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.







City Council Fails to Fix Cost Allocations (Mostly)

In July, the City Council had the City’s proposed cost allocation budget pitched to them by the City’s cost allocation financial staff manager.

As can be now be expected from this municipal administration, the City Council was NOT provided a copy of the actual cost allocation program that City taxpayers paid a consultant to draft. That maybe makes sense because it is long and so complicated that nobody on this City Council would understand it … just like the Council that initially received the consultant’s work. Except that original Council actually admitted they didn’t understand what the consultant had presented.

The City Council also was NOT provided a copy of the personnel listing or time allocations that are being charged into the cost allocation program. That’s readable and understandable with even a minor amount of brain capacity.

Instead, the City financial staffer provided a 30’ish page condensed version of what cost allocation is (pretty much a repeat from past years), and a couple of cherry picked and carefully worded examples that makes the uninformed think the City’s cost allocation program is well thought out and in the public interest.

The newbies on the Council were apparently impressed, especially Councilman Kol Medina. He praised the presentation.

Kol Medina has the potential to learn some of the cost allocation flaws as his Council years pass.

To those who understand cost allocation, it was yet another staff budget presentation and Council action that will continue to financially fleece both the sewer and SSWM utility ratepayers.

Additionally, the City Council never asked why the Streets fund is cost allocated … the result of that is the City never seems to have enough money for road work because too much of the street fund money that should be spent on capital street improvements is instead being used to pay for City staff … as of this year, a portion of 46 City employees get some of their salary and benefits  payed from the Streets fund.

In the big picture, the City Manager has made it perfectly clear that both protecting and diversifying the City’s General Fund revenue streams trumps virtually all funding decisions at City Hall. This City Council is fully supportive of that management philosophy. And that’s not all bad … but in financially really good times, which we are currently experiencing, this City doesn’t have to have two utilities and the street fund contributing an undue amount of money to the general fund in rather arbitrary salary, benefits and rents.

Sewer utility ratepayers will continue to pay some 50+ city employees a portion of their salary and benefits and charge them rent for using City Hall real estate.

SSWM utility ratepayers will continue to also pay 50+ city employees some portion of their salary and benefits and charge them rent for using City Hall real estate.

This is simply excessive. 

Only the COBI water utility has reasonable cost allocation, and that came about by ratepayer litigation and the City reduced that utility’s cost allocation by more than half. It appears the only way this is ever going to be fixed is by ratepayer litigation, and that is very expensive.

The one half decent decision the City Council made related to cost allocations was to change the City’s cost allocation relatively expensive (and not required by Ecology) Water Quality and Flow Monitoring program from the SSWM Fund to a 50%-50% share between SSWM and the General Fund.

The City’s continuous (24/7/365) water flow monitoring program is still this City’s most useless program since the years of data hasn’t been used for any useful purpose (it is filed with consultant help in the City’s water library), but this City Manager and City staff have no program reviews to evaluate existing programs and evaluate their effectiveness or  lack there-of.

They did shifted the Groundwater Monitoring program from COBI Water Utility ratepayers to the general fund. That has been a no brainer for years because the groundwater monitoring program is of benefit to all island residents not just the 25% or so who pay for City water. It’s not a lot of money, but Sarah Blossom gets a shout out for FINALLY getting that small cost but obvious cost allocation problem brought to a Council vote. About six years late … thank you COBI water ratepayers for funding this for many years.

In summary, the Council was yet again bamboozled by City staff on the big cost allocation issues, but they at least chipped away at a couple of small issues. That’s slightly better than nothing.

lf I were grading the City Council on cost allocation fixes (and I am), I would give them a 1.5  of 10.



Major City Council Budget Test: The Cost Allocation Program

The City’s staff is now working on the City’s 2017-2018 City budget that will be made public (probably) at the 27 September City Council business meeting. The biennial budget lays out where some million$ of taxpayer and ratepayer’s dollar$ and some grant funding are going to be spent in the following two years.

The City Council will raise property taxes the maximum extent allowed by state law … that’s a virtual given.

New hires will be proposed … and at an average cost of over $125,000 per city employee, that’s no small dollar matter since any new personnel expenditures will most likely continue on for many years. But, the population is increasing and that means a larger  municipal government.

But before the dividing up of the dollars into priorities and programs, the City Council has their once every two year opportunity to “fix” the two most unjust and broken programs in the current City budget.

This post will discuss the first: The Cost Allocation program.

The citizens and organizations getting financially screwed are primarily the COBI sewer ratepayers and storm and surface water (SSWM) ratepayers. That’s less than 25% of the island’s residents but includes most of the Island’s businesses.

In the simplest of terms, the City’s cost allocation program allocates financial charges for staffing overhead to the City’s General, Street, Water, Sewer, SSWM, Development, and Building Funds.

This post will focus on just three utility funds (Water, Sewer, SSWM) since those funds are enterprise funds where the City runs a monopoly business and ratepayers pay a utility fee for services provided.

Cost allocation includes salaries, benefits (an additional roughly 40% on top of salary expense) and “rent” for the allocated employees  use of City Hall space. “Rent” includes a collection of charges, some logical and others,  such as depreciation costs for City Hall and the farmer’s market area and even the land on which it is built, seemingly illogical. And not only do the lucky utility ratepayers pay off the City Hall debt with their property taxes, they get an additional whammy by having bond interest payments and depreciation charges included in their utility rates.

Ratepayers aren’t complaining.

It is probably because citizens don’t have the  time to read and understand the City’s cost allocation system, and/or they believe the City staff and City Council are looking out for them as utility ratepayers, which is a fundamental role of a City Council.

Being unable to decipher the cost allocation system is the norm.

Having City Council look after the interests of utility ratepayers is only a theory … it has happened only once in the past decade when Steve Bonkowski and three other  members of a past City Council took over a meeting agenda item and reduced the water rates a second time over the objections of the City Manager and staff.

Overhead charges for City utilities are clearly appropriate, but what is broken in this City, and in many other Washington State cities, is that with the 1% plus new construction limitation on annual tax increases, governments have intentionally and creatively increased  general government revenue by cost allocating an increasing percentage of utility fees using cost allocation methodology and increasing local utility taxes.

It requires considerable accounting skills to understand cost allocation … something the City Council members simply lack because there are no trained accountants on the City Council. Aside from their lack of accounting skills, it appears the Council has neither the  time nor interest to fully understand COBI’s cost allocation system.

It only took me some four years and maybe 20 public record requests to figure out how the financial staff  performs their calculations … and in my opinion,  no COBI City Council member has ever come even close to fully understanding  the cost allocation process.

So, here are some basics of how the City set up a cost allocation system.

When Washington State voters approved an initiative to limit the growth of property taxes some 16 years ago, the then Bainbridge Island Mayor announced utility rates would be increased by 21% to help make up for the expected general fund revenue slowdown.

That was only the start of a cost shift of paying for general government to city utility ratepayers.

A utility ratepayer’s lawsuit in 2009 resulted in an outsourcing study of the City’s water utility. The City was charging 9.6 FTE (full time equivalent) employees to the water utility when the study started. That included both direct labor and overhead.

A consultant hired to determine the efficient personnel allocation told the City staff the water utility could be properly operated and managed with 3.9 FTE.

Both the City Manager and Deputy Manager were tight jawed with that consultant recommendation, but City staff reluctantly settled on 4.2 FTE to fully operate and manage  the water utility.

The FTE reductions were 1 FTE from direct labor and 4.4 FTE from bloated cost allocations.

City water rates were subsequently reduced by more than 60% in two separate rate reduction actions, the last one during a testy City Council meeting that indirectly led to yet another expensive public records lawsuit.

The major lesson from the original ratepayer lawsuit was that the City’s cost allocation system for the water utility was grossly overcharging City staff hours to the water utility.

What previous City Councils have fail to recognize and fix is the very same cost allocation system also applies to both the sewer and the SSWM utilities, and they too have excessive FTE’s being paid by utility ratepayers.

The sewer utility is charged for a portion of  52 individual City employees work hours, as well as City Hall rent. That’s 69% of all City employees (less City Council, Police and Municipal Court).

Those 52 employees hour allocations add up to 9.5 FTE.

Three city employees (3 FTE)  run the City’s Waste Water Treatment Plant (WWTP), and about 1.2 FTE are used for various routine electrical and mechanical field work. The City contracts out all significant sewer system design and repair efforts.

The sewer utility FTE overhead is greater than 100%.

The City could have done the same type of efficiency study when they contracted for the new City sewer plan. The same financial sub-consultant was hired that did the water utility efficiency study,  but neither City staff or City Council included that common sense element in the sewer plan. I’m quite certain that exclusion wasn’t an oversight. It was a deliberate decision intended to maintain the existing sewer utility money flow into paying for more FTE’s than necessary at City Hall.

That’s the primary reason for this sewer rate comparison chart in the City’s new sewer plan:

BI Sewer Plan Rate Comparisons

When City Council members say the sewer rates are high because the City just refurbished the WWTP and that needs to be paid for, that was partially true. Of course, that capital project was originally costed at an estimated $4.3 million, and ran unchecked by the City Council until it totaled some $15.8 million, but the real reason for Bainbridge finishing at the top of this sewer costs chart is the City’s cost allocation system.

The SSWM utility has the same cost allocation bloat disease. It’s not the only bloat disease affecting the SSWM utility, but that’s a future post subject.

The SSWM utility has 56 individual City employees being cost allocated to that utility.

Those 56 employees hour allocations add up to 9.41 FTE.

Direct labor for the non-bloated essentials required for the SSWM utility to meet Ecology’s National Pollution Discharge Elimination Permit (NPDES-II) requirements about 3.0 FTE field workers and 1.0 FTE NPDES-II Permit Manager.

So yet another City utility with a staff cost allocated overhead in excess of 100%.

City staff can write a convincing document (there is a draft for City Council review on the City Council’s agenda as I write this), and the Council is scheduled to  discuss it at the 7 June 2016 City Council work session.

The problem is the City Council doesn’t go into the details, and all the big problems  with cost allocation are buried deep in the financial minutia.

So here are three big picture questions the City Council should be asking.

• What are the direct labor and indirect labor charges for the water, sewer, and SSWM utilities?

The draft cost allocation plan doesn’t go there.

Cost allocated overhead is going to be significantly  higher in the sewer and SSWM utilities. That’s because the water utility has  been subjected to an outsourcing study and unjustified  overhead was sharply reduced.  Similar but not as dramatic results would happen to both sewer and SSWM if the Council had the motivation to make the necessary and logical changes to cost allocations.  City utility rates could be fair and reasonable like the State Supreme court says they should be.

• What is included as city hall “rent” charges?

The draft cost allocation plan doesn’t go there.

Council might be interested in why interest payments on City Hall and City Hall land are being allocated to utility ratepayers when the bond is being paid by voted taxes and therefore being paid by all Bainbridge Island citizens, but sewer and/or water utility ratepayers are incrementally paying twice or three times.  And why the City staff charges depreciation for City Hall and playhouse land when (1) the land is  appreciating in value, and (2) the collected depreciation is not going into a fund to replace city hall someday … it just goes to the general fund to be used in whatever manner general funds can be used for, which is just about everything that’s legal for a City to spend money on.

• Council should ask City staff what a fair utility overhead cost allocation (percentage) overhead should be.

For example, the City of San Jose’s City Council set a percentage (11%) allowable overhead to their water utility and directed the City to operate within that boundary, and then the City Council hired an independent auditor reporting to them, not City staff, to validate the City was staying within that overhead charge boundary. That apparently has worked very well.

COBI would need a significantly larger percentage overhead than 11%, but sewer and SSWM are in excess of 100% overhead now, and a set percentage could be an approach to getting the City staff’s objective to shifting general government costs to utility ratepayers throttled back.

Chances of this happening?

I’m guessing pretty close to zero because nobody on this Council seriously wants to question City staff, and there is no noticeable appetite to make changes that could impact the general fund’s revenue flow.