A Municipal Electric Utility? Proceed with CAUTION!

After holding off writing about the possibility of establishing a Bainbridge Island municipal electric utility, the time has come for some electronic ink to flow on what I believe is perhaps the key decision point that is being ignored.

It has absolutely nothing to do with BPA or PSE’s electrical rates, the potential cost of acquiring the Bainbridge Island electrical grid system, or global warming or BPA’s Snake River dams and  Northwest fish  considerations.

It’s the “local control” issue and the City of Bainbridge Island’s failure to efficiently manage the financial aspects of the three existing City utilities for the benefit of the utilities ratepayers.  

City utility ratepayers have been financially gouged for years by excessive utility rates  … and still are for the Sewer and Stormwater utilities.

I wrote the following e-mail to the Electric Utility Municipalization Task Force, City Manager and City Council on February 27, 2017:

As you conclude your discussions on the D. Hittle draft report, two observations from a private citizen who has followed City of Bainbridge Island utility issues relatively closely for the past 10 years.

1. The City of Bainbridge Island has a fairly respectable reputation for operating the three current City utilities (Water, Sewer, Stormwater). It does not have a good record of cost effective management of those same utilities.

Examples:

• In 2009, City water rates were among the highest in Washington State. A ratepayer lawsuit resulted in an outsourcing study, and the number of City FTE employees paid by that relatively small utility was reduced from 9.6 FTE to 4.2 FTE. At the time, each FTE costs approximately $120,000 including salary and benefits, not including the City Hall space rent charged to the water utility FTE’s. Residential water rates were subsequently reduced by more than 60%. The water utility currently has approximately $6 million in excess cash above required reserves … that represents roughly 3 years of water utility operating and capital improvements.

• The Waste Water Treatment Plant improvement project was originally estimated to cost $4.3 million. After costs exceeded $9 million, a single City Council member noted the costs were climbing, and the then Public Works Director assured the City Council the final project would not exceed $11 million. It concluded at $15.8 million. Near total lack of cost oversight and control on the part of the City.

• City sewer utility rates are the highest of any comparable Western Washington State City as documented in the City’s 2015 Sewer Plan. That in part is because of the relatively small sewer district and the WWTP upgrade cost, but it’s also a cost allocation problems with the City charging 9.79 FTE (some 41 individual City employees) to the Sewer Utility fund. City Council will not take up the issue likely because the City’s cost allocation plan is too complicated to understand without multiple hours of research and they don’t have the necessary auditing skills, and any personnel changes would mean shifting costs over to the General Fund which both staff and City Council are loath to do because the needs of the general fund are perceived to be near endless.

• Annual City stormwater 2017 rates at $169 per ISU are “justified” by a program that funds multiple programs outside the City’s Municipal Stormwater System (program bloat), some of which have no proven benefit to Island residents. Stormwater is the City’s largest utility from an FTE standpoint … it’s been increased to 10.42 FTE for 2017. City staff and City Council refuses to reign in this utility to where it is cost effective.

The average FTE cost for salary and benefits exceeds $133,000 in 2017, and City also collects City Hall space rent for utility FTE’s along with other costs allocations, such as insurance. Additionally, they collect a City tax from the utility rates.

2. I don’t see sufficient discussion or cost data in the D. Hittle draft report on what a pole, transformer and service equipment yard and electrical grid control facility would cost. I toured the Jefferson County utility base site, and it’s quite an extensive operation. Acquiring land and getting NIMBY issues solved on Bainbridge Island are not insignificant issues if the City does not already have sufficient City owned property.

In the big picture, I think the City could acquire and properly operate a Municipal Electrical Utility. But a LOT would have to change in this City to give any confidence that an electrical utility could be cost effectively operated and managed based on this City’s past and current utility financial management. Cost of system acquisition and current/ future BPA rates vs. PSE rates per Kwh are not the most relevant issues … it’s the ability of the City to financially efficiently manage a municipal utility that looks out for the interests of City ratepayers and not so much the City’s General Fund that is so sorely lacking in the City of Bainbridge Island.

And that is (in my opinion) the single most important issue in this upcoming decision that the D.Hittle report does not, by contract scope, discuss.

Island Power claims Bainbridge Island residents will have future lower cost electrical power if the City owns and operates its own municipal electric utility.

Unless the City of Bainbridge Island  gets a new City and Deputy City Manager, a new City Council, a new Finance Director, a new Public Works Director, and a Utility Advisory Committee (or something similar) that actually looks out for ratepayers and doesn’t use  utility fees to augment the City’s General Fund, electrical rates will almost certainly be higher with a locally controlled electric utility because the City will almost certainly use the new utility to unduly augment the general fund with cost allocations, rents and utility taxes like it currently does with its existing three utilities.

No consultant report is going to show how this City has creatively found ways to siphon utility ratepayer money to support general City operations. 

Proceed with CAUTION.

Better yet, don’t proceed at all.

(Note – this posting is supported by facts, not alternative facts).

 

 

 

 

 

 

 

Upper Sunset Spongy Roadway

A section of  Sunset Loop road is like a trampoline … spongy and bouncy! Cause may be a water line that is seeping, or it might be simply something associated with the rainfall experienced in the last two days. Asphalt is relatively thin, so it also might be caused by a failure of the road base structure. 

Full Moon and Red Planet?

Full moon rises above Seattle’s Queen Anne neighborhood on 12 January 2017 … red “planet” is a red aerial warning light on one of the three tower structures.

Red Planet Orbiting Moon?

 

Update on SSWM Utility Fees

The City Council (CC) approved the 2017-2018 biennial budget 22 November 2016. There is a lot to say about that budget, but first, an update on the SSWM utility fees.

The CC increased the SSWM fees 15% for 2017, and did not act (yet) on the City staff proposed additional 12% increase for 2018.

Single family resident properties and condominium owners now are assessed $169 annually for stormwater fees. Businesses, the Park District, the School District, the library, churches, private schools, farms with large stables and/or barns, etc. are assessed $169 for each 3,000 square feet of impervious surface.

That can amount to a sizable chunk of money.

Some examples:

IslandWood                                       $ 7,774
COBI, Prichard Park                      $16,565
St. Barnabas Church                      $ 3,551
High School, Admin, Ordway    $56,446

The stated purpose of the SSWM fee increase was to pay for new capital projects, namely deep culvert replacements.

There is a smidgen of logic to that since the estimated costs of replacing deep culverts may exceed $1 million each … and up to $5 million or more if a fish lives somewhere in the waters that flows through the culvert. You can blame the Department of Fish and Wildlife hydraulic permit rules for those ridiculously high costs for high end stream simulation culverts, meaning  flowing water isn’t supposed to touch either  side of the culvert in a 100 year flood scenario.

But the City added staff being paid by the SSWM utility to support a number of discretionary programs that don’t contribute anything useful to the SSWM utility.

In actuality, the SSWM fee could and should have been lowered if the City would stop paying for programs and consultants that have nothing to do with the original intent of a stormwater utility, and that intent was to pay for stormwater infrastructure and maintenance to prevent urban flooding by having  a municipal stormwater (MS4) infrastructure system such as storm drains and storm water piping, ditches, and retention/detention ponds, and discharging stormwater that is as free of pollutants as reasonably possible.

This City, admittedly along with some others, have expanded the utility from it’s state law initial to include any number of Clean Water Act  and other discretionary programs. No problem with that if those programs would actually clear up water quality problems or reduce urban flooding, but they don’t. City Council seems simply oblivious to what they are really spending utility money on and how ineffective those programs are as they are currently being administered.

And the City’s overhead charges are significantly too high … somewhere in the 60%-70% range.

The one positive action the City Council did for the SSWM utility is earmark $50,000 for a SSWM efficiency study, likely initiated because of this blog and six years of messages and committee public comments that the SSWM utility needs to be reigned in and made efficient.

It’s a reflection on management that this City can’t itself discuss and figure out what a proper and cost efficient level of personnel is needed to run an enterprise fund business that has fewer than 10.5 employees. And it’s an even scarier proposition to think this City is even considering taking on a much larger electrical utility!

Some citizens remember the COBI’s water utility was cost allocating 9.6 FTE (Full Time Equivalent employee) to the water utility and the City had excessively high water rates. The City was forced by a citizen lawsuit to do a competitive study, and a consultant hired to do an efficiency study concluded the water utility could be operated with 3.9 FTE. Our City Manager objected, but reluctantly agreed to 4.2 FTE. Water rates were subsequently reduced by more than 60%, and the water utility, although now with 4.7 FTE,  is still operating at a revenue to expenditure break even level.

SSWM has a similar excessive cost allocation problem. Too many employees being charged to the utility, and programs in the utility that are either not effective or are being paid for by the SSWM utility when they more properly should be paid for by the general fund.

An average City employee now costs in excess of $133K a year, and so every FTE charged to the utility is a significant expenditure.

The City Council also decided to keep the 6% tax on the SSWM utility, although at least three Washington court decisions have ruled what can be taxed is the proprietary functions of a utility (think business sales, like water service or sewer service), and not general government functions, such as sweeping streets or measuring bugs in streams or maintaining the City’s weather station. Virtually all of what the SSWM Fund pays of a general government nature … after all, the SSWM fee itself has all the characteristics of a general tax since the City doesn’t provide  any specific service or product to the individuals who pay the fee … it’s a utility to pay for the City’s MS4 system maintenance and operation, which is City owned  public infrastructure.

It’s an interesting circus of decisions at City Hall.

Major Fee Increase Proposed for Stormwater Utility

City of Bainbridge Island staff are recommending a 28.2% SSWM fee increase in the City’s 2017-2018 proposed biennial budget.

Councilman Roger Townsend, the Council’s ex-officio to the Utility Advisory Committee, supported the increase at Friday’s Council retreat.

Roger Townsend’s recommendation to the Council was not backed up by substantive analysis or discussion. He has shown in City Council and committee meetings he is not a financial detail individual, and his recommendation appears to be based on some City staff questionable and flawed  projections and the woefully unengaged Utility Advisory Committee (UAC) discussion on the SSWM budget at their 28 September meeting. UAC Chairman Andy Maron has promoted a SSWM fee increase for more than a year, and he considers  financial details and SSWM utility program evaluations as something the UAC should not be doing because the City Council has not asked the committee to do so. He also made it abundantly clear the Utility Advisory Committee does not exist to represent City utility ratepayer’s interests, and that unfortunately is true. Nobody represents utility ratepayer interests in this City government. 

SSWM fees could remain where they are or even decreased if this City operated a financially efficient stormwater utility that didn’t add a host of discretionary and science data gathering programs.  Higher than required stormwater utility fees have existed for  years, and that’s now proposed to get even worse.

The  City  is also using the SSWM utility to augment the general fund by taking utility ratepayers money and using it other than its Washington State legally intended purpose of flood control and storm drains for the municipally owned and operated stormwater system.

Staffing Levels: The City’s proposed Cost Allocation Plan has 10.42 Full Time Equivalents (FTEs) paid from the SSWM Fund.

Forty-six  individual city employees will have all or some of their salary paid by the SSWM Utility.

The field workers (storm drain maintenance, street sweeping, ditching, spoils hauling, culvert maintenance, etc) are budgeted at  3.92 FTE, including field supervision. The City’s pollution discharge permit (NPDES-II) has 1 FTE Engineer and a .7 SSWM technician budgeted, but this is a mature program running on almost automatic, and that adds up to  more personnel hours than needed.

A total of 5.62 FTE are doing SSWM utility field type work and managing the stormwater  (NPDES-II) permit requirements, including the required part of water quality monitoring.

City now contracts out almost all stormwater utility construction work, and this takes some engineering and contract time … add .5 FTE for engineering and .5 for contract/invoice  work.

It should take 6.62 FTE to do the SSWM utility and permit work (and that’s probably liberal on FTE’s labor hours).

The remaining 4.5 FTE are a product of SSWM utility cost overhead allocation. That is about 2.5 FTE higher than a financially efficiently run utility should require, and with the average personnel cost projected at $131,400 per employee, the excessive personnel cost allocation is in the range of $325,000 a year. 

Salary and benefits for this supposedly small storm drain utility are $2,462,060 in this biennial budget. That’s $4,944 a city workday in city personnel costs alone, not counting the consultants they hire for field work and data keeping.

Rent: The City proposes charging the SSWM utility $290,008 “rent” for the SSWM utility cost allocated employees using City Hall. This money simply transfers from the SSWM Fund to the City’s General Fund.

Local utility tax: It’s against state law for COBI to directly transfer money from a utility fund (fee collected for a specific purpose) to the General Fund. One way to circumvent that prohibition is to call it a tax and then there is no limit. Cities do not have to charge local utility taxes, but many do just because they can, or they collect their overhead costs if they do not have a cost allocation system.  COBI currently charges a 6% local utility tax. That’s $299,400  SSWM utility ratepayers would contribute to the General Fund from stormwater fees in the proposed biennial budget. The utility doesn’t benefit from this tax … it’s simply money transferred so the City Council can spend it on whatever they decide to spend it on.

Repairs and other improvements: For the last five years, the SSWM utility has been averaging $207,000 a year in “repairs and other improvements.” The proposed biennial budget, the City proposes $1.03 million … no explanation for the $616,000 increase. Public Works Director Barry Loveless  told the UAC the increase was simply an accounting  shift moving the utility annual programs from the capital budget to the operational budget. But there appears to be a shift to contracting out virtually all small jobs that, let’s say, require a backhoe, such as installing a non-complicated drain culvert.

Two significant new programs need mention in an balanced discussion on SSWM rates.

First is an Ecology requirement to have low impact development rules in place by 1 January 2017. Those new rules are a paradigm shift in land development, and after ignoring the deadline for almost three years (probably because the City was up to its ears in the Comprehensive Plan rewrite), the City has hired consultants to draft the Municipal Code changes and write new development regulations. How low impact development is going to be paid for is not on the City Council’s agenda. It’s a stormwater related issue, but it’s a land development and monitoring cost that has little or nothing to do with the City’s stormwater infrastructure. The choices are to increase permit and development fees, pay from the General Fund, pay from Stormwater utility fees, perhaps obtain an Ecology grant at least to get started, or some combination of these revenue sources.

Second is a deep culvert assessment that provides convincing evidence that at least the McDonald  Creek culvert under Eagle Harbor Drive needs repair or replacement. That single culvert  project is projected to cost more than $1 million.

And finally, it should not be lost on the City Council that a previous Council decided to classify City streets and roads as part of the City’s stormwater sewage system so the City could cease paying stormwater impervious surface charges for City roads. That decision to reclassify streets and roads removed a $900,000+ a year transfer from the General Fund to the SSWM Fund, although the City arbitrarily decided to pay only 30% of that impervious surface fee (about $260,000 a year).

So now, not only does the General Fund not transfer funds to the SSWM Fund, the SSWM Fund moves money to the General Fund through cost allocations, employee space rental charges, and utility taxes. The SSWM  Fund  annually pays a significant portion of their non-capital expenditures to the City’s General Fund.

There is no more regressive collection of citizen money than this City’s SSWM fee. The utility  also pays for a number of  discretionary programs that do nothing meaningful for the utility, but this City has no program review for program effectiveness, and the City Council is not about to upset the status quo because program evaluations might lead to personnel changes and reduce revenues to the General Fund.

The SSWM utility remains a relatively muddled mess of various costs and charges and programs, and it’s about to get a large revenue boost from a City Council that simply doesn’t comprehend the issues because they hear only from a City staff that wants to protect their General Fund revenue more than they want to put utility customers first and run a cost effective stormwater utility.

 

 

 

 

 

 

Multimillion Dollar Questions for the School District


In 2015, the Bainbridge Island School Board and approved a capital projects levy request for $81.2 million to replace Blakely Elementary and High School Building 100.

The bond levy was based on a $39 million estimate to replace Blakely Elementary, and  $42.2 million to replace Building 100.

At the time of the bond campaign, Bainbridge.exposed researched the current building costs and school comparisons used by the School District and approved by the School Board and concluded in a January 25, 2016 posting:

“Conclusion: A bond amount of $39M for Blakely is about $9 million more than what the school should cost. Blakey Elementary replacement should be in the range of $29M-$30M.”

This civilian cost estimate was totally dismissed by the School District, some members of the School Board, and  very strongly disparaged by some school supporters on social media.

As would be expected on Bainbridge Island, island voters approved the school bond capital projects levy.

Mithun, the School District’s architect for Blakely Elementary has completed a 290 page Educational Specification Document, and it is now posted to the school district’s website. The budget page:

__________________________________________________________________________

screen-shot-2016-09-08-at-3-40-47-pm

___________________________________________________________________________

Using the additional costs experiences at Wilkes Elementary and adding an inflation factor, the additional soft costs will likely be between  $4.8 million and $5 million (they were $4.6 million for Wilkes discounting land acquisition and a new water main costs). That includes an extensive laundry list of costs including architect fees, special consultants, permit fees, utility fees, new furniture and playground equipment, new computer and tech equipment, building commissioning costs, etc.

An additional $5 million (high estimate) for additional soft costs would leave some $7.7 million of the bond levy’s advertised $39 million for Blakely Elementary still unexplained IF the construction cost of Blakely is  $26,291,948 as the recently released Educational Specification document states. However, that “fixed” construction cost figure may change as the project is designed and actual construction bids are considered per Tamela Van Winkle, BISD’s capital projects manager.

For Wilkes, there is still slightly more than $3 million of the bonds $32 million the school district seems not to have informed the public how the money has been or is planned to be used. Capital projects staffing likely accounts for some of that, but that’s a small staff, and  there was also an additional $10 million in the Wilkes replacement  bond levy for additional BISD capital expenditures, none of which were specifically detailed to island voters.

Bainbridge.exposed position is that voters who approve multiple millions of dollars in property tax levies deserve full and open transparency on where the bond(s) money is being expended.

Pretty simple, straight forward concept.

The Blakely Elementary School capital project is still an early  work in process …and this blog is just following money trail.