Moreover, management decisions over the years have made such challenges much more difficult to deal with.
1. The cost of the drinking water project ballooned from $180 million in 1997 to $360 million in 2005 – and to $500 million by 2009.
2. In 1997, the city raised rates to pay for the project but, despite the significant cost, inflation and the rising costs of maintenance and repair, the water authority chose to not increase rates from the time it was created in 2004 until 2011. Since 2009, expenditures have exceeded revenue, at least for the audited years.
3. The utility’s Decade Plans identified critical infrastructure repair, maintenance and renewal needs. The backlog has ballooned and continues to increase. In 2011, the total through 2021 was $975.5 million; two years later, in 2013, the total through 2023 had grown to more than $1.1 billion.
4. A few years ago, utility staff told the board that a gap existed between annual repair and maintenance needs ($76 million) and what it was actually spending ($41 million). To close this gap by 2026, the utility planned to increase capital spending by at least $3 million per year but, for the past two years, it has “deferred” some of that spending to reduce expenditures. Yet emergency repairs cost two to three times what routine maintenance and replacement does.
5. Instead of raising rates to keep up with the rising costs and needs, the utility borrowed. Debt was $260 million in 2004 and $761 million in 2009. While now down to $666 million, the water utility plans to borrow $71 million in the next year. Its debt service represents 37 percent of annual expenditures.
6. To buffer for variability, the utility’s annual budget sets aside at least $10 million in a reserve fund, but this year’s reserve is likely to be $1 million. The ABCWUA’s ordinance and bond rating agencies require that 1/12th of annual expenditures be reserved by July of this year. In last year’s budget, that 1/12th would have meant $18 million. The FY15 budget merely says that the utility expects to achieve the 1/12th requirement “eventually.”
Water utility staff recently announced the need for an “unplanned” 5 percent rate increase, claiming in part that it was needed because customers saved too much water. However, in February 2013, three months before the budget was submitted to the board, staff said that implementing the recommended Drought Watch Declaration would result in water sales being reduced by 2.5 billion gallons. Presumably, the budget incorporated such reductions, which turned out to be quite accurate, into projected revenues.
It’s easy for the utility to blame its fiscal problems on a $9 million error, though apparently there was no such error in the “internal accounting system” it keeps. Clearly, the water authority’s fiscal difficulties did not develop overnight, but earlier decisions have left us less resilient. Adequate reserve funds, for example, could have mitigated the unexpected challenges experienced last year.
Water, essential to life, must be treated in highest regard. Have policies such as maintaining low rates protected our critical resource for future generations? Do policies such as incurring massive debt while allowing an enormous backlog of critical infrastructure repairs to pile up protect customers? After all, those two issues were the top two concerns, again, in the recent customer survey.
While the utility’s proposed rate increase is no doubt necessary, a dialogue with us customers about how rates, conservation and revenue interact, as well as the true cost of water, is past due. To begin dealing with the underlying fiscal issues, an external audit is essential.
Before our scarce resource is committed to future development, it is equally essential to draft a balanced water budget, taking into account future climate-related challenges, as arose this past year, and increasing water scarcity.