On Tuesday evening, Metro Council will consider on third and final reading the Mayor's water, sewer and stormwater rates cleverly packaged as the Clean Water Infrastructure Program.
Most of my constituents know that we have been waiting a year for this proposal. Like everything else, there is some good news and some bad news in the bill. I won't be there for 3rd reading as sweetie and I take the kids on spring break. The bill to be voted on consists of the Mayor's original proposal plus some suggested changes by certain councilmembers and some housekeeping amendments.
1. Capacity Fees. Capacity fees are charged to new businesses or development that are hooking up to the water and sewer network and thereby reducing the excess capacity of the system. These fees are being lowered from $3,000 to $750 for a typical new single family home. The bill also includes a provision where MWS will calculate the actual use of the system after a year and if it falls below the estimated use, then the property owner will get a refund. If the use is above, the property owner will have to pay more. This refund/clawback provision will be available only to those property owners who qualify for the installment payment plan for capacity fees.
While capacity fees are an accepted way to fund a water and sewer system, I have long been troubled by the lack of clear relationship between what we charge and how we spend it. I also find the refund provision to be filled with all sorts of landmines. The refund/clawback will be available only to certain customers and that sort of discrimination will probably not stand for long. All it will take is a major project like May Town Center where capacity fees are in the millions to demand equal treatment - either from the courts or the Council.
2. Water and sewer rates - both volumetric and base charges - will go up. Water will rise by 5% a year for three years beginning May 1, 2009. Sewer will rise 9% on May 1, 2009, 8% on May 1, 2010 and 7% on May 1, 2011. These rate increases will be used to keep up with expenses and fund a 5 year capital plan. A three year rate increase to pay for 5 years of capital does beg the question, "what happens in years 4 and 5?" A 2006 rate study indicated that Metro would need about 40-45% increases over 5 years to fund a similarly sized capital plan. (For some reason, I can no longer find a link to this report on http://www.nashville.gov/, but I have the .pdf and a hard copy if anyone is interested.) Apparently, the finance director will be refinancing all of Metro Water's outstanding debt and that may accomplish some savings. Nonetheless, I expect we will need more funding in early 2012 to continue to meet the requirements of our capital plan.
3. Late charges will be reduced from the greater of $10 or 5% to the greater of $2.50 of 5%. We heard a lot from you all on this one so it should make everyone quite happy.
4. A budget billing option was added where people can estimate their annual use and make 12 equal payments.
5. A stormwater fee will be added to each property. There is no doubt that the introduction of a stormwater fee is an important policy decision. It puts funding of our stormwater, sewer and water systems on equal footing and finally acknowledges our responsibility to care for our entire watershed. It is an undisputed fact that the more impervious surface a city has, the more the needs of its stormwater system. So the stormwater fee is linked - or supposed to be linked - to the amount of impervious surface a property owner has.
Following the recommendation made in a report mandated by Council and delivered on February 1, 2008, the administration proposed 3 tiers for residential customers. According to the 2008 report and recommendation from AMEC Earth and Energy, residential property does not vary greatly in terms of the impervious area. Pretty much everyone has a roof and a driveway. So, in keeping with that finding, tiers are generally accepted. Small properties will pay $1.50, medium will pay $3.00 and large will pay $4.50. This is a sensible and fair approach.
However, the administration decided to ignore its own experts' advice and recommendation and proposed what has to be the only rate structure of its kind in Tennessee (and maybe the country) for non-residential properties. Instead of the widely accepted ERU approach, the administration proposed 6 tiers for non-residential property owners. The ERU approach is usually summed up as "the more you pave, the more you pay." Metro's consultants had recommended that for every 3200 sf of impervious area a non-residential property owner had, he would pay a per unit fee that correlated to the average single family residence.
Calling ERU's too complicated, the administration devised the following tiers: $10 for 400-6,000 square feet of impervious area (IA), $20 for 6,000-12,800 sf, $40 for 12,800-51,200, $100 for 51,200 - 300,000, $200 for 300,000-1,000,000 and $400 for anything over 1,000,000. This tiered approach creates a number of problems not found with the ERU approach. Those problems fall into 3 categories:
- Equity and fairness
- Compliance with State Law
- Environmental impact
If you prefer pictures to illustrate the point, see below. The pink line represents the ERU approach and the mesa skyline represents the administration's proposal. The point at which they cross is approximately 106,000 sf of impervious area. That means that if you own less than 106,000 sf of impervious area, you are probably paying more for stormwater than had we adopted the ERU approach. Needless to say, the overwhelming majority of parcels in the county are under 106,000 sf.
In another departure of accepted practice, the administration determined that how you own your non-residential impervious area should be major consideration in determining your stormwater fee. So, if you own your impervious area in multiple parcels because you have acquired it over many years or because your business is spread out all over town, then you pay more than if you owned it in one parcel. A business like Aerostructures will pay $400 a month because they have 3.5 million sf of impervious area on one parcel while SCI North Carolina will pay about $1,500 a month for the same impervious area on 10 parcels. Dupont in Old Hickory has about the same impervious area as Opry Mills but will be paying twice as much because their property is divided into 8 parcels.
The administration defended abandoning the ERU recommendation in favor of the tiers because they did not want to saddle large businesses that were laying people off with big stormwater fees. Of course, institutions like Fisk and Meharry will pay more under the administration's plan but hey, at least they were being honest. I have a chart of the top ratepayers which I would love to load up on this blog but I am just not technically adept enough. So, if you are interested, let me know and I will email it to you.
Compliance with State Law. Apparently the administration felt there were enough questions about whether or not their proposal met the requirements of state law that they had Metro legal issue an opinion asserting that the fee structure would be upheld in court. I won't bore you with all their arguments but it boils down to their belief that as long as the fee is reasonable it doesn't have to be mathematically exact. I found it interesting that they wrote an entire 8 page analysis and did not once quote the Tennessee Attorney General who has written several opinions on the subject and claims that there is a certain methodology that should be applied when calculating a stormwater fee. He says:
"The storm water user fee provision also expressly mandates that a certain methodology be used in determining the fee that is to be charged. Tennessee law requires that
[s]uch a graduated storm water user's fee shall be based on actual or estimated use of the storm water and/or flood control facilities of the municipality, and each user or user class shall only be required to pay its proportionate share of the construction, administration, operation and maintenance including replacement costs of such facilities based on the user's actual or estimated proportionate contribution to the total storm water runoff from all users or user classes.
I think it bears mentioning that the ERU approach is also legal defensible and distinguishes itself from the tiered approach for having already been tested by the courts.
Environmental Impact. Lastly, the administration's stormwater fee does not represent the environmental policy it could be. Stormwater user fees have been a major arrow in the quiver for cities across the nation who seek to encourage stormwater device retro-fit for properties that were developed before stormwater regulations were imposed. While the administration's proposal has credits for the installation of water quality and quantity devices, the fees for large property owners are so low that the cost recovery for any serious retro-fit will take years.
Since the administration's plan caps the fee at $400 for 1,000,000 sf or more of impervious area, there are no incentives for large properties to develop in a way that is environmentally sensitive. If you pay the same regardless of whether your parking area is spread over several acres or concentrated in a structure, you aren't likely to pick the latter. If we want to be the greenest city in the southeast we should probably start by at least trying to match the most basic environmental policies of other cities in Tennessee.
One of my colleagues, CM Holleman introduced an amendment to correct most of these problems by changing the fee structure to an ERU. The administration objected and lobbied hard to defeat the effort. More than enough has been written about that.
As the final vote on this bill approaches, I am reminded of that old Capitol Hill political wisdom: "if you have to cut off the dog's tail, don't do it one little piece at a time." Like the onerous late fees that were perceived as largely unfair by the public, we are likely to hear from small business owners when they see their water bill go from $10-11/month to $20-30/month. It won't help when they discover that, had we listened to our experts' advice, their bill would be $13.00. I hope we come back to this soon - before any damage is done and the dog bites.