Facts, not jihads: More required reading on sewers.

Randy Smith boils down his sewer series to talking points ...

To make a long story short

I’ll admit it. I write “long.” I try to be careful with my writing and I try to be complete. When I write about public policy matters, I choose my words carefully, try to address even the most esoteric of possible objections, and strive to accommodate readers who may just now be paying attention.

Accordingly, sharing facts and opinion with a wider audience is often prevented by the sheer length of what I write.

So, let’s try to boil my recent 5-part essay into its essence, shall we? Here are the elements.

... and explains why certain EDIT-based "relief" proposals stem from intended cultural jihads, not the hard facts about the sewer utility.

A sewer fix we can accomplish now

Let’s be clear about one thing right off the bat. I would not fault any city council member for calling “time out” when asked to increase the $5.04 per unit sewer rate by another $1.81. There’s nothing insignificant about that.

But when any council member tries to blind us from the facts with irrelevancies, personal grievances, and boogeymen, I call foul.

Indexed: New Albany: Sewer “Crisis” 2010, in five parts, by Randy Smith.

New Albany: Sewer “Crisis” 2010: Part 1 – How We Got to This Point.

New Albany: Sewer “Crisis” 2010: Part 2 – Why This Isn’t a “Crisis” but the Natural Result of City Council’s Irresponsibility.

New Albany: Sewer “Crisis” 2010: Part 3 – Why I Think Council is Digging its Heels.

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

New Albany: Sewer “Crisis” 2010: Part 5 – A Modest Proposal to Help out “Aunt Sally.”

New Albany: Sewer “Crisis” 2010: Part 5 – A Modest Proposal to Help out “Aunt Sally.”

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 5 – A Modest Proposal to Help out “Aunt Sally.”

Despite the fact that the council has signaled its complete willingness to give away the sewer utility and cast it into receivership, one can hope that rational minds will prevail.

What has been offered by our bondholders is a decent, if still painful solution that would require an immediate 36 percent rate increase, followed by a 19 percent increase in 2012. Annual increases of 3 percent would follow through 2016.

This 36/19 plan is simple arithmetic, but it’s hard to say that it is the type of deal that would be negotiated by a truly engaged city council. Before rejecting or accepting any of the three alternatives before it (70 percent now; 36/19; or relinquishing the utility into the hands of an outside sewer czar), why can’t the city council engage in politics the way it was meant to be?

Politics, it is said, is the weighing of competing interests, usually with the result that a majority chooses the weight of those interests.

The council, as I write this, is engaged in the worst kind of politics. They are willing to throw up “straw men” and take ideological stands, but they don’t seem to be capable of sitting down, raising their points, and then crafting a solution that addresses those points.

Blinded by pride, envy, hatred, and distrust of anyone or anything they don’t understand, and fearful of being fooled, the council is acting like 3-year-olds. They’re willing to say “no,” but they aren’t willing to work around the edges to fix the biggest problems. That’s true of most issues, but particularly true on this one.

Now, having thoroughly insulted the council, perhaps I’m not the one to offer an alternative, but here goes.

The “straw-man fallacy” is a tried-and-true technique frequently employed by demagogues. By distorting or mischaracterizing the choices before the council, a member tries to kill a proposal.

A “straw-man proposal,” however, requires members to brainstorm and discuss the pros and cons of a proposal and to inspire new and better proposals. In the U.K., it’s called an “Aunt Sally.”

Let’s dispense with straw men and go right to “Aunt Sally.”

The most common argument against the rate increase is that times are tough, especially for the poor, the unemployed, and those on fixed incomes. Of course, times are tough. They are tough for all of us and they are tough for the government that provides the services we demand. Since we can’t just stop paying for our sewers, shouldn’t we dispense with the “times are tough” argument?

But that doesn’t mean the loudly stated argument doesn’t give us a jumping-off point to craft a slightly better proposal, one that addresses the impact on the poor, the unemployed, and those on fixed incomes.

Let’s talk about Aunt Sally. She is retired, lives alone, and is no longer working. Her income is fixed, whether it’s a social security check or a government check supplemented by pension, annuity, or a drawdown of her savings. If Sally is the right prototype, she’s already paying the minimum charge for her sewer service. That’s currently $10.08 for usage under 200 cubic feet, as measured by her water meter.

Sally would see her sewer bill rise to either $17 or $16.20 by 2012. Even if she uses less water, she can’t evade a bill for this much because that is the minimum charge.

Couldn’t we tell Aunt Sally we understand her dilemma? Couldn’t we freeze her rate at the current $10.08 a month and save her as much as $84 a year?

Of course we could. But we would have to make up that subsidy somewhere else, because our creditors won’t accept the status quo with multi-million dollar deficits and the law won’t allow us to dump tax dollars into sewer expenses.

The best proposal on the table proposes an increase in the minimum charge to $13.85. That means we would have to make up $3.85 that we would have received from Aunt Sally and all those people now using less than 200 cubic feet of water per month.

I analyzed a recent monthy billing summary and discovered that of about 16,500 billing accounts, about 21 percent of them were billed the minimum. Systemwide, no more than 3,200 users are currently being billed the minimum.

We can freeze the rates for all of those accounts, those households, those businesses, and those rental properties, by the simple expedient of adding 15 cents to the rate. If we impose a 40 percent increase today, we can follow that in 2012 with an 18 percent increase. We’d still be paying less than a penny a gallon to safely and effectively move our effluent to the treatment plant. But we’d be saving the lowest-volume users, the poor, and those on fixed incomes from sharing the financial burden with the rest of us.

If Aunt Sally starts to use more than 200 cubic feet of water each month, the subsidy disappears. She joins the rest of us in carrying the burden. But if she keeps her usage down, she would see nothing like the increase the rest of us will.

If I may, I call this the “40/18/Freeze” plan.

It addresses the argument variously styled as “little old lady,” “granny,” etc. It shields those low-volume users on a fixed income. As an unintended, though not unmerited benefit, it allows the owners of vacant rental property to limit their expenses while the property remains unrented. And for some of us, it gives us at least a chance of reducing our sewer bill by implementing dramatic conservation measures that would reduce our usage below 200 cubic feet per month.

I ask the council to think of Aunt Sally. We have to raise the rates. We must make the city-owned sewer utility viable. We must pay our debts. But can’t we actually do so while helping out those who would experience the most pain from the increase?

For the record, my home usage and my business usage are comparable, running between 400 and 600 cubic feet per month. I will not benefit from the “40/18/Freeze” plan.

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.

New Albany: Sewer “Crisis” 2010: Part 3 – Why I Think Council is Digging its Heels.

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 3 – Why I Think Council is Digging its Heels

I think it’s fair to say that the relationship between the current administration and a significant segment of the current council is poisonous. The mayor warns that without proper funding from the council, essential city services will be threatened. Many on the council are wary and distrustful of Mayor England and his staff and can be relied on to oppose practically any solution put forward by the administration.

But residents and ratepayers in New Albany need not take sides on this sewer rate schedule. They need not side with nor trust the words coming from the mouths of the mayor and his administration nor the words emanating from his critics on the council.

New Albany’s city council is the only body that can establish sewer rates. The sewer board, appointed by the mayor and the council, can only recommend a rates schedule.

By law, those rates must be set at a level that covers the expenses of the sewer utility. Those expenses include normal operations and maintenance, an operating reserve, capital improvements, and debt service. Every dollar borrowed by the utility must be repaid to its creditors on a firm and unbending schedule. Every bill must be paid. Specific capital projects must be undertaken.

There simply is no other choice. The revenue from those rates must cover all those expenses. If the utility can lower its expenses, it can save a few pennies on the rates. If the utility can lower its borrowing costs, it can save even more pennies. And if the city can delay or avoid environmental upgrades under the Clean Water Act, even more pennies can be saved.

So, having been told that they have no choice, the council has risen up with a roar and begun to cast vague accusations in every direction.

Rather than try to explain the realities to their constituents, several council members have sought to stir up passions by casting this impending rate increase as some invisible conspiracy by a band of burglars intent on picking our pockets.

Make no mistake. The reason this increase is so large is that the council has refused to address the insolvency. It is most disingenuous of this council to pretend that this is sudden or unexpected.

Wishful thinking won’t take this responsibility away from the council. Accusations of “conspiracy” won’t cover the costs of operations and maintenance, fill the required reserve funds, bring the utility into compliance with the strictures of the Clean Water Act, or pay back the money the utility borrowed to do all of the above.

The (Indiana) State Revolving Loan Fund sits at the table representing our largest creditors. Weeks of negotiation with the bondholders yielded four major concessions for New Albany that the city council has so far rejected.

Our lenders are willing to refinance a significant portion of our debt at a lower interest rate. They are willing to relax debt service reserve fund requirements to let us use our own money for capital projects and they’ll let us take 10 years to replenish that almost $5 million reserve.

In exchange, the utility (through council action) must raise the sewer rates to a level sufficient to make the utility solvent. During this and next year, that requires $3,260,531 in new revenues from ratepayers. Beginning in 2012, that requires $5,563,415 in additional revenues compared to current receipts.

If the council rejects this new recommended rate schedule like they did the original recommendation, they are quite explicitly relinquishing control over rates for years to come and putting this city completely at the mercy of bondholders. In essence, they would be declaring bankruptcy and possible liquidation of every sewer asset this city has paid dearly for over our lifetimes.

I can’t imagine that any council members could survive to be re-elected in 2011 if they continue on their current course.

New Albany: Sewer “Crisis” 2010: Part 2 – Why This Isn’t a “Crisis” but the Natural Result of City Council’s Irresponsibility.

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 2 – Why This Isn’t a “Crisis” but the Natural Result of City Council’s Irresponsibility

In an earlier note, I gently chastised fellow New Albanians for “not paying attention.” Despite the fact that local media have exhaustively covered the ongoing financial drama of our municipal sewer utility, it seems that most of my neighbors don’t have the energy or interest to monitor how the city’s executive and legislative branches are managing it.

This forgivable lapse in attention by voters has a steep downside, however. The words “rate hike” strike us the same way a mouse scurrying across our kitchen tiles does. Those words startle and frighten even the hardiest among us. Just as with the mouse in the house, we hear ourselves saying “How did that happen?”

More importantly, it leaves us susceptible to falling for just about any explanation. We’re afraid and confused. We’re willing to listen to just about any explanation, no matter how plausible, no matter how absurd. Is it corruption? Fraud? Incompetence?

I’m careful enough not to rule out possible explanations, but isn’t the most likely answer, well, the most likely? Isn’t it most likely that we New Albanians just get to go first and get to pay for decades of inattention to the realities of modern environmental stewardship?

You are hearing your neighbors speculate about the “mouse” and where it came from. More than a few say the mouse is actually a rat!

Of more significance, you are hearing your elected officials on the New Albany City Council expressing their “shock” at the appearance of this “mouse,” or in the alternative, denying that there ever was a mouse in the kitchen.

Not one of the 9 council members can plausibly claim shock. Anyone paying attention, and particularly anyone who reads the paper, much less anyone who attends the bimonthly city council meetings, knew this was coming.

In fact, the council has been warned repeatedly that rate increases were absolutely imperative. Not are. Were. The council has fought vigorously against this reality by cutting and delaying every plaintive request from successive sewer boards to allow them to follow Indiana statutes and make the city’s sole utility enterprise viable and self-supporting.

Well guess what, folks? Mice are the least of our problems. The wolf is at the door.

New Albany’s sewer utility has defaulted on its debts. It undertook considerable debt to begin a program to stop sanitary sewer overflows and to ensure the separation of nasty sewage from stormwater runoff. That program is showing results, but the work is not over. We have to pay for it.

Our city council, however, has emphatically signaled that they don’t care that we are in default. They unanimously rejected a sewer board recommendation to impose the 70% rate hike necessary to cure our default. What’s more, they played illegitimate parliamentary games to prevent the amending of that recommendation to accept a much more palatable offer from the creditors who hold the city utility’s fate in their vaults.

This inexcusable dereliction of their collective duty (not every member was present, but the absentees reportedly would ratify the vote) puts the utility in a dramatically dire situation. The word is “receivership,” often compared to foreclosure. But unlike foreclosure, which, after all, has a relatively rapid conclusion, receivership is more akin to being occupied by a hostile foreign army.

If the council continues on its stated course (and everything I’ve been able to learn says they are hell-bent on giving the creditors a big, fat, hairy signal), what do you think those bankers, public and private, are going to do?

Allow me to enlighten you to the worst case. They will, in short order, ask a judge to appoint a New Albany Sewer Czar to dictate to us the terms under which we will have our effluent flushed and treated. Said czar or czarina will fix the problem in such a way as to guarantee the lenders the full benefits of the return they contracted for when they allowed us to borrow their money.

Will New Albanians win in this scenario? A few might. Those few who somehow managed to acquire New Albany Municipal Utility bonds will see their shaky loan certificates become solid gold. The rest of us will be required to gild them with rates dictated from afar.

Oh, the faces may stay the same. But city council control over rates will, in our city, be something for historians to reflect on. It certainly won’t be anything we’ll have to trouble ourselves with for the next decade.

On our current course, we’ll look back on this “crisis” as the good old days.

New Albany: Sewer “Crisis” 2010: Part 1 – How We Got to This Point.

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 1 – How We Got to This Point.

Anyone paying attention recognizes that New Albany’s sewer “crisis” of 2010 is a manufactured dilemma, not some shocking revelation from out of the blue.

I say “anyone paying attention” with intent, by the way. For far too long, rational people with normal lives have turned their eyes away from city government, many repulsed by what passes for municipal policy and politics. But in New Albany, looking away is akin to handing your ATM card and PIN to your ne’er-do-well nephew right after he flunks out of rehab.

Not to be critical of people coming out of rehab. Frankly, the dysfunction of New Albany’s City Council might be ameliorated by replacing some of its members with a Rehab All-Stars Barbershop Quartet.

However, utter the words “rate hike” and everybody starts paying attention.

As Indiana’s first big city in population and industry, New Albany built sewers long ago. They built them well, too, and after a century, many of those original pipes were still doing their boring jobs. But like the world’s oldest woman, those pipes were destined to expire someday. A series of leaders who grew up at a time when the sewer department was little more than a source of patronage jobs suddenly found out that the 19th-Century investment would have to be repeated. Ultimately, at the not-so-gentle urging of the Environmental Protection Agency, New Albany became a part of the first wave of genuine enforcement of environmental laws. The city was, quite literally, dragged kicking and screaming into the 21st Century, again well ahead of its peers.

Accordingly, New Albany has undertaken massive upgrades and incurred massive debt to be the example for the rest of the state of Indiana, resulting in relatively higher sewer rates when compared to comparable Indiana cities.

Some would call us lucky. After all, we’re upgrading our sewers with today’s dollars at a cost that is surely far less than it will be 10 years from now. Others would call us unlucky in that we are shouldering a burden that our sister cities haven’t yet taken up.

Personally, I find it hard to credit those who say the cure is worse than the disease. After all the current “sturm und drang,” after all the investment, New Albany will stand again as a leader and New Albanians will live in a healthier, wealthier, and more attractive city.

But bad habits are hard to break, and the 8 men and 1 woman responsible for maintaining the viability of this essential city utility are starting to pout and whimper, threatening to make “daddy” drag us all, once again, kicking and screaming. This time, however, they are taking us far too close to the edge of the precipice.

For if the council carries out its stated intention of leaving the sewer utility’s bonded debt in default, if it fulfills its threat to call our creditors’ and regulators’ collective bluff, New Albany will lose control of its sewers and its sewer rates. Perhaps some banker in Brussels or some bureaucrat in Boston will become the woman in charge of setting rates and directing projects. Who wants to guess how she’ll “fix” the problem?