Poway's Sewer Slush Fund

In my last post, I tried to explain some of the anomalies and inequities in the way Poway charges single family home ratepayers for using the sewer. In this post, I am going to show that Poway has collected way more money than it needs in sewer fees and not all of that money even goes to pay for sewer-related expenses.
To get an idea of how much money goes into and out of the Poway sewer utilities fund, I looked at the most recent budget documents. (note: Staff is currently working on the next budget. Until they release it, this is the most current document.)

Sewer Utilities Fund 2006-2010

The budget documents cover the years from 2006-2010. Although the last years are not yet in their "actual" form, the proposed numbers  should be pretty close to what the actual numbers will be.  In each of the budget years, you can compare the total operating expense (red box) to the revenues (green box).  Notice that in every year, the revenues are 1-2 million more than the expenditures.  Even when the capital projects are added in, the total expenditures were less than the total revenues in every year except the year 2006-7. The result of the sewer fund taking in more money than it was paying out is  that the sewer fund has about $11.861 million extra dollars in it.

The main costs that are charged to the sewer fund will always be "public works" and any capital improvement projects. Public works includes the charges Poway has to pay to have the sewage treated and the costs for Poway employees who work on our sewer system.  This FY (fiscal year), the public works costs are expected to be $6.43 million.  An additional $1.237 million goes for administrative,legislative and development services and something called "indirect cost allocation". Those administrative/legislative/development/ (and whatever indirect cost allocations are) tally up to almost 20% of the public works cost. That is a lot of administrative overhead.  But for the moment, let's assume that the City can justify dinging the sewer fund for money to pay the costs of running the city manager's office other administrative offices.

The sewer fund is pretty flush, with $11.861 182 in excess funds. But there is more.
More? How? See the line that says "TOTAL TRANSFERS/LOANS"?  In 2009-10, the sewer fund is expected to transfer out almost a million bucks- $861,460, to be exact.(BLUE CIRCLE)
Transfer Loans Sewer Fund
 $111,460 of that was to go for paying off "city debt service"(pay off bonds for the new city hall)  and $750,000 was to be a loan to the Water Fund. A loan to the water fund? The city just raised water rates, but deferred raising the rates on the higher tiers because the fund was flush with money.  Let's hope they are so flush, that the water fund doesn't need that loan from the sewer fund after all.

You know what's really weird about the sewer fund loaning money to the water fund? Well, besides the fact that the staff said that they don't need to raise the higher tier rates because they have enough money in the water fund? Well, the water fund has a loan to the redevelopment fund on the books. Yeah, really. The water fund was gonna borrow from the sewer fund, and all the while they have millions loaned out to the redevelopment fund and the redevelopment fund hasn't paid it back yet. Instead of the water fund going to the redevelopment fund and getting their loan money back, they go begging to the sewer fund for a loan. The sewer fund is the "go to" fund. Sweet, isn't it?  Especially since not everybody pays into the sewer fund, and the rates are constructed so that those who use the least, pay more per unit.

If you look in the blue box in the document above, you can see that every year the city takes some money from the sewer fund to help pay for the new city hall (city debt service fund).  In 2009-2010, they expect to take $111,460. The city also takes some money from the water fund to pay off city hall.  I would have expected that property taxes would be the main source for funds to pay off a new city hall, but a lot of property taxes in Poway are diverted into the redevelopment agency, so I suppose it was one of those "no brainer" things to raise water and sewer rates to pay off the new city hall.  Not everybody is on the sewer or pays sewer fees. In fact, several of our councilmembers are not on the sewer, but they approved the new city hall and hiked up water and sewer fees so that those on city water and sewer can pay for it.

Before Poway incorporated, we had a water and sewer dept. The city currently owns the old water dept building on Poway Rd (across from the library.)  Recently, Tina White, asst city manager, mentioned that the City intends to sell that building.  I'm not totally positive, but I expect that building was paid for by bonds which were paid off by Poway water and sewer ratepayers. If I am correct then I think that when the building is sold, the profits from the sale of that building should be returned to the water/sewer ratepayers. That seems only fair since we paid for it.

The blue box (in the document above) also shows that the sewer fund has loaned money to at least 4 other funds- redevelopment, CFD 88-1 (bonds to build the industrial park), the water fund and the
drainage fund.

Certainly it does make budgetary sense to transfer money between funds, especially on a short term basis. If something unexpected comes up, a loan from another fund can mean that the city saves the costs of borrowing new funds. For example, the sewer fund loaned some money to the drainage fund in 2005-2006, which it repaid in the following year. But not all the loans were short term.

According to Peter Moote, Asst Dir of Administrative Services, Poway, there are 3 loans from the sewer fund that have not yet been paid off.

1.  $5.5 million remains of the loan to the redevelopment agency. This loan was made in 1983 or 1984.
2. $1 million balance on the loan to community facilities district (CFD) 88-1 (to pay off bonds for the industrial park). This loan was made in 1994.
3. $214,500 still owed on the Street Development loan from 1993.

Water/Sewer Loan to Redevelopment

I don't know why the loan to CFD 88-1 wasn't paid off already. I know the sewer fund lent money to them because the redevelopment agency was going to default on the bonds when all the developers in the industrial park were going bankrupt, in the early 90s. But I thought that Poway brought in McMillan and worked out a deal with McMillan, where McMillan  paid off the bonds in return for future tax increment of  properties in the industrial park. So, how is it that the sewer fund didn't get paid off?

Poway's redevelopment fund owes money to both the water and the sewer fund. According to city manager Penny Riley, the $13.7 million that Poway had to give back to the state, was only about a third of this years redevelopment income. If Poway has $40 million coming in from redevelopment every year, why can't redevelopment pay back the sewer fund? And the water fund? Sheesh, those loans go back to 1983.

Poway made such a big deal about having to send that $13.7 million check to the state. $13.7 million is a lot of money. But it isn't even close to the amount the city has over-collected from sewer ratepayers. The sewer fund has a total of $6.7 million in loans on the books, $7.45 million, if you count the pending loan to the water fund. Add to that the surplus $11.86 million in the sewer fund and the grand total of excess money collected on our sewer bills is $19.31 million.

19.31 million dollars. That is quite a slush fund. Remember, not everyone in Poway pays into the sewer fund. Many people are on septic. Several of the councilmembers (Higginson, Emery, Rexford) who approved the sewer fee structure and the recent sewer fee increases do not pay these fees because they are on septic systems. They do not share the honor of loaning money to the street fund or the water fund or the redevelopment agency or to the community facilities district 88-1 to pay off bonds to build the industrial park. Those on septic do not share the privilege of paying off the bonds for the new city hall to the same degree as those on the sewer do. (Both the water fund and sewer fund pay equally for the debt service on city hall).  Sewer fee increases will be on the agenda again in a few months.   I suggest we remind our council members of how very thankful we are for the honors and privilege of keeping the city afloat with our sewer fees.

Why Gisela was billed $71.00 for 0 units of water

Did you catch the letter from Gisela Koestner in the April 15th edition of the Poway News Chieftain? The one where she complained because she was billed $71 from the City of Poway for using 0 units of water?

I just found out that there’s absolutely no incentive to conserve water. During the past two months I had 0 units water consumption, yet my water bill is $71. I understand the $28 basic water service, but dinging me for $45 for sewer is outrageous! As I see it, I’m a fool to be so conscientious and I will let our City Council and manager know that.

GISELA KOESTNER

Poway

I have been complaining about Poway's unfair sewer rates for about a year now, and to tell the truth, I was somewhat relieved to see that I am not the only one who finds the sewer rates "outrageous" and who is speaking out about it.

Why was Gisela charged $71 for using 0 units of water? There are 4 separate charges on each water/sewer bill. There is a basic water service fee and a basic sewer service fee, a water commodity charge and a sewer commodity charge. Everybody has to pay the $28.00 basic water fee and $16.35 basic sewer fee whether they use any water or not.  Gisela was not charged a commodity use fee for water because she didn't use any water, but she was charged a $28.71 commodity use fee for using the sewer, even though she didn't actually use the sewer  during that billing period. Believe it or not, Powegians can be charged up to $123.80 for using the sewer, even if they don't use it.

So how did that happen? How did it happen that Poway charges a sewer use fee even for people who don't use the sewer? Part of the reason is because Poway doesn't meter for sewer use. They guesstimate it by averaging the previous 3 winters lowest water use and then multiplying the average by 85%.

Sure hope I didn't lose too many readers there.

The other reason Gisela had to pay for using the sewer (even though she didn't) is because of the way Poway structures their sewer fees. Its an abomination. I've blogged about it here and here.
I looked at my old water/sewer bills (I saved them since 1998- the year I started "conserving") to see if I could figure it out when the sewer fees got so out of whack.  The first bill that showed up with the tiered sewer fees was Mar, 1998. Prior to that we had a flat sewer fee- every residential customer with a 3/4 in pipe paid the same amount for basic service but we did not pay a use charge.

The idea behind the tiers was to have those who used more of the sewer, pay more of the costs.  Fair enough! Well, not really, but fairer than the old billing system.  But since the tiers were first introduced 12 yrs ago, the sewer fees have increased even more dramatically than the water rates and that is causing problems. And it is making anomalies within the tier system more glaring.

Click on graph to make larger.

I've pointed out in other posts that Poway's sewer tiers are not constructed in even steps of equal rise or run. The jump between Tier 2 and Tier 3 is particularly huge. The sewer charge in Tier 2 is $50.65. In Tier 3 it is $76.25, a very dramatic 50% increase. It is possible that taking a single shower could bump someone into Tier 3 and cost them an extra $153.00/yr in sewer fees.

To show just how much the sewer charges have jumped over time, I am going to compare my family's  Mar 1998 water/sewer bill with our most recent bill from Mar/2010.

In Mar 1998, we used 9 units of water. Our total  bill was for $61.86. Total water charges were 30.28

Total sewer charges were 31.58. Sewer was just a little over half my bill.

In Mar, 2010 we again used 9 units of water. Our total bill was for $145.96. The water portion of our bill was $53.36. Our total sewer portion was $92.60. Sewer charges were 63% of my bill.

Results: 136% increase in total bill, 76% increase in water portion, and a whoppin' 206% increase in sewer portion.

The city goofed on my Mar 2010 bill. I was really supposed to be reassigned to Tier 2. Normally I am in Tier 2. I only get bumped into Tier 3 after extremely dry winters. We had some extremely dry winters in 2005 and 2006. There was no 2-month period when I could turn off my irrigation completely. We also had taken delivery of 10 new trees from the SDG&E free tree program. I had to water the new trees to keep them alive. But I paid for it in higher sewer bills for the next few years. In 2007-08, 2008-09 and 2009-10, my winter water use was 8 units, 10 units and 9 units respectively.  But I had to wait until Mar 2010 to get back into Tier 2. Here is a comparison to my corrected bill:

We used 9 units of water. Our total bill  $120.36. The water portion of our bill was $53.36

The sewer portion was $67.00. 

Our total bill  increased 95% from 1998. The total water portion increased 76% and the sewer portion increased 112%. The sewer increases still beat out the water increases!

Why are the sewer fees so high? There are a couple of reasons. In my next post I am going to show that the city is over-collecting sewer funds. And they aren't necessarily spending those funds on just the sewer.

It is probably useful to point out that not everyone in Poway pays sewer fees. Some people are on a septic system and do not pay any sewer fees. In fact, several of the council members who have approved our sewer fees don't pay them. Higginson is on septic, as are Emery and Rexford. They are the deciders but they don't really have any experience with how the sewer fees impact people who only use small amounts of water and get huge bills.

In October, 2006, the council again increased sewer fees. There were some complaints about the fees, so they commissioned a study to look at the tiered rate structure and to evaluate alternative rate structures.
The consultant, Raftelis Financial Consultants, Inc. (RFC) looked at 3 rate structures: a flat-rate, the current tiered structure and a uniform unit rate structure. I've posted their entire report, titled, "Sewer Rate Structure Study, Final Report March 9, 2007" here.

The consultant noticed some of the same issues I have noted with the tiered structure, in particular, that the rates varied from tier to tier and that within a tier, users who used different amounts would be billed the same charge.

 ...the City may have to address customer questions and improve upon the existing rate structure.  First, if we look at the rate paid for the average use within each tier, the amount per hcf decreases significantly.  For example, tier 1 customers pay, on average, $5.84 per hcf of sewer usage, while tier 7 customers pay $2.01 per hcf.  Second, customers may be confused by a seven tier system that generates an identical bill for usage at 27 hcf and 37 hcf (the range of usage defined as tier 5). 

RFC believes that the City may be able to address these opportunities by considering changes to the residential sewer rate structure.  RFC did not find inherent deficiencies in the existing rate structure that would necessitate any change at this time.  State law requires that charges be proportionate to system usage and the existing structure meets that requirement.  The question is whether the City believes the current structure best approximates system usage.  If the City chooses to redefine how it approximates a customer’s system usage, it must also revise its rate structure to match the new definition.

I disagree with RFC that the tiered rate structure did not have "inherent deficiencies...that would necessitate any changes at this time".  I think nobody clued in RFC that Poway was a  member of California Urban Water Conservation Council (CUWCC) and had signed an memorandum of understanding with CUWCC agreeing to implement the conservation-based BMPs of CUWCC.

The flat rate structure violates those BMPs so it was kind of a waste of time to even consider it. The current tiered rate structure also violates the CUWCC BMPs. I've discussed this with people from CUWCC and they have agreed with me on this point. Poway city officials disagree. I've blogged about that here.

I also disagree with the consultant's assertion that the tiered structure meets the requirements of State law that requires charges to be proportionate to system use.  Poway doesn't have sewer meters, so they are just guessing how much of the water we purchase ends up in the sewer.  Poway charges lower sewer rates for high volume water users under the assumption that the extra water doesn't make it's way into the sewer. Here is what is wrong with that assumption.  Someone who uses, say 50 units of water, during a winter period, might be using it for landscaping, or to fill up their jacuzzi or to wash a lot of clothes. Someone who uses only 20 units may actually be using half of it for landscaping, but the tiered rates don't reflect that. In the dry winters of 2005 and 2006, I used 20 units in the winter months. I used it for landscaping, but I did not get the discount that the large water users get. Instead I got a 50% increase in my sewer fee.

Here is a graph of the last 3 winter water use for each of the candidates and councilmembers. The last 3 winters were wet enough to turn off irrigation. Maybe some people didn't, but the point I am trying to make is that wintertime water use (without irrigation) can vary widely.

With the exception of Vaus, the wintertime use of these 13 people varied from 3 units to 33 units in 2010, when the city was heavily promoting water conservation and turning off irrigation systems.  Let's assume, for a moment, that everyone was a model citizen and did turn off their irrigation. And that they could maintain that same winter water use for 3 yrs and that rates were the same in 3 yrs as they are today. Here is a graph showing how much each person would pay for each unit of sewage:

Boyack would pay the highest sewer rates- $11.26/unit. Vaus would pay the least, $1. 60 per unit. (Vaus is actually on septic and pays no sewer fees) Even people who had fairly close usage would pay different rates because of the oddities of the tiered structure. Assuming everyone (except Vaus) was using the water mostly for indoor use and that 85% of the water they used ended up in the sewer system, why should they be paying different rates?

The third alternative that RFC looked at was the uniform unit rate.  This structure would charge everyone the same rate per unit. Under this structure, every column in the graph above would be the same height. I'm guessing, but I think the rate would be around $4/unit.

Here is what RFC had to say about uniform unit rate:

Implementation of a uniform rate structure more closely follows cost of service principles in that it charges the same rate for each unit of usage.  This type of structure is widely used in the U.S. and gaining acceptance in California since it also sends a strong resource conservation message with reduction in use resulting in a lower bill.  Approximately two-thirds of existing customers would receive a lower bill under a uniform rate structure.  However, failure to control usage could result in a much higher bill under this structure.  Finally, a uniform structure may be easier for customers to understand.  The uniform rate structure is a good alternative if the City believes metered water use is the best available approximation of sewer system use, and resource conservation is a high priority.  Representative customer impacts under a uniform rate are shown in Exhibit 4.

If the city adopted this pricing structure, the average customers in Tiers 1, 2 and 3 would see  reductions of 22 to 44% on their sewer use portion of their bill.

The consultant also suggested a possible sewer cap modification. If the city used this pricing structure and lowered the sewer cap, the average customers in Tiers 1, 2 and 3 would see reductions of 18 to 42%

Sewer Cap Modification

The City may choose to modify the existing sewer cap under the existing rate structure or under a uniform rate structure.  Since the 1997 Rate Study, the City has increased the sewer cap from 40 hcf to 51 hcf (on a bi-monthly basis).  The sewer cap is intended to set a boundary above which residential water usage is assumed to be outdoor usage.  The cap concept is based on an industry-wide assumption that each person contributes approximately 75 gallons of sewer flow per day.   It is more common to have a lower sewer cap, typically around 40 hcf.  Exhibit 4 shows rate impacts under a uniform rate structure with a 40 hcf sewer cap.

What would happen to Gisela's bill? If the city adopted uniform unit rates, Gisela would still have to pay a sewer use fee unless her 3-yr winter average was less than 0.5 unit.  It is possible to override the winter average if the usage was less. Some cities do that, but even if Poway didn't, Gisella's sewer usage bill would drop from $28.71 to about $4 times her winter average. My guess is that her sewer usage bill would at least be cut in half.

The consultant study conclusions:

The City Council must ultimately determine how well a rate structure meets the needs of utility customers and the City, as a whole.  However, RFC has drawn some conclusions as a result of our analysis and industry experience, as to which options may best fit the City’s needs.

The City should consider residential rate structure alternatives if the existing structure no longer satisfies its pricing objectives; there is no pressing need to change the rate structure.  RFC believes that the City should consider the equity advantages of a uniform rate structure with a sewer cap reduction.  Implementation of these options provides equity based on system use as determined by metered water flow and also encourages resource conservation.  RFC does not believe the City should consider return to a flat rate. due to the disincentive for conservation, the equity disconnect between customer bills and system usage, and the customer impacts for low volume users.  In addition, the advantage of averaging climate fluctuations and resulting customer rate stability suggests that the City should continue its current practice of averaging three years of winter usage.

And what happened after the city looked at the consultant's study? The council decided to keep their tiered sewer charge structure. Remember, 3 of the then councilmembers were not even sewer customers.

It is time to take another look at Poway's sewer rate structure. State law requires that charges be proportionate to system use. I do not think they are. I recently asked the City for data on how many sewer units Poway bills for. I wanted to compare it to the number of sewage units Poway gets billed for from sending their sewage to Pt Loma and the Miramar reclamation plant. The City told me that the number could not be generated. Now, if the city doesn't even know if they are billing for more units or less units than they get billed for, how in the sam hill do they figure our current system (which is not even metered) is accurate or that the charges are proportionate to system use?

The sewer rate structure also must include conservation as a pricing objective. That is one of the requirements of CUWCC. The current system cannot distinguish between landscape use that does not end up in the sewer and profligate use of indoor water which does end up in the sewer. Our current sewer pricing favors the largest, most profligate water users. It is time to consider  a uniform unit rate.

I've been trying to get some attention from our current council members on this issue but with the exception of Betty Rexford (who arranged a recent meeting for me with the staff about the sewer rate structure) I can't get anyone to show any interest. The staff are not the ones to bring this back, it will depend on 3 council members to vote to change the sewer rate structure. I am pleased that some of the candidates are showing some interest.

Note: In my next post, I hope to show where some of this sewer money is going. You might be surprised to find out that Poway has been over-collecting on the sewer fund for years and that there is a pretty big wad of money sitting around in that fund.  Another reason why Gisela had to pay so much for so little.

Leadership

Leadership. I've been hearing that word a lot lately. Which is fitting because we have an election right around the corner. Leadership does matter when we pick our leaders. So, I wanted to take a look at one of the biggest issues- Water Conservation- and see how the candidates (and current councilmembers) are doing on water conservation. Are they just telling us to use less water or are they leading by example? I requested the water use data from all of the current councilmembers and candidates for the last 2 yrs. Candidates were under no requirement to release that information, but EVERY ONE of THEM did. Kudos to the candidates. I used the water use data  to compare water conservation efforts from candidates and current councilmembers. 

First, a word about the data. Everybody is not on the same billing cycle. Some people get their bills in Jan/Mar/May/July/Sept/Nov and others get them in Feb/April/June/August/Oct/Dec. For purposes of comparing data, I aligned Jan bills with Feb bills, and Mar bills with April bills, etc. Also note that the data is for the billing date. The  billing date  will indicate the water use in the 2 previous months. For example, a March billing date will indicate how much water was used in the previous January and February.

There were also  2 instances where the customer had more than one reading in a billing cycle (probably indicating a new meter was installed) and one huge anomaly (probably indicating a water pipe break). Dave Grosch had 2 meter readings for Jan, 2010. I added the readings together. I did the same for Carl Kruse who had 2 readings in Jun/July 2009. Betty Rexford, who has the lowest water use among the group had a 129 unit reading in Aug 2009. No other reading was more than 11 units, so I substituted 11 units for the August 2009 reading. 

First, I wanted to compare the total water use during the period from Feb/Mar 2008 until Mar/April 2010.

Here are the results (click on each graph to make it larger):

The biggest water consumers during this period were Steve Vaus, Jim Cunningham and Don Higginson. Which is kind of interesting. Because they all live in the same neighborhood.  I'm not saying they would vote the same way on everything. But how weird would it be to have the council majority be 3 people who live about a block from each other and are big water users to boot?  Would we all feel represented under such a scenario?

The next biggest water user is Grosch (who used less than half the water Vaus used), followed by Boyack, Mullin, Collins and Babich.  At the bottom of the pack were Kruse, Cross, Willoughby, and Radcliff, all of whom live on smaller acreage than the other councilmembers and candidates. The smallest water user is Rexford, who, I believe, has a well.

Because some of the councilmembers and candidates live on larger parcels than others, I decided to compare winter water use. During the 2010 winter, folks should have been able to turn off their outside irrigation for an entire 2 month period. Especially if they were leading by example.  Ahem....

The following graph shows the number of units billed  in Feb. or Mar for each of the last 3 winters, 2008, 2009, and 2010. The data from 2010 is in yellow. 

The largest winter water user, by far, is Steve Vaus. His total use during Dec/Jan for the last 3 years is almost 300 units. And he used 65% more water during this period in 2010 than he did during this period in 2009.  Jim Cunningham is the next largest wintertime water user; he used just a little over half of what Vaus used. With the exception of Vaus, almost everyone cut their wintertime use in 2010 or kept it pretty close to what they used in 2009. 

With the city promoting turning off irrigation this winter, I would have expected to see the 2010 data (in yellow) be fairly close for everyone, despite their lot size.  But it isn't.  Boyack's use is the lowest- just 3 units. Collins is next lowest at 4, followed by Willoughby, Rexford and Grosch, who are all in single digit use. Way to lead by example!

Mullin, Kruse, Radcliff and Cross used under 15 units. Higginson clocked in at 19 (less than half what he used the previous winter), Babich came in at 20, followed by Cunningham at 33, and in the very last spot, Vaus with 91 units.  91 units is way out there!

The next thing I wanted to look at was whether the candidates and councilmembers had cut back their use since the previous year. So I compared the total number of water unit used during the last 12 months to the 12 months before that.

The following information is useful in comparing and analyzing the data:

Vaus, Higginson and Babich all have lots between 32,000-37,000 s.f.

Cunningham, Rexford and Mullin have lots in the 22,000- 27,00 s.f range. 

Boyack's lot is about 14,500 s.f

Radcliff, Wiilloughby and Cross have lots between 6,600-7500 s.f.

The size of Grosch, Collins and Kruse's lot is unavailable on the Poway or Sandag's GIS site or zillow. 

Grosch lives in Rancho Arbolitos in a lot zoned PC-2. Collins lives in North Poway on a lot zoned RS-2 and Kruse also lives in North Poway on a lot zoned RS-4.

Once again, some people have been conserving for years and their recent use might not show much improvement. But look at that graph! Everybody, except Radcliff,  cut their water use in the past year. I'm going to give Radcliff a pass on this because his water use was, and still is, pretty low.  

The graph shows that, in general, people who have larger lots use more water. No surprise there. But there is still a lot of spread between the larger water consumers. Vaus, Higginson and Babich have lots that are relatively close in size, yet Vaus uses way more water than Higginson and more than twice as much water as Babich. So, there is still lots of room for improvement and leadership. And probably pool covers. 

Note: All of the candidates do not have the same philosophy when it comes to how the city should structure water rates and promote conservation. Please visit each candidate's website to learn more about their view on water conservation and water rates:

Dave Grosch 

Chuck Cross 

Roger Willoughby (could not find a website for Willoughby)

Howard Collins

Pete Babich

David Radcliff

Steve Vaus 

John Mullin