– 2009 PURB statement regarding Portland Water Bureau’s finances
The Portland Water Bureau is drowning in debt and they’re poised to take residents and businesses down with them. In the middle of the country’s worst recession, and as most companies are digging deep to cut costs, the Portland Water Bureau (PWB) has levied a 17.9% rate increase on water volume charges, a 19.6% increase to the “base rate”, a 6.9% increase to sewer rates and a 6.7% increase to storm-water disposal charges.*1 And they plan similar rate hikes every year for as far into the future as we can see. PWB won’t share rate increase projections further than five years out, but current spending projections could create major rate increases for a decade, and even longer if they keep adding projects like the Special Armed Law Enforcement Unit to their wish list. This means combined water/sewer bills will double in four years. What is now a $180 bill for an average family of three will be a $350 bill in 2013. It could be over $600 in eight years, and almost $900 in 12 years. But, rate hikes alone won’t be enough to keep PWB afloat. The Portland Water Bureau just took out a loan for $75 million (bond approved Dec 9, 2009, final Council vote January 2010 *2). This inconceivably large loan will just get them through the year. *2A
Reportedly, in 2009, 40% of PWB’s budget was consumed with debt and interest payments.*3 PWB is spending significantly more than what it makes. This month alone, PWB plans to ask for new spending on a special Law Enforcement Unit (Chief Sizer estimates PWB would need to quadruple its security budget to cover this*4); and they’ll begin the Request for Proposal (RFP) process for a new emergency alert system they’d like to acquire*4A (this system may cost, “an arm and a leg,” according to PWB Administrator David Shaff and will in some ways duplicate the traditional Emergency Broadcast System municipalities already have in place). During budget season this past Spring, the mayor asked every office for a budget with 5% cuts. What about cuts at the Water Bureau? The Portland Utility Review Board (PURB) rather sternly noted this year that the Portland Water Bureau seems unaware a “cut” should be an actual reduction in current spending and not just a trimming of the wish list. According to a community stakeholder group, five years ago the Water Bureau had 535 employees; the Bureau has ballooned to approximately 650 employees today (+ 21%).*4B
Reviewing PWB budgets and related documents is a bit like falling down the rabbit hole into Wonderland. Budgets are broken down into different units with every new document, making these figures onerous to track and compare from one proposal to the next. Income projections are based on demand levels that are not substantiated, perpetually fostering budget shortfalls, deficit spending and debt.*5 Recurring, critical expenditures are seemingly, routinely funded with borrowed money and accounted for as if they were one-time capital expenses. Spending on new, large projects climbs while PWB neglects 50% of the maintenance projects required annually to keep pace with the deterioration of infrastructure.*6 New capital projects are favored by the argument that these projects will act as “locally funded stimulus”; despite the fact that there aren’t local funds for such stimuli so they’d have to be borrowed, thus increasing rates and debt-load on a population that can’t take an increase in either.*7
The most publicly discussed projects this past year were those mandated by LT2. *7A Although the mayor, the city commissioners, PWB and their constituents agree that LT2 mandates will not increase the quality or security of the water system and that the first action priority should be to press for legislative or regulatory relief from the unfunded EPA mandate, the initial design of a treatment system has begun. PWB has set aside $24 million to spend on the design of a UV plant before relief efforts have a chance to succeed. They’ve also “fast-tracked” two projects relating to LT2 compliance: the buried tanks at Powell and Kelly Buttes, asserting these tanks will build capacity to meet demand 50 years from now and help Portland attract large industries. One might question the logic in taking on the maintenance of a storage tank 50 years before we need it, when PWB lags in maintenance of the existing system. Portland’s water rates are already high. Large water users have been fleeing the Portland area for a decade because they can’t afford our water (Steinfeld’s Pickles, Blitz-Weinhard and Alcatel are examples).*7B
Recent estimates place the cost of an LT2-mandated UV plant at $100 million ($200 million with debt service) and the cost to disconnect the open reservoirs and build buried tanks at $400 million ($800 million with debt service). Note that no projection considers the operation costs of a UV plant (estimates place electricity alone at $16 million a year); the construction costs of a “pre-treatment” plant (i.e. ozonation) that might accompany the UV plant; or the costs of converting the open reservoir sites to something more attractive than giant concrete holes. Undertaking projects that double water bills in four years will hurt business, not attract it. When a big employer that uses 40 million gallons a year sees its annual water expenditures grow from $100,000 to $200,000 in just four years, Portland’s ability to support growth of new business is in jeopardy. *8A
Reportedly, PWB has more storage capacity than it needs even during periods of peak consumption. As drinking water is a perishable product, there doesn’t seem to be any benefit to stock piling it in large, new tanks. Neither of the Powell or Kelly Butte tanks should be on an accelerated implementation schedule with PWB finances the way they are. These tank projects would seem to imply the citizenry and Council have agreed to 1) abandon LT2 relief strategies, and 2) move much of Portland’s water storage further away from the population center. Securing a Waiver or Variance is clearly the most cost-effective approach to LT2 and leaving our highly functional system intact is the community supported strategy. It seems at best inconsistent and at worst irresponsible to spend $24 million to design a UV plant and $34 million on site-prep for tanks when the community expects PWB is working to avoid building these items.
Where is the Portland Utility Review Board (PURB) in all of this? The PURB is supposed to be a citizen and business ratepayer advocacy group providing checks and balances for the PWB budget process. In truth, PURB recommendations have no binding power at all. While PURB members have repeatedly hammered PWB staff for their illogical business practices -- like imposing large rate increases in a terrible economy, *9 or planning spending which increases a crippling debt, *10 or habitually projecting income based on obviously inaccurate estimations of demand *11 -- those criticisms seem to be confined to written correspondence alone. They don’t appear in a form that would serve to sound an alarm for the rate-paying public. Reappointment was denied to one PURB member in good standing after he publicly questioned PWB modus operandi. *12 The most recent PURB appointees all appear to have been recommended by the commissioner in charge of the Water Bureau, putting into question PURB’s ability to be a public oversight group. In fact, at the October 20, 2009 Council work session, a PURB member declared that his group was not a ratepayer advocacy group but rather a research arm of the Council. *13
PWB is currently more than $350 million in debt and they project their debt will double over the next 2 years.*14 A local reporter recently wrote about the count-down clock that sits on PWB administrator David Shaff’s desk . It ticks away the days until the EPA’s deadline for LT2 projects. Perhaps PWB administrators would better serve this city by setting aside this countdown of a manufactured emergency to focus their attention on the real crisis before us. It's a fiscal one.
End Notes:
*1 – Figures derived from calculations on an actual PWB customer’s bill. All calculations confirmed with a phone call to the PWB customer service line. An excel spreadsheet with 12 years worth of projections of bills for the typical 3 person and 5 person household, available here. Projections made with rate increases similar to the one issued July 09.
*2 – Non-emergency ordinance, Council Agenda Item #1675 from Dec 2, 2009.
*2A – In January 2009, PWB managers predicted they will need to issue/sell bonds each of the next 4 years in the following increments: FY 2010-11 $91,030,000; FY 2011-12 $147,500,000; FY 2012-13 $135,575,000; FY 2013-14 $133,425,000. This year, PWB will sink almost $24 million dollars into debt service. Forecasts for the next 5 years worth of debt service payments are as follows: FY 2010-11 = $28,985,504; FY 2011-12 = $34,498,586; FY 2012-13 = $46,031,999; FY 2013-14 = $56,634,228; FY 2014-15 = $67,071,228. Note: figure for FY 2014-15 places debt service payments about equal to PWB’s 09/10 operating budget. Figures taken from Questions for FY 2010-11 Budget Process, available online: http://www.portlandonline.com/water/index.cfm?c=51645&a=276497
The Office of Management and Finance hosts an Annual Disclosure statement regarding PWB finances. The 2008-09 Annual Disclosure (Feb 15, 2009) is here: http://www.portlandonline.com/omf/index.cfm?&c=28112&a=12891
*3 – PURB 2009-10 Rate Testimony; available online: http://www.portlandonline.com/omf/index.CFM?c=41337&a=213273
*4 – In a letter dated Oct 19, 2009, from Chief Sizer to Dan Saltzman, Sizer writes, “The Water Bureau currently employs 23 Security Specialists and one Security Supervisor at an annual cost of $979,650 FY 08-09 (salary only). Research on a comparably sized Oregon law enforcement agency (approximately 25 sworn officers) shows an annual budget of $4 million.”
An industry rumor places cost at $20-40 million dollars in unidentified funding:
http://www.watertechonline.com/news.asp?N_ID=72775
*4A – RFP: http://cityofportland.ebidsystems.com/public/solicitationdetail.asp?Solicitation=111377
*4B – employment figures from Water Bureau website
*5 – Retail water demand for 2003-2013, actual vs forecast. Released at budget meeting Dec 9 2009; available online at: http://www.portlandonline.com/water/index.cfm?c=51645&a=276501
*6 – PURB Comments on 2009-10 Financial Plans; available online: http://www.portlandonline.com/omf/index.CFM?c=34619&a=247323
*7 – PURB Comments on 2009-10 Financial Plans; available online at: http://www.portlandonline.com/omf/index.CFM?c=34619&a=247323
*7A – LT2 is a Federal mandate to build certain water system facilities that Portland’s water system does not need. LT2 emphasizes construction over protection; the Portland system is engineered within a substantial framework of protection, and LT2 forces Portland to abandon its highly successful and sustainable approach to water purification in favor of a highly consumptive build/treat/pump model. These projects won’t provide Portlanders any additional public health benefits, and return very little for their hard earned dollars.
*7B – Former Director of the Portland Water Users Coalition testifies before Portland City Council about large water users being driven from Portland; July 29, 2009. Minute 175, video available here: http://www.portlandonline.com/index.cfm?c=51112&a=258048
*8A – July 15, 2009 letter to Dan Saltzman from Sebastian Pastore, Kurt Widmer, and Rob Widmer of Widmer Brothers Brewing Co., Craft Brewers Alliance.
*9 –
“…We believe that this budget proposal is excessive and inappropriate given the current economic situation where many businesses are cutting expenses and families are stretching reduced incomes to make ends meet. We believe with appropriate cost cutting the bureau could reduce its requested rate increase.” Quote from: PURB 2009-10 Rate Testimony; available online at: http://www.portlandonline.com/omf/index.CFM?c=34619&a=247322
“…The current budget proposal represents an increase in spending (from 6% to 13% depending on how you calculate) with a projected retail rate increase of 17.9%. This is excessive and inappropriate in this current economic environment. … The operational budget for next year should be significantly less than the budget for the current year. Nearly every business served by the water bureau is being forced to reduce spending; the bureau needs to do the same and the current budget proposal still requests spending increases rather than decreases.” Quotes from: PURB Comments on 2009-2010 Budgets; available online at:
http://www.portlandonline.com/omf/index.CFM?c=34619&a=247324
“…While large rate increases are probably inevitable (without Federal stimulus support) for the LT2 work over the 5 year timeframe of the financial plan, the rate increase for FY 2009-10 needs to be in single digits.”
“… Proposing an 18% rate hike (after including OMF’s mandated budget cuts), seems out of sync with the economic recession that has hit the country.”
“… It is PURB’s understanding that the bureau’s 18% rate request occurred before the OMF request for 5% cuts, but in January the bureau’s budget included the OMF changes but still required an 18% rate hike.” Quote from: PURB Comments on 2009-2010 Financial Plans; available online at: http://www.portlandonline.com/omf/index.CFM?c=34619&a=247323
“…While the phrases “ratepayer revolt” and “sticker shock” never were said by members the discussion centered around the unsustainability of yearly rate increases that greatly surpass inflation….Average rate increases should be in line with current inflation and cost of living increases… In our opinion it is inappropriate for the bureaus to continue internal business as usual and to increase their rates to cover their spending.” Quote from PURB Annual Report 2007-2008; available online at: http://www.portlandonline.com/omf/index.CFM?c=41337&a=213273
*10 –
“… The water bureau is spending more than the revenue it generates (it is spending down cash reserves). The water bureau is taking on new debt faster than it is retiring old debts (debt service is growing). These conditions have nothing to do with LT2 or any other extraordinary program/expenditure. These 3 characteristics remain for the FY2010 proposed budget. This seems like a bad situation.” Quotes from January 2009 correspondence from a PURB member to WB staff regarding PWB budgets (obtained via Oregon Public Records Request)
“…The Bureau needs to look at making deeper and more genuine cuts to their spending proposals…”
“… PURB believes it has been a mistake to allow the bureau to operate with levels of spending that can not be supported by the customer revenue stream.” Quotes from: PURB Comments on 2009-10 Financial Plans; available online at: http://www.portlandonline.com/omf/index.CFM?c=34619&a=247323
*11 –
“… The current bureau retail demand forecast of 28M ccf is overly optimistic. For each of the past 5 years the water bureau has over estimated retail demand, resulting in deficit spending and crisis cuts to departments. It is imperative that the bureau become more conservative with its demand forecasts. … PURB will oppose any financial plan/budget proposal based on higher consumption assumptions because it will over estimate revenue and result in more deficit spending.”
“…The water bureau’s financial health is closely tied to accurate predictions of water consumption because of the mismatch between the rate structure and the water bureau’s cost structure.”
“…During the past 5 years the bureau has over estimated water consumption by an average of 6% each year. Leaving the bureau with insufficient revenue (~ $4M short on average) to meet spending plans in each of those years.”
Quotes from: PURB Comments on 2009-10 Financial Plans; available online at:
http://www.portlandonline.com/omf/index.CFM?c=34619&a=247323
“…The bureau should be more conservative in its financial planning assumptions. Over estimating future revenue could result in unexpected rate increases.” Quote from PURB 2009-10 Rate Testimony; available online at: http://www.portlandonline.com/omf/index.CFM?c=34619&a=225807
“… Given the tough economic times & your minimal cash reserves, I think it is high time to become more conservative in your consumption forecasts. Much better that your forecast be 93% of actual demand than 108%.” Quote from January 2009 correspondence from a PURB member to WB staff regarding PWB budgets (obtained via Oregon Public Records Request)
*12 – Scott Fernandez, biologist specializing in ground water assessment and surveillance.
“In May 2008 Scott Fernandez was denied re-appointment to PURB. This was the first time that a PURB member with excellent attendance was denied re-appointment.” Quote from PURB Annual Report 2007-08; available online: http://www.portlandonline.com/omf/index.CFM?c=41337&a=213273
An article on the front page of the NW Examiner (Jan 2010) discussing PWB’s historically confrontational behavior towards citizen activists and how PWB has targeted Fernandez and others: http://www.nwexaminer.com/issues/01January2010.pdf
“MP3 Audio File: Hear Scott Fernandez talking about Portland's contaminated well field water on the KBOO show Monday on the Environment on 5/5/2008. Thank you to the show's host, Scott Forrester. Scott Fernandez is now a former member of the Portland Utility Review Board. (PURB) He was removed from that position after many years, by Commissioner Randy Leonard, shortly after this show. http://kboo.fm/node/7151 or Click here to listen to the 29 minute show. (27MB audio file)” Quote from the website of a community stakeholder group: http://friendsofreservoirs.org/
*13 – Informative video of this work session between PURB and City Council available online: http://www.portlandonline.com/index.cfm?c=49508&a=268816
*14 – “Total Outstanding Debt at Year End” is projected to double in 2 years. Outstanding debt grows as follows, if PWB does not add additional projects: FY 2010 = $353,845,000; FY 2011 = $511,086, 000; FY 2012 $741,017,000; FY 2013 $869,063,000; FY 2014 $939,490,000. Figures taken from FY 2009-10 Five Year Preliminary Financial Plan, January 2009; available online: https://docs.google.com/leaf?id=0B0FLHRhrA9yaYjJlZDA4ZjItYzkyOC00YjM0LWE4NmQtZDllODU0OWMzMWE3&sort=name&layout=list&num=50
