October 28, 2016 § Leave a comment
REFUNDING UNFAIR WATER AND SEWER CHARGES
In 2011, the Town raised the sewer rates by 36% to pay its share of the wastewater capital expenditures in about 5 years. In comparison, Fairfax County (and other jurisdictions) spread such payments over a 30-year period in order to make sure that the burden of capital expenditures does not fall on the current residents. If the Town had spread the payments over 30 years, the town residents and businesses would have paid about $6.5 million less than they have paid. This article suggests that the Town should return the excess payments to our residents as a part of implementing state-of-the-art policies throughout the government.
1. ALLOCATION OF CAPITAL EXPENDITURES (Between the County and the Town)
Herndon does not have its own wastewater treatment plant. Under an agreement with Fairfax County, the Town’s sewage is treated at the Blue Plains Treatment Plant (Blue Plains) in Washington DC. Long ago, the County purchased 31mgd treatment capacity from Blue Plains. Herndon’s share of this capacity was 3 mgd. As a matter of customary practice, Blue Plains bills the County every quarter and the County, in turn, bills the Town for its share of the capital expenditures.
Capital expenditures are divided among the users of the Blue Plains plant in direct proportion to the capacities purchased by them. Herndon’s share amounts to about 9.7% (= 100*3mgd/31mgd) of the capacity purchased by the County. Accordingly, the town must pay 9.7% of the share of the capital expenditures allocated to the County by Blue Plains.
In 2010, Blue Plains informed the County that it expected to spend about $1 billion to comply with the Combined Sewer Overflow (CSO) and Nitrogen Removal mandates over the next few years. As shown in Table 1, the County’s share of the corresponding capital expenditures ended up being $97 million. Consequently, Herndon’s share of the expenditures turned out to be about $9.4 million (or, 9.7% of $97 million).
2. ALLOCATION AMONG CURRENT & FUTURE RESIDENTS
a. Fairfax County’s Practice
The County, in accordance with its normal business practice, issued a 30-year revenue bond to raise its share of about $87.6 million. By spreading the debt payments over thirty years, the county made sure the sewer rate increases would be much smaller than they would have been otherwise. If the capital expenditures had been paid over, say, 5 years, the sewer rates increases would have been three or four times as much. The rate increases were also more equitable. Both the current and future residents would pay equally for the use of the capacity.
b. Herndon’s Practice
In contrast, Herndon, in accordance with its established practice, pays its share of the capital expenditures on a “pay as you go” basis. Generally, it raises the sewer rates sufficiently to generate enough cash for paying its bills over a short period-of-time. In 2011, it increased the sewage rates by 36% from $3.72 per 1000 gallons to $5.05 per 1000 gallons. This action generated enough cash to pay Herndon’s share of $9.4 million over a period of about 5 years. Therefore, the burden of the capital expenditures incurred by Blue Plain fell almost entirely on the current (2012-2016) residents and businesses.
c. Costs of the Town’s Practice on the Current Residents
In 2011, when the 36% rate increase was proposed, Councilmember Singh, in order to reduce the burden on the current residents (and spread the cost of the program over future residents as well), argued that the Town should issue Revenue Bonds; however, he did not find enough support on the council for his idea. Had the idea been approved, the current residents and businesses would have paid about $2.90 million dollars (rather than the $9.4 million or so they have paid). In other words, they have paid about $6.5 million more than they should have.
Given that there are 5209 residential water connections in the town and the residents and businesses use equal amounts of water, an average household has paid about $620 more than they would have paid, if revenue bond(s) had been issued.
3. MAKING PAYMENTS FAIRER
a. Refunding the Excess Payments and Reducing the Rate
In order to correct these inequitable payments, we can take the following two actions:
RETURN $3.2 MILLION (OR, $620 PER HOUSEHOLD) TO OUR RESIDENTS, AND
REDUCE THE SEWER RATE FROM from $5.05 to $4.13 PER 1000 GALLONS.
The 36% rate increase in 2011 has helped to maintain stable cash balances in the Water and Sewer Fund in spite of the fact that the vast majority of the town’s share has been paid to the County. In 2011, the cash balance was $13.51 million. It had hardly changed by 2015.
b. Effect of the Refund on Financial Health of the Water and Sewer Fund
The return of $3.2 million to our residents and a reduction in the rate to $4.13 per 1000 gallons will not materially affect the financial health of the Water and Sewer fund or its future needs. Even if both actions are taken, the cash balance will reduce to $10.3 million – a healthy amount for meeting operating and other immediate cash needs.
Back in 2011, the staff contended that the rate increase was necessary not only to comply with the capital expenditure obligations but also to generate funds for purchasing additional water and sewer capacity for the Metro development. The town expects that it would cost about $33 million to purchase the additional water and sewer capacity. The return of the $3.2 million to the residents would not materially affect the town’s ability to raise the needed capital. For these reasons, the $3.2 million unjustified and unfair increase should be returned to our residents.
TABLE 1. FAIRFAX AND HERNDON’S PAYMENTS TO THE BLUE PLAINS TREATMENT PLANT
(click on image to zoom)