New Albany: Sewer “Crisis” 2010: Part 4 – Keep your hands off our EDIT!

With Randy Smith's permission, NAC is happy to reprint this series of five articles as counterpoint to the prevailing blather.

New Albany: Sewer “Crisis” 2010:

Part 4 – Keep your hands off our EDIT!

New Albany has a dirty little secret. Residents and elected officials often talk of it, but rarely talk about its implications.

The Economic Development Income Tax (EDIT) was created and approved by voters to fund economic development that would ostensibly strengthen the tax base and help the city (and county) to continue to provide services and foster job growth. In fact, Floyd County used it to build and pay for a jail.

Last year, New Albany received about $2.9 million as its per capita share of this county income tax. New Albany can, after 2005 legislation was passed, use that money for just about any lawful purpose. This mayor and the last knew well that relying on property taxes alone would leave the city terribly vulnerable and so both tried to use the EDIT to promote projects that will boost economic activity and provide another tax base to fund city services.

However, to hide the fact that the rates being charged for sewer services were too low, city council, the mayors, and our lenders have diverted EDIT funds to keep rates lower than required.

Using EDIT to subsidize sewer rates is unequivocally against the law. No one will deny that, but still it continues. This year and next, $875,000 of EDIT will be diverted to keep sewer rates artificially low.

The current sewer deficit is 31 percent. That is, receipts from the current rate schedule cover 69 percent of the costs. The proposed rate increase only covers 24.5 percent of the deficit. The remainder, 6.6 percent, is being paid by resident payers of the local income tax.

That’s an appalling subsidy. It’s not just that it is illegal. It’s radically unfair.

To whom, you ask? To you, dear reader.

Let’s imagine, briefly, a situation where all sewer revenues came from the income tax. Let’s imagine that New Albany has “free” sewers. They would be “free” because the taxpayers were paying all the expenses. Who would benefit from “free” sewers and who would be paying all the costs?

Business users would benefit first and foremost. There is no local income tax on businesses, so every gallon of their sewage would be swept away at no charge to the business. The more water the business used, the greater the benefit. One might make the case that this is something that would encourage business and create jobs, but no one has stepped forward to explicitly explain that subsidizing sewer rates with income taxes is, in essence, the same thing.

Industrial and other large users and wasteful users of water would greatly benefit by having taxpayers subsidize their sewer rates. If my neighbor and I have the same income, we would pay the same income tax. But if I choose to consume water with a garden, if I water my lawn and wash my cars regularly, if I shower twice daily, use a dishwasher, and fill my hot tub, I needn’t worry about my sewer bill. I pay no more than my equal-income neighbor who conserves water.

The way the EDIT is distributed in Floyd County is based on population. A household on the sewer system but outside the city’s limits would contribute nothing to the payment of sewer costs. A household inside the city would be paying all the costs for people outside the city, even though the utility is owned by the city.

The imagined example is an exaggeration, of course. Everybody pays something for sewers. But who is paying more than their fair share? And who has their rate artificially subsidized by working New Albanian households?

By dumping EDIT proceeds into sewer operations solely to keep rates artificially low, we not only extract money from New Albany taxpayers to give to non-taxpayers, we begin to cripple the city services that those funds could rightly support.

Accordingly, we have at least 5 fewer police officers on our force because EDIT money that could have paid for that has been transferred to nontaxpayers. We have deteriorating roads, faded street signs, blighted neighborhoods, below-standards fire protection, and increased crime. Instead of improving our city, we have instead decided to handicap our city, all in the name of keeping current sewer rates about 9 percentage points lower.

To the city council, the mayor, the sewer board, and the bondholders I say, “Keep your hands off our EDIT.”

We’re tired of pretending that the EDIT subsidy keeps rates lower. They don’t. We’re still paying the full sewer rate, but this way it’s just New Albany’s income tax payers, not all users of the sewer system.

I will acknowledge that I’d rather not pay more for sewerage service to my home and my business. I will grant that there are some among us who will be hurt badly by any rate increase. But propping up the rate with EDIT funds is not the equitable answer anymore than rejecting the rate increase is a responsible answer.

I know that it’s too late to remove the pledge of an annual EDIT subsidy, no matter how inequitable it is. We’re going to be pouring tax dollars (not ratepayer dollars) into the sewers for years to come.

So how do we make the rate schedule more fair and equitable.