blogHOUSTON.net forum

For discussion of items posted to blogHOUSTON.net

You are not logged in.

#1 2010-04-23 08:38:05

Kevin
Administrator
From: Tanglewilde
Registered: 2004-09-08
Posts: 6,929

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

This is another of our occasional series of guest posts/essays on local topics of interest to us and our readers. Feel free to submit topical posts/essays for our consideration to bloggers-at-bloghouston.net. As with our usual blog posts, the views expressed are those of the author.


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.



Link to post:  http://www.bloghouston.net/item/8366

Offline

#2 2010-04-23 14:04:32

jj_monkey_email
Member
Registered: 2007-07-26
Posts: 59

Re: Brutus: Unequal and deceptive -- The great water rate heist of 2010

Can you explain how apartment dwellers won't be contributing to capital costs of the CUS, but rather homes and businesses will pay 100% of those costs?

Offline

#3 2010-04-23 16:22:20

Ubu Roi
Moderator
From: Houston
Registered: 2005-11-24
Posts: 1,766
Website

Re: Brutus: Unequal and deceptive -- The great water rate heist of 2010

jj, I think Brutus is 95% on target here, but there's at least one error and one omission.

To answer your question -- from what I can see, the argument is that the phrase "Cost of Service" is being used as if it's the entire cost.  In "department-speak" that term actually means operations and maintenance (O&M), plus whatever work is done on a "cash" basis (called "pay as you go").  Borrowing is part of the capital improvement project costs (CIP). He seems to be suggesting that borrowing and bond service costs are not included in "cost of service."  I think, anyway.  City budgetary hijinks confuse me, and this may just be sloppiness in the terms used here.

His (her?) error is that Business rates are normally separate and a bit higher than Multi-family.  If that premise is correct, then Businesses are covering some of the capital costs. 

I think the gist of the message is that the single-family residential users got screwed, and in that, he's understating the case, because of his/her omission.  Half the residential increase is deferred; to be phased in over the next three years.  The figures in the article (the tables don't seem to have replicated above) are what the rates will be -- starting in June of this year.  Then they go up again, for residences only, each of the next 3 years.

Edit: And let me say I'm tickled to see this article here!


Those who do not know history are doomed to repeat it.  But they have no idea they're in a re-run.
The GOP has failed us for the last time.  It's time for a new way: the American Conservative Party
Proud non-winner of the Nobel Peace Prize (not even nominated!)

Offline

#4 2010-04-23 18:26:40

trafficnerd
Member
Registered: 2005-01-22
Posts: 72

Re: Brutus: Unequal and deceptive -- The great water rate heist of 2010

Why try to recover capital costs at all in the rates?  Why not pay capital costs with property tax revenue, even if it requires a property tax increase.  At least a higher property tax rate is a deduction on your federal income taxes, whereas a higher water bill is not.  Additionally, the multifamily owners get dinged with a property tax hike instead of the break in the rates as explained.  Plus, in the case of the slum lords,  I mean affordable housing providers, they take a hit in the profit side since they won't be able to pass the tax hike off to their hud clients.

Offline

#5 2010-04-23 18:53:57

rorschach
Member
From: Spring, Texas
Registered: 2005-01-05
Posts: 3,926
Website

Re: Brutus: Unequal and deceptive -- The great water rate heist of 2010

Trafficnerd, as I (imperfectly) understand the way the CUS is funded, it is supposed to pay for itself including any CAPEX bond monies.


http://redinktexas.blogspot.com/
"If ever a time should come, when vain and aspiring men shall possess the highest seats in Government, our country will stand in need of its experienced patriots to prevent its ruin.”
Samuel Adams

Offline

#6 2010-04-26 10:39:30

Ubu Roi
Moderator
From: Houston
Registered: 2005-11-24
Posts: 1,766
Website

Re: Brutus: Unequal and deceptive -- The great water rate heist of 2010

What Ror said. The CUS is supposed to be self-sustaining, not a drain on the tax revenue.  Nor a source of pork.  If we got all these developers, investors, and politically connected landlords off the city take, I wonder how fast we could balance the budget and pay for the police and fire departments?


Those who do not know history are doomed to repeat it.  But they have no idea they're in a re-run.
The GOP has failed us for the last time.  It's time for a new way: the American Conservative Party
Proud non-winner of the Nobel Peace Prize (not even nominated!)

Offline

#7 2010-04-26 16:55:11

Factotum
Member
From: Kingwood
Registered: 2007-11-27
Posts: 173

Re: Brutus: Unequal and deceptive -- The great water rate heist of 2010

I knew we were screwed, just hadn't figured all the angles, thanks Brutus and bh.


If you can force me to pay your med expenses I bet you can make me pick your cotton too.

Offline

Board footer

Powered by FluxBB