Brutus: Unequal and deceptive -- The great water rate heist of 2010 (updated)

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Unequal and deceptive: The great water rate heist of 2010

by Brutus

Probably the highest profile study performed on Public Works operations in the last year was the McKinsey Efficiency Study. Less well known, until now at least, was the Red Oak Rate Study. The City of Houston tries to set its rates according to its costs, but the details of what should or should not be counted, and projection of future needs are a highly complicated interlocking set of issues. While rate increases are generally fixed to the Consumer Price Index, that has little to do with actual cost increases. Pipelines, bond costs, and chemicals to treat water are not consumer items, after all. With the Combined Utility System (CUS) continuing to fall further behind revenue projections, the City hired Red Oak to check its assumptions and determine what the City really needed to charge for service in order to maintain and improve the system.

From page 55 of the Request for Council Authorization, available at http://www.houstontx.gov/citysec/backup/2010/042010.pdf:

The Rate Study results were presented to the Budget and Fiscal Affairs Committee on April 6, 2010, with a recommendation to set rats [sic] to support the Best Practices CIP and to use the Producer Price Index for annual automatic adjustments, to the degree allowable under the provisions of Proposition One. The Committee voted to move this recommendation forward for Council consideration but expressed some concern relative to the level of increase for the multi-family customer class. After further review, the administration recommended adopting the Best Practices rates proposed to the committee with the exception of Multi- Family Residential and Commercial customers. Those rates would be set to equal 100% of cost of service. It is estimated that these rates would result in an increase equivalent to $7.73 per month for the average apartment unit.

Now I don't know what assumptions went into this "average apartment unit" calculation, so I can't compare it directly. But I can tell you what the rates were, and what they will be. Note that homeowners have a second, higher bracket after they pass 12,000 gallons:

Brutus Graph 1: Water rates compared

In other words, the Houston Apartment Association (HAA) was squealing like stuck pigs over losing a little of their huge rate advantage over homeowners! Only… that's just the water; now there are sewer charges (which do not have a higher tier for homeowners):

Brutus Graph 2: Sewer Rates Compared

The gap here does not close at all - homeowners are getting gouged even worse!

Brutus Graph 3: Single Fam/Apts compared

All the "disparity" and "discrimination" against low-income renters actually increased the advantage held by apartments! Now, if we're going to be fair, their complaint is that the "government" money they get for having all these "poor" folks is capped, and HUD won't allow them to raise their rental rates to cover the increase, which is sure to drive them all into bankruptcy. Nice argument ... made by some very well dressed people in council offices over the last two weeks.

Oh, but it gets worse.

What is the cost of service that the apartment rates will cover? Well, the short answer is that it's everything except capital costs. To expand on this a bit, the point of this entire exercise is to keep enough money flowing in to cover not just the cost of service (which the HAA is so generously willing to do), but to cover the cost of repairs, upgrades, and replacing worn out sections of infrastructure that were built 50-75 years ago. All of those are "not costs of service," they are capital costs. And that cost will be borne solely by homeowners (and to a much lesser extent, businesses), thanks to the actions of Mayor Annise Parker and Council.

We're not done yet. It gets even worse.

The reduction in CUS revenue will be funded by decreasing the amount of "pay-as-you-go" projects in the CIP, however the total capacity for capital improvements will remain at $370 million annually for FY11 through FY15.

These are not optional projects. If you can't pay as you go, and you insist on maintaining the same expenditure level, there are only two places to get the money: borrow it or steal it. The city is already broke, and the CUS is $100 million behind, but we either continue subsidizing the system, or we go deeper in debt. Either way, the homeowners will be the ones stuck with the entire bill for system capital costs -- but the word is, the City will be borrowing.

Still not done yet. You see, they're not just reducing the pay-as-you-go. They're diverting it.

To further address the rate burden on multi-family residences, the administration is working with the Houston Apartment Association to establish a rebate program to encourage water conservation in apartment complexes that currently use much higher than average amounts of water. The planned program would provide up to $14 million in rebates each year for two years to complexes that meet the to be determined qualifications.

Yes, neighbor, not only did the HAA (and all businesses) skate out on their moral obligation to pay for the water and sewer system they depend on, apartment owners will get paid $28 million dollars out of the CUS funds for making the improvements they ought to be making out of their own pockets to reduce their utility costs! That's where your CUS "pay-as you go" money is actually going -- it's being diverted from needed system improvements to line the pockets of slumlords, under terms yet to be determined! Rumor has it that Andrew Teas is determining the terms of the program.

Is anyone taking bets on whether this gets administered through the Housing department, which goes beyond notorious for mismanaged money and receiving little or nothing for expenditures?

No, we're still not done.

Discussion is also underway regarding the rate impact specifically on low-income multi-family housing projects that have received Federal Income Tax Credits, and the administration will work to address this issue to the degree allowable under State law.

In other words "we're going to figure out a way to shovel money to, our slumlord friends."

Still. Not. Done.

But at least we have reached the final point, which is to expose the lies and crocodile tears behind the "gouging of poor renters" by the evil Public Works Department and those dastardly rates. The final point, the capper to all this, is that I've used a very misleading term throughout the article above: "Homeowner." You see, there's no such thing as a "homeowner rate." There is a "single-family rate" for houses and individually metered condos. There is a "multi-family rate" for duplexes up through large apartment complexes.

The single-family rate is based on one meter per living unit; it doesn't matter if the person living there is the owner or a renter. So all this concern, all the discounts, and all rebates from the council and mayor for poor renters applies only if the poor renter is living in an apartment complex. Might such concern be ever so slightly stronger if the poor person suffering from such an unfair rate structure lived in an apartment whose owner belonged to the politically powerful Houston Apartment Association? Perhaps I just have a suspicious nature.

Or perhaps if you're poor and pay for your own water in a rent house or condo, or if you're fortunate enough to own your own home, rich or poor, no one at City Hall cares about you. Pay up with the rest of the landowners suckers.

Now we're done.

UPDATE (04-25-2010) AND EDITOR'S NOTE: Brutus provided the following update late Friday afternoon, but travel plans precluded its posting until now.

Oops -- we're not done after all! This wasn't in the original agenda backup, but was arranged by a helpful Council Member Gonzalez:

Motion 2010-0236 - Written motion by Council Member Gonzalez to amend Item 14 as follows:

Motion to amend Item 14 to establish single family residential rates that will generate revenue equivalent to customer class cost of service over a four-year period.

This amendment will set single family residential rates as originally proposed, effective June 1, 2010, and will set single family residential rates for the subsequent three years to achieve cost of service. Rates will be increased by the following increments, in addition to any Producer Price Index adjustment:

Brutus - Annual Increases Graph

In other words:

1. The Multi-family customers get the full increase immediately, as reported in the press, council deferred half of the residential increase until 2011-2013. This means that the comparisons in the tables above don't tell the full story.

2. "Written motion" = pre-planned with the Mayor, who has total control over the agenda.

3. The actual increases can and WILL be higher than this, as "rate-of-inflation" increases are mandated above. At least they had the sense to use the PPI instead of the CPI.

4. News articles saying the rates would generate $14 million more were incorrect; obviously this means an increase of $14 million more each year -- just from Residential customers.

5. The total increase is estimated to be in the range of $370 million -- the city's utility revenue will be, on average, around $1billion per year.

Hmm... the amount in #4 is the same as what is going to feed the pigs at the tr-- , uh sorry, I meant "fine apartment owners and investors." Coincidence. No, really.

But don't forget that the city is arranging to sue itself to enforce Proposition I (and deliberately lose) in order to preclude anyone else from attempting to do so. "Hey, the judge already decided that case! Stare Decisis and all that Latin stuff!"

Are we done yet? No, not for another three years....

Brutus is the non de plume of a Houstonian who wishes to remain anonymous.

Posted by Kevin Whited @ 04/23/10 08:38 AM | Print |

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