochnour asked the consultants to prepare multiple versions of their financial plan, with and without various projects.

Whenever any council member suggested eliminating or postponing a project, the consultants or administration (represented by Public Services Director Jay Lowder) would argue and explain why the idea was unthinkable. On two occasions, citizens sitting in the audience attempted to speak, and Chair Garner politely instructed them to write their comments on the cards that were provided.

The discussions of these seven capital projects dragged on for three and a half hours, fraying nerves and producing considerably less consensus than had been hoped for. Adding to the confusion, the list of projects had been modified from the other recent versions that the council has seen, and some important facts were misstated during the course of the debate. But the main failure was the absence of any big-picture discussion of how these projects will affect the rates that we pay and the long-term finances of the Water Utility Fund. There was no discussion of the water utility’s rapidly increasing operating costs, or of the looming $130 million pipe replacement program that the city must face over the next 40 years.

The remainder of the agenda consisted of 12 matters of policy that will affect how utility costs are allocated among customers:
  • Base rate vs. per-gallon rate
  • Users with and without secondary water
  • Simplifying the rate structure
  • Conservation incentives and initiatives
  • Usage data and trends
  • Linking sewer charge to water use
  • Considering lot size in rate structure
  • Discounts for certain users
  • Landscaping requirements
  • More informative bill statements
  • Weber Basin property tax
  • Surplus water sales to Bona Vista
However, with a 10:00 curfew, the council had time to discuss only the first of these items. Regarding that item, it was clear that the consultants and bureaucrats would prefer to put most of the charges into the base rate, which customers pay even if they use no water at all. Such a policy produces guaranteed revenue, which the city needs to pay for all the capital projects. Of course, such a policy also discourages water conservation, making more capital projects necessary in the long run.

The council will discuss the rest of these policy items at its work session this Tuesday, March 27. The consultants will then prepare a comprehensive proposal (apparently in multiple versions), to be presented at the public “town meeting” that is scheduled for Thursday, April 5.

Update 3/27/12 11:00 a.m.: As Professor Schroeder reported in the article above, Wednesday night's special council work meeting was rescheduled to 3/27/12 (tonight), where the continued discussion about Mike Caldwell's Ogden City Bureacrats' proposed new water rate gouging increases will be discussed, somewhere at the tail end of tonight's City Council agenda:
As per usual, we'll keep the lights on in our lower comments section, just in case any community minded readers might want to offer their comments, before, during or after tonight's work session.

Update 3/27/12 2:00 p.m.: Just received this encouraging missive via Dan Schroeder:
Yes, I'll probably be able to live-blog tonight, since they'll be back in the Municipal Building where there's free wifi. However, I'm often not able to sit near a power outlet so battery life on my laptop may be a factor. I'll do my best!
Tune in tonight, folks, for the full lowdown!


Bob Becker said...

Interesting. And thanks yet again to Dan S. for his attending and reporting on the meeting.

Worth noting,  perhaps, that the concerns that the water system decisions would be made at this meeting, well before any public input was solicited, appear to have been exaggerated. 

One question, which I'll forward to one of my council members:  Does whether funds supporting bonds come from base rate assessments or use-rate assessments affect the interest rate the city will have to pay on the bonds?  Or is the base rate/usage rate matter irrelevant to bond interest rates?

Dan S. said...

Well, it was certainly the intent of the bureaucrats that all the major decisions be made--at least tentatively--at this meeting. Fortunately, some of the council members weren't ready to do that. (And it's a little unfair to say "before any public input was solicited", because there's already been an online survey and a "fact-finding work session" where public input was taken. But the council has made no effort to educate the public regarding the proposed bonding and rate increases, or to seek input on those concepts.)

I think the base rate/usage rate question is irrelevant to the bond interest rates, so long as the city can still make a reasonably honest projection that shows adequate revenue.

Ogdenite said...

Slow down council.  Doing it right is best.  Doing it fast is what kids do.  Tell Justin Anderson to suck a lollypop and wait.

Bob Becker said...

Well, it was certainly the intent of the bureaucrats that all the major decisions be made--at least tentatively--at this meeting. 

I don't doubt that for a minute.  Just pleased we have Council members who will not be hustled into hasty decisions for the sake of comity and speedy meetings, and who insist that if it takes more time than the Administration and Consultant budgeted to discuss any particular proposal, that that time will be taken. 

Some of the length of the meeting can be explained by this: "Councilmember Hyer asked how much each project would affect each customer’s bill, and this threw the consultants and the city engineer into disarray as they tried to do quick arithmetic. "

The Administration and the Consultant clearly did not prep for this meeting as they should have. You, me and the first three people we meet on the street could have told them they were likely to be asked the impact of at least some of the projects on a resident's water bill. That they hadn't prepped for that question beggars belief.

If I did not, like Teddy Roosevelt, maintain a philosophical equanimity in all things at all times, and were I a Council Member I might be tempted to instruct the Consultant that the next time he or she presumed to appear before the Council on matters like this, that he or she should damn well do their homework and be prepared to answer likely questions. 

rudizink said...

I have a couple of questions, Dan, lodged by one of our gentle readers via private email.

Did Mayor Caldwell show up at Wednesday's Council work session?

Was he present at any of the earlier water rate topical meetings?

Dan S. said...

No, I haven't seen Caldwell at any of the water rate discussions. Mark Johnson has attended most of them and seems to be managing the whole process from behind, yet even he wasn't there on Wednesday.

Ogden Lover said...

What about finding other sources of funding?  How about not planning any further grandiose schemes which will cost Ogdenites $$ so that money can be spent on our water system?

How about investigating how much city money is going into the Junction to subsidize Gold's Gym and Fat Cats so that maybe we could shift some of that funding back to water projects?

TheLovelyJennifer said...

in the words of J.M.K -->"In the long run, we're all dead."

at any rate, multiple contingencies and plan/budget grouping should be looked at for options and priority management.

and it is good that Hyer wanted to know the effect on individual water utility customer cost increases each project will have .. and bad that the "consultant" wasn't prepared with an answer or at least a ball park figure.


Smaatguy said...

Off topic, but have ya all seen the hot tub hotel lately....looks like Ogden has a new ugliest building....looks more like a combo of the Alamo and a Taco Bell....JMHO

BikerBabe said...

 I knew I had seen something like it before!



Dan S. said...

The council work session is underway, still on the initial agenda items which concern various programs to revitalize residential areas in central Ogden. Federal funding for these programs has declined quite a bit over the years. I haven't done any homework on these programs so I'm not in a position to understand or report on most of what's being said.

Stay tuned for the discussion of utility rates.

Dan S. said...

All council members are present, as is CAO Mark Johnson.

I've looked at a revised version of the consultants' slides, and it appears that the only change to the slides from last week is the addition of one more "policy consideration" to the list of 12 above. The new item reads "Management policies / Establish rate stabilization fund". I'm not sure what exactly this is, but I'm sure we'll hear later tonight.

Dan S. said...

The utility rate policy discussion finally begins, picking up from where we left off last Wednesday. Consultant Cody Deeter leads the discussion and begins with the new item that I mentioned in the previous comment.

"Rate stabilization fund" is another way of saying "cash reserves", and Deeter is assuming that this will always be at least 180 days worth of operating funds. "We think it's important for the council to discuss that issue. The recommendation from the S&P rating agency is 360 days." In 2008 and 2009 it was much lower than this [and the sky didn't fall].

Eller-Smith: Even if we weren't going to bond, the authorities still recommend this.

[Basically, the consultant is telling the council not to dip into its cash to pay for capital projects; borrow money instead.]

Gochnour:  What's the lowest you would recommend?

Laura Lewis:  90 days.

Dan S. said...

[Another thought: The sewer fund has plenty of cash, and these calculations could be done for the combination of both funds, rather than for each fund individually. Then it wouldn't be an issue.]
Council generally reaches consensus on a minimum 150-day cash reserve.[Yet another thought: Should the "fiscal charge" tax be considered an operating expense for the purpose of this calculation?]

Deeter: Second benchmark is "coverage ratio" which is ratio of net revenue to debt service.

[What the consultants don't explain is that bonding tends to drive the first benchmark up but drives the second benchmark down. Paying for capital projects with cash does the reverse.]

Dan S. said...

[Lewis incorrectly implies that a high coverage ratio implies a high cash reserve. She doesn't even consider the possibility of using the cash to pay for capital projects!]

Dan S. said...

Next issue: Review question of base rate vs. cost per gallon.

Hyer has asked for a review of "ERC" or "equivalent residential connection".  Deeter says the number comes from the Sunrise Engineering Master Plan. Each residential connection is one ERC. Commercial connections were factored in based on state standard summer peak summer usage figure of 42,000 gallons. So total commercial gallons used in August divided by 42,000 gives the commercial contribution to the ERCs. [This formula means that the average commercial "ERC" uses much more water than the average residential ERC.]

Now Deeter reviews his sermon on fixed vs. variable costs, trying to push the council toward charging flat rates and away from charging more on a per-gallon basis.

Council members ask what current rate structure is like, and consultant doesn't know that half of residential revenue comes from the base rate. He does know that for most customers, the base rate is$14.98 per month, and there are six tiers for users without secondary water. Hyer complains that his water bill shows nothing about the rate structure.

Dan S. said...

Lewis explains that current rate structure resulted from the 2007 study and the desire to create incentives for conservation. However, those rates were then modified a year later after backlash.

Gochnour:  Don't those with one-inch connections use about the same amount of water as the 3/4 and 5/8 connections? Consultants aren't sure, but Gochnour says she thinks they do. [The base rate is quite a bit higher for one-inch connections.]

City Engineer Justin Anderson tries to explain why base rate is higher for those with 1-inch connections, but his statements are vague and don't really explain anything.

Dan S. said...

Hyer: It seems unfair not to take into account whether people have secondary water, and whether they have a large lot or a corner lot.

Water department says the billing software doesn't have this capability.

[The gas company doesn't give people discounts for having bigger houses to heat!]

Wicks and Hyer are on opposite extremes regarding water conservation.

Gochnour brings up water sold to Bona Vista, and Deeter jumps ahead to that.

Attorney Mark steps forward. "It's important to understand the concept of surplus water sales." Lots of people buy water from Weber Basin, which charges based on when each entity signed up with them. Those who signed up later pay more. If we have surplus water, we can't charge any price for it because the purchaser can go to Weber Basin instead. We charge Bona Vista 25% more than our middle rate from Weber Basin, i.e., $158 per acre foot [if I heard correctly]. Contract is for 1400 acre feet per year, and they pay for this whether they use it all or not.

Wicks:  In perpetuity?

Attorney:  Yes.

Wicks:  What if we don't have the water?

Attorney:  We would have to cut them at the same ratio at which we cut our own citizens.

Stephens:  Are our citizens subsidizing what we sell to Bona Vista?

Attorney:  No.  [He tries to elaborate, but it doesn't make sense to me.]

Dan S. said...

[Where does this revenue for "surplus" water sales show up in the CAFR?]

Hyer:  Doesn't this mean that there's no reason for people to conserve other than principle?

Attorney:  It depends on the year.  We're not asking people to conserve so we can sell water to Bona Vista.

Gochnour:  How do we communicate this to our residents?

Attorney:  "It's the way that business works."

Dan S. said...

Attorney:  There is one provision in the contract with Bona Vista for the council to influence rates charged to Bona Vista.

Wicks:  Did we adjust their rates at all four years ago?

Attorney:  No.  But perhaps you should direct the administration to renegotiate the rates in light of our increased costs.

Total revenue from Bona Vista has been about $230,000 per year.

We have a couple of other smaller surplus water sales.

Our rate with Weber Basin includes a provision for a surcharge if we go above a certain peak water usage rate in the summer.

Dan S. said...

Back to discussion on conservation policy.  Conversation is complex...  Only selected excerpts below.

Hyer:  My wife and I and two boys generally use about 6000 gallons per month indoors. A few months are lower.

Wicks:  It's more fair if you charge people by use.

Blair:  If you charge one customer less, you have to charge another customer more.

Deeter: Educational program to encourage conservation?

Gochnour: Water-wise tip in utility bill inserts.

Attorney: We already have an ordinance for the water manager to help educate customers...  [Really? News to me.]

[I say they should be identifying the biggest water users and working with them individually to lower their bills.]

Wicks: We don't need to reinvent the wheel.

There's still a lot of confusion over what the current rate structure actually is.

Dan S. said...

Hyer again complains that the water bill is uninformative, and others agree.

Consultant cautions that options for more informative bill might be limited.

Chris from water billing office steps up to discuss bill printing options. She reviews what's currently on the bill.  Space for up to 3 meter readings; meter size; garbage can information.

[Digression into option of smaller garbage can.]

Chris: Graph shows 12-month history; then itemization of charges; then payments and adjustments; space for information notes.

Van Hooser: Why do we always get a return envelope in the mail, when we pay our bills online or automatically?

Chris: Mailing is done by an outside company and we can't control who gets a return envelope.

Wicks: Could we create a small financial incentive for customers to switch to an emailed bill?

Blair: Or a surcharge if they don't.

Dan S. said...

Chris: There's also space on the bill for penalty notices and so on.

Garner: What about charitable contributions that come with payments?

Chris: Those are currently turned over to Catholic Community Services.

Software comes from a company in Texas. Bills are printed in-house and mailing vendor is in Ogden.

Hyer: Can we upgrade software to take lot size into account?

Johnson: There's no point until we have all the new meters installed.

Blair: So is there a way to explain the charge for water use?

Dan S. said...

Chris: Could shorten graph and use space under it to show water bill calculation according to tiered rate structure.

Van Hooser: Nobody reads their water bill.

Chris: Another alternative for making the graph smaller would be to just show current month, last month, and same month last year.

Software vendor would charge $750 one time to program in this change to the bill printing.

Dan S. said...

Speaking of conservation... Discuss landscaping requirements:

Attorney: Usually it's Greg Montgomery who explains the answer to this...  When we talk about xeriscaping, we're not merely talking about rocks. But rocks along with plants can be ok. We have one rule for the park strip, and we have a slightly different rule for the rest of your yard.

In the park strip you have quite a bit of choice; you can go with almost all rock if you have trees spaced 40 feet apart. You're also not allowed to have a concrete surface under the ground cover. Rocks have to be a certain size, or use additional ground cover.

In the rest of your yard, you can do more than 10% non-living cover, but you have to get planning dept. approval and there are required design principles and the plants can't be just weeds.

In conclusion, we do allow for a lot of options.

Dan S. said...

Next topic: Different rates for those with and without secondary water.

All seem to agree that for indoor use, everyone should be charged the same rates.

Consultants now complicate the discussion by asking whether we shouldn't compensate for the flat rate that those with secondary water have to pay to the secondary water providers. Hyer brings up the obvious objection: Those users are getting something for that fee, namely an unlimited amount of irrigation water.

Lewis:  The system is sized for peak day flow. Shouldn't we charge those who irrigate with our water more for that capacity? [Amazing that she now, suddenly, is apparently arguing FOR a steeply tiered rate structure!]

Dan S. said...

Deeter suggests actually charging less for "outdoor" water than for "indoor" water, with a tiered structure that goes DOWN above a certain level of use. Wicks points out that the threshold between indoor and outdoor will vary enormously among households. Deeter says you'd have to base it on the average. [He's totally nuts.]

The discussion is again complex and I'm not convinced that anyone knows exactly what they're suggesting.

They're going around in circles discussion what's "fair", but without a specific proposal on the table and with no firm understanding of the current rate structure. They're bogged down in details whereas "fairness" depends on the rate structure as a whole.

Dan S. said...

Time to move on to the three remaining issues on the agenda.

Discounts to low-income customers. Chris explains current discounts available to home owners who already qualify for county and state assistance programs. Discount is 50% of base rate (and also slight discount on refuse charge).

There are currently 489 customers who are receiving these discounts, which amount to $44,000 total off water bills.

Some neighboring cities give discounts to military (with various criteria).

Dan S. said...

The council is generally supportive of some sort of discount for deployed military.

Next topic: Weber Basin property tax. Comptroller John Arrington steps forward to explain this. Weber Basin charged Ogden City about $1 million for water during the past year for 1700 acre-feet of water. But they cover this through a tax assessment to Ogden City residents. It still shows up on Ogden's financial reports as both a revenue and expense item.

The other option would be for Weber Basin to bill Ogden City, rather than collecting their revenue as a tax. In that case, we would have to raise our rates about $3 per month. However, tax-exempt entities don't pay tax and they do pay water bills. And all the other features of the property tax system come into play, such as the 55% primary residence rate.

Gochnour: How do other cities handle this? Arrington isn't sure but he doesn't think we're the only one doing this; it's probably pretty standard.

Council finally agrees to leave this alone.

Dan S. said...

Last issue: Linking sewer charges to water use.

Chris comes forward to explain the history of this. It was done in the past but in a complicated way that was unfair to those using water outside, so it was finally dropped.

Current software could handle a sewer charge based on winter averaging, but there are problems (she claims) due to estimating meter readings in the winter. Estimated meter readings are reconciled in the spring, and this is a labor-intensive process. This is what creates the potential hassle with winter-use averaging for sewer bills.

Wicks and Van Hooser seem to agree that basing sewer charges on winter water use is desirable. Nobody seems willing to stand up to the water department and tell them to find a way to implement it even without new remote-readable meters.

Dan S. said...

That brings tonight's meeting to a close, all agenda items having been discussed.

Next steps: Town meeting Thursday, April 5. Work session on Tuesday, April 3, will review some of the material to be presented at the town meeting.

Bob Becker said...

After reading Dan's report of the second meeting [for which yet again thank you], I can sum up my state in one word: Confused.  This is not, I hasten to add, a comment on Dan's reporting but on the scattershot nature of the work session, the apparent continuing lack of prep by the Administration and Consultants [see number of "don't know" responses], and the lack of the Council's ability to keep the discussion on point. 

Dan S. said...

Good points, Bob. With hindsight, I think the consultants should have started by presenting and explaining the city's current rate structure. That would have helped focus the subsequent discussion of possible ways to amend the rate structure.

When the council itself goes off track, I think it's hard for the consultants to rein things in since the council members are elected officials and the consultants are merely hired contractors. Actually I thought that in this respect, the consultants handled things well. Deeter juggled his list of 13 items around as the discussion meandered, and may have ended up covering them in an order that made more sense than the order in his slides.

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