“Tip” O’Neill once said “All politics are local.” I have reported in the past on national and state issues. When I received a notice in the mail of a proposed increase in my water rates I decided to do some research at the local level. If you are a regular reader of this blog you will not be surprised at what I found.
The Marin Municipal Water District (“MMWD”) recently issued a public notice for a proposed increase of 9.8% in the average water rate and service charge to go into effect March 1, 2010. The previous increases in 2008 of 9.7% and 2009 of 7.3% were effective May 1 of their respective years, not in the following fiscal year. MMWD’s fiscal year ends on June 30. The effect of this is to accelerate revenue from the rate increase into the ending year increasing revenue that was not budgeted. The process is gathering speed. This proposed increase reduces the interval between rate raises to less than twelve months (in this case from the earlier implementation date of May 1 to a new date of March 1 so on an annual basis the magnitude of last year’s increase is misrepresented. In this case the increase implemented for FY 2009 actually becomes 8.93% [(12x7.3+2x9.8)/12=8.93]. If MMWD returns to an annual cycle and there is not another increase prior to May 1, 2011 (I wouldn’t bank on it) this is an average increase of 9.5% per year. Over this same time the annual increase in the Consumer Price Index has been 1.47%.
In calling for the increase the first reason cited was increased cost of purchased water, increased cost of treatment chemicals and new capital projects to increase supply.
In the next paragraph the letter reads, “Water consumption continues to drop. While this decrease helps our supply picture, it hurts our financial picture. We had planned for a 5% reduction in water use due to conservation, but water use dropped 8.5% in fiscal year 2008-09, resulting in inadequate revenue to cover operating expenses. To complicate matters, most of the costs of providing water are fixed and do not fluctuate with the sale of water. Even so, we cut operating expenses by $5.3 million in 2009-10 and will eliminate at least $2 million in 2010-11.”
In the Preliminary Budget for 2009-11 actual 2008 operating expenses were $60,583,391 and the revised (upwards) operating expenses forecast for 2009 are $70,754,312, an increase of 16.7%. The preliminary budget for 2010 is up 1.97% at $70,768,416 and increases in 2011 by 5.15% to $74,414,772. I am struggling to find the $5.3 million cut in operating expenses and taking $2 million out of 2011 still increases the budget by 3.4%. If “most of the costs of providing water are fixed” why do our bills keep going up even as water sales revenue continues to increase?
While this may come as a surprise to its customers, the MMWD Board was well informed. In a Grand Jury report entitled, “Retiree Health Care Costs, I Think I’m Gonna Be Sick” released March 19, 2007 finding F8 states, “Unless government employers prudently manage the liability for retiree health care benefits, they will be forced to cut services, reduce benefits, and/or raise taxes to satisfy credit agencies.”
To which MMWD responded, “MMWD believes that public agencies should always be prudent when managing public funds. However, MMWD does not think it is beneficial to speculate on what might occur in the future (emphasis added).” We are now clear on what that future holds.
But this is only the tip of the iceberg. Note 8 of these same audited financials discusses the contributions made to the employee pension plan. Like most public plans this is a defined benefits plan, meaning that no matter what the performance of the assets of the plan or the contributions made by the plan sponsor, that plan sponsor is on the hook for the promised benefits. Like the OPEB this plan is managed by CalPERS. The actuarial methods and assumptions used are those adopted by the CalPERS Board of Administration. Employees are required to pay 8% of their covered salary into the Plan. Beginning January 1, 1999 the District began paying 1.5% of the covered salary for all employees and at January 1, 2001 an additional 1.5% bringing the total to 3% of covered salary. Employees now only pay 5%. The District pays the entire 8% requirement for senior managers. CalPERS assumes they will earn 7.75% on contributed funds. What unfolds next is not a pretty picture.
At the end of the financials under the title of “Required Supplementary Information” is the unaudited “Funded Status of Plan” or what I would re-title the “Unfunded Status of Plan”. At the end of FY 2008 the Actuarial Value of the Plan was $116,111,118 with an Actuarial Accrued Liability of $133,294,684 leaving an unfunded liability of $17,183,556 and a funded ratio of 87.1%. It is interesting to note that over the reported five years, a period when all investments were making superior returns, the funded ratio remained roughly the same. Of greater concern, the Unfunded Liability as a Percentage of Payroll grew. In other words those taking out are beginning to overwhelm those paying in.
Vacation of 80 hours after 6 months employment rising incrementally to 200 hours after 20 years (assuming an 8 hour day, that equates to two weeks, increasing to five weeks) 13 paid holidays 15 days annual sick leave (which can be accumulated and sold back at retirement) Health insurance Family dental insurance including orthodontia Group life insurance Long term disability insurance Vision care Tuition reimbursement
Dick Spotswood: The Militant Centrist http://blogs.marinij.com/spotswood/
Steven Greenhut; Plunder: How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation