Monday, December 10, 2012

What the Water Study Reveals

Study: Asheville taxpayers lose with water-sewer merger
The Asheville Citizen-Times

“Utility consolidation under MSD could produce cost savings for sewer ratepayers but comes at a cost to the water ratepayers and city taxpayers,” the report states. “Consolidation under MSD reduces costs for sewer ratepayers by $18 million-$23 million over the nine-year period while increasing costs to city taxpayers by $33 million over the same period.”

The merger would increase the city’s property tax rate from the current 42 cents per $100 valuation to 45.7 cents, the study concludes.

The city would lose water revenues that pay for infrastructure improvements like streets and sidewalks that are made in conjunction with waterline projects. In addition, revenues that pay for core functions like administration and information technology would be reduced.

“If the water system is taken from Asheville and given to MSD, there’s all kind of ramifications for the citizens of Asheville just from a financial standpoint,” Councilwoman Esther Manheimer said. “Because of the financial losses the city will experience, the burden of making up that deficit is placed on the taxpayers. Asheville is already on a pretty slim budget.”

“Because of the financial losses the city will experience, the burden of making up that deficit is placed on the taxpayers.”

AHA. Now we finally have it.

The Claim: the water merger will cost taxpayers because taxes will have to be raised to make up the difference in a loss of revenue to the tune of $33M.

The Truth: The city is prohibited by law from making a profit from the water system. The Sullivan Act mandates that all water system revenue be retained within the system and permits the city to allocate some water system money to improvements ONLY RELATED TO THE WATER SYSTEM. In other words, all money from the water system stays in the water system. It does not go to the city. So, where is the "revenue loss"? That is, unless Asheville has been skimming revenues for unauthorized purposes. This is the only reason the city would feel any loss and thus the need to raise taxes.

Sullivan Act III:

"SECTION 1. The City of Asheville may use up to five percent (5%) of utility revenues for street and sidewalk improvements associated with waterline improvements."

“We really don’t know exactly what the legislature will do,” she said.

NONSENSE. The city know precisely what the legislature will do. They have directed the city and counties to effect a merger or they will do it for them. That's what they will do. All of this resistance and foot-dragging is not part of the directive.

LRC Recommendation:

"Committee recommends that the 2013 Session of the North Carolina General Assembly consolidate the Public Utility Water System with the Metropolitan Sewerage District of Buncombe County. Should the interested governments craft their own solution for consolidation, which achieves all the objectives of the Committee, before the 2013 North Carolina General Assembly convenes, due consideration would be given to the local plan. Action will not be taken if the parties are engaged in good-faith negotiations on this matter."

Michael Muller:

What all this tells me is that the Asheville City Council has been siphoning millions of dollars a year from the Independent Water Authority to subsidize other expenses not directly related to waterline improvements — as is specifically required by state law. If the city's expenses were, in fact, directly related to waterline improvements and nothing more, there wouldn't be a budget hole.

Instead, City Council has been using the water system as its own cash cow — and milking water ratepayers outside the city with each squeeze. That's how they're able to pay for all these special projects without raising taxes: by overcharging the Independent Water Authority to pad their General Fund. One can only imagine where and to whom all that money has gone over the years. And now, when they're caught with their hands in the cookie jar, they seem to be trying to hiding it with some creative accounting.

This theft would be nothing new. Asheville City Council has been stealing money from the water ratepayers (inside and outside the city limits) and funneling it into its General Fund for years.

In 2007, the Superior Court of Wake County found that “from 1957 through fiscal year 2005, the City of Asheville did not put any funds into the water system. In fact, in addition to the net operating revenue for that period of time of almost $114,000,000.00 (income less expenses), there were a number of payments made from the “water fund” as part of the “operating expenses.” Essentially, the City of Asheville had taken (diverted) so much revenue from the water system to subsidize the City of Asheville’s general fund, the City of Asheville itself was primarily (not solely) at fault for the system disrepair by not having dedicated the water funds for said maintenance and repair." (From the Legislative Research Commission's Metropolitan Sewerage/Water System Committee report to the North Carolina General Assembly. Read it all here: )

Given the shady nature of this operation, opponents of the pending water merger (including those on City Council) have been loathe to admit their true motivations up until now — for good reason, I suspect. A crooked establishment with a vested interest in maintaining the status quo can be very defensive, especially when they have a lot to hide. And they've been nothing if not very defensive.

As blogger Tim Peck has so astutely pointed out on this forum before, these folks have also kept changing the nature of their objections with each passing week: "First, the water merger was declared to be a bad deal because it was just plain ole THEFT. Then it was a bad deal because it was a SEIZURE by a bully. Then it was a bad deal because it might lead to PRIVATIZATION. Then is was a bad deal because it would mean JOB LOSSES for city employees. Then it was a bad deal because it would be COSTLY to ratepayers. Then it was a bad deal because there was NO DEFINED COMPENSATION for the city. Then it was a bad deal because NO DEFINED LEASE OPTION being considered in the studies. Then it was a bad deal because the process is being RUSHED. (Then) it's a bad deal because Henderson County leaders are pushing for undue representation on the regional board as part of a POWER GRAB."

One by one, all of these objections have been shown to be what they are: "straw man" arguments. There is no theft. The merger is an issue of merging one public system with another. There is no seizure. Seizure would imply ownership by the City of Asheville, and the City of Asheville does not "own" the water system — it's merely managed it up until now. It's "owned" by the rate payers (if the City of Asheville "owned" the water system, it could pledge the water system as an asset, which it cannot.) As far as privatization, that has never been part of the argument, as the Citizen-Times itself was forced to admit in an editorial a few weeks ago. The MSD study has shown that there won't be any job losses either — in fact, all the folks will be retained and given raises. Costly? It would save water ratepayers money through consolidation and efficiencies of scale. And as far as future compensation to the city through a lease of the watersheds, that avenue was closed when voters rejected it with November's referendum — a referendum which had the effect of leaving the city with no future leasing option — unless the result of that referendum is reversed, ironically, by an act of the General Assembly itself.

Having painted themselves into a corner, City Council is now forced to implicitly admit their theft. And NOW they're saying that cooperation on the water issue is a good idea — as long as they get to dictate the terms.

Bear in mind that the Asheville City Council doesn't have the greatest track record of trustworthiness in terms of cooperating with its regional partners — after all, they voted as recently in 2004 to unilaterally withdraw from the historic Regional Water Agreement, throwing everyone else under the bus. Also from the LRC's report:

"The agreement was a significant accomplishment. For the first time since the construct of the public water system, water security was enjoyed by the rate-payers in both the incorporated and the unincorporated areas. The de-politicizing of the public water system provided hope that a new era of regional cooperation and economic development synergy would spur smart industrial growth and opportunity for the region. The agreement also recognized that the public water system itself was truly a Public Utility Water System and acknowledged the contribution of non-City of Asheville rate-payers to its history.

Despite that history, in May, 2004, the Asheville City Council voted unanimously to unilaterally terminate the Regional Water Agreement to once again attempt to charge differential water rates, to compel voluntary annexation and to control growth outside of its corporate boundaries."

So here we are. With the possibility of the city charging differential water rates forever out the window and City Council's Forced Annexation powers finally terminated (see ), they don't really have much left with which to bully their neighbors out in the county. So, knowing that, the city is playing the only card they have left: they want us to ignore all this uncomfortable history and to look the other way. There's no problem here, they say. Just give them back management of the water system, and trust them.

But I'm guessing, after 50 years, that it just might be too late for all that... creative accounting (and a silly protest by the usual hapless suspects) notwithstanding.


Pete Kalilner Show
12/10/21012 | Hour One: Water Merger
The City of Asheville is out with its own study of the state-ordered water system merger.

Resolution Condemning Water Merger
Asheville City Council | 12.11.12
Now, Therefore, Be It Resolved...

LTE: Bothwell, Water
Tim Peck | October 2012
City council member Cecil Bothwell offers us a helpful window into the thinking of local government in his recent commentary.