Montgomery County Taxpayers League

The Voice of Taxpayers of Montgomery County, Maryland

Maryland

Washington Suburban Sanitary Commission (WSSC) Needs More Oversight

Washington Suburban Sanitary Commission (WSSC) Needs More Oversight   –  October 29, 2016

The WSSC is the second largest monopoly in the state of Maryland. It is a bi-county agency providing an essential function but with little oversight. The Montgomery County Taxpayers League has chosen to shed some light on this $1 billion agency and has testified before both county councils. We offer some insight on the issue below:

Both the Montgomery and Prince George’s County Councils voted this week to “guide” WSSC to a 3.5% rate increase for its proposed FY’18 budget.  This is a spending control limit, and will serve as a guideline as WSSC formulates it’s budget for approval next spring. 

WSSC wanted a 4.5% rate increase. Montgomery County Executive Ike Leggett endorsed that proposal while PG county Executive Rushern Baker elected to make no recommendation.  But a higher rate increase could still occur since this vote only provides guidance to the WSSC when it prepares its justification for its recommended budget next Spring. The good news is that both county councils were persuaded that a lower rate increase would motivate WSSC to find cost savings recommended in a benchmarking study completed last summer. 

That June 2016 study found that WSSC had weak, inefficient practices for fleet management, utility services, and asset management/capital improvements and too many IT staff and engineers.. All these, of course, continue to impact reliability of service unless corrected.  It is important to note that these problems also contribute to high costs and will need new cost controls.  Of particular concern is the 4.5% pay raise given to WSSC employees in last year’s budget – higher than the pay raise for our county employees.  Also, both Councils noted that the new fee to replace aging pipes are now in place thus eliminating the need for WSSC to cover these costs in volumetric rate.

One major issue both county councils will confront again next spring is the state law which compels both councils to agree on any changes to the WSSC’s operating and capital budgets. In the absence of such agreement, the requested WSSC budgets must be adopted (Section 17-202(c)(2), Public Utilities Article, Annotated Code of Maryland).  This so-called default budget law gives WSSC extra leverage in budget negotiations and does not allow the regulators of this, the second largest monopoly in the state, to adequately press for changes in the budget. We would support an amendment that, in the absence of an agreement, would default to the prior year’s budget.

The Montgomery County Taxpayers League continues to urge both Councils to amend or get rid of this default budget law which essentially treats the WSSC budget as a cost plus contract: WSSC spends more and rate payers pay more, never less, regardless of performance.  And let us not forget Montgomery County’s motto? “Gardez bien”

WSSC Rates: Testimony by MCTL Member Gordon Brenne

Testimony of MCTL Vice-President Gordie Brenne September 25, 2016, before a committee of the Montgomery County Council concerning an increase in water rates proposed by the Washington Suburban Sanitary Commission:

Rates rose in the last ten years at an annual rate of 6.63%, almost 3 times the CPI (Levchenko, 7/19/16, pg. 2).  This is because cost controls are weak. In addition, fees for customer service and infrastructure maintenance were added last year to fortify revenues, but will undermine any cost control incentives in these areas.

You would think the revenue picture is rosy at this point.  But it’s not, and it will always be desperate because weak cost controls and declining water demand create constant pressure on revenue sources.  (WSSC is now faced with a judgement to change its rate structure to address the equity of higher tier pricing beginning from the first gallon.)

Even if our residents had deep pockets and could subsidize WSSC indefinitely, our family rates are 34% higher than Fairfax County (combined water and sewer rates of $11.69/1,000 gals vs. $8.71, OLO 2016-7, pg. 22- this is for an average family of 3), and we estimate business rates are 69% higher ($15.02/1,000 gals at 500 gallons ADC vs. $8.89, Sue Lacourse. 11/15).  Fairfax is our primary economic development competitor.  Our families are disadvantaged and we could be losing business opportunities and jobs because of this.  What are Fairfax best practices that we can adopt to lower our costs?  Is their overhead rate as high as ours?  Do they manage fixed costs differently than variable costs? Do their cost controls link to their strategic plan?  Do they outsource activities we don’t to capture cost savings?  Does their supply chain management system generate greater cost savings?  Do their sewer rates subsidize water rates like ours? What have they done to achieve a lower unbilled water rate and increase revenues?

Our recent letter to Joe Beach (7/27/16) outlined three areas that are key to reliability of service, and highlighted in the benchmarking report as having weak practices: Utility Services, Fleet Management, and Asset Management/CIP.  We’re still waiting for a response.  These three areas contribute to productivity weaknesses, result in growing fixed costs, and are key to bringing costs and rates under control.

Basically, WSSC operates on a cost plus contract basis with the taxpayers.  They spend more, we pay more.  There is no incentive to control rates and costs will continue to rise indefinitely.  Why aren’t there incentives in the budgeting and rate setting process to improve performance?

Council Member Berliner has stressed the importance of reliability and we believe high costs impede reliable performance.  Until these cost control questions are resolved, no rate increases should be approved. No pay increases should be budgeted, and a hiring freeze should be imposed until WSSC has implemented new cost controls and realigned rates to compete with Fairfax County.

Finally, a state law requires both counties to agree on changes to both the operating and capital budget proposed by WSSC, or the proposed budget must be adopted.  This ridiculous rule resulted in excessive salary cost increases last year, and will guarantee the same result again this year.  The council must amend this rule to allow common sense to reign in cost and rate increases.  We also recommend that a citizen advisory panel be established to provide common sense criteria for the rate study.

(Effective organizations use compliance drills as an opportunity to advance strategic objectives.  What other objectives do WSSC pricing strategies serve beyond compliance and revenue generation? Conservation, economic development, medical research, farming and aquatic sports come to mind, and I’ve barely scratched the surface.  Does WSSC have these objectives and corresponding demand estimates and pricing strategies covered in its strategic plan?  If so, revising rates will be easy. If not, it will be little more than a random experiment).

WSSC Rates: Testimony by Susan LaCourse

Testimony of Susan LaCourse September 25, 2016, before a committee of the Montgomery County Council concerning an increase in water rates proposed by the Washington Suburban Sanitary Commission:

My name is Susan LaCourse, and I am a resident of West Laurel. I would like to speak on behalf of the many WSSC customers who send this message: DON’T RAISE OUR RATES!

Over the past three years, I have networked with over a thousand WSSC customers through my petitions on Change.org (649 signatures) and MoveOn.org (198 signatures) and through my Facebook page, “Marylanders for Affordable WSSC Water”. Dozens of customers have posted comments that specifically condemn the WSSC rate increases over the past 12 years and cry out for relief. (One comment was, “Help!”) Public perception is that WSSC spends money extravagantly and wastefully.

Here are some examples of what we see as customers:

  • WSSC’s newish fleet of spiffy 4WD SUVs that I personally have repeatedly observed WSSC employees use to drive to meetings (almost never with more than one occupant).
  • The $60 million expansion at the Patuxent Plant (WSSC has very publicly pointed out that total consumption is flat or declining and will remain so for the foreseeable future, and peak usage is far below capacity, so how necessary is this expansion?)
  • WSSC’s Annapolis office suite in a brand-new, state-of-the-art building (with an automated, robotic indoor parking garage) on some of the most expensive real estate in Annapolis (7 State Circle) that presumably allows WSSC lobbyists easy access to the State House (How many other utilities own office suites on State Circle?)
  • The spiffy Headquarters building in Laurel (this is mentioned a lot by customers)
  • The rumored 6-digit “birthday party” that WSSC plans to throw for itself to celebrate its 100th year

I have also repeatedly heard customers conjecture about executive compensation, salaries, benefit packages, pension and retirement benefits, etc. etc.

These are just the extravagances that we know about. How much more waste is there that we are not aware of?

The argument that excessive rate increases are needed every year to replace aging pipes is as old and tired as the pipes themselves. Pipe replacement is just a small part of WSSC spending.

It seems that everyone (including WSSC’s own consultant) acknowledges that WSSC has a customer relations problem. It can’t be solved by hiring more staff (WSSC’s plan). WSSC would do far, far more to improve customer satisfaction if they did some belt-tightening and passed the savings on to customers, than if they hired 100 more customer service staff. And hiring more staff just makes the spending problem – and the public perception of waste – worse.

I encourage you to serve your constituents responsibly by not raising WSSC rates for FY18.

Respectfully Submitted,

Susan LaCourse

 

WSSC Rates: Testimony by MCTL Member Ed Amatetti

Testimony of MCTL Member Ed Amatetti September 25, 2016, before a committee of the Montgomery County Council concerning an increase in water rates proposed by the Washington Suburban Sanitary Commission:

For nearly 15 years, I was an auditor and consultant to dozens of regulated utilities, and municipal and county  utilities, including as large as Cleveland, Providence, and the greater Oakland area.   My work has included rates.

The proposed rate increase should be denied unquestionably.  Rate increases far above inflation for 10 years running and a poorly designed rate structure are reasons enough.  But I want to focus on another compelling reason: that being, we still do not have a handle of WSSC’s cost structure, which determines the utility’s revenue requirements, and therefore, rates.  The Commission knows precious little about WSSC’s costs and whether WSSC is performing even the most basic utility activities at an acceptable level of efficiency.   This remains the case even after reading the recently completed, long overdue benchmarking study, which was poorly designed and did almost nothing to shine the light on costs or quantitative operational performance. 

Case in point: Montgomery Council member Leventhal is quoted as saying he and the Montgomery Council did not object to the rate increase “because of WSSC’s need to repair and replace aging infrastructure.”  But rather than an argument for a rate increase,this is a giant red flag and an argument for review of WSSC maintenance activities.  Infrastructure rehabilitation and maintenance should be part of a utility’s normal activities, and included as an ongoing line item in the operating budget each and every year for determining revenue requirements and rates.  Thus, we have a situation where WSSC is being rewarded with yet another rate increase and a new customer charge for not having kept up with maintenance and repair even while rates increased at three times the rate of inflation for 10 years running.

In the meantime, we know little about the miles of transmission mains inspected, rehabbed, or replaced each year or the costs of these activities, and how this compares to other utilities with similar size, age, and composition of pipe and corrosiveness of WSSC ’s water.  We know nothing about the number or percentage of valves in the system inspected or replaced each year, by size and age, or the costs per valve associated with these activities – and how these compare to other utilities.  Are there water treatment options that might protect the infrastructure better?   Same thing with activity after activity — none of which have been audited or reviewed properly. 

Then we have the $60M treatment plant expansion moving forward at a time water demand is absolutely stagnant.  The recent study did not even review cost-benefit justifications for the proposed scope of this project.   Why is this absolutely — because these facilities get added to the Rate Base and make future rate increases far more likely.

These are not specious or unwarranted complaints.  Without this type of cost data, a case for reducing costs cannot be effectively made and effective oversight of the utility is futile.   If the current rate request is approved, I question the value of even having a regulated utility at all.

 

“How to End the Monopoly and Recover the Money”

From Seventh State an article by Adam Pagnucco.about ending Montgomery County’s monopoly on liquor:

The County’s Department of Liquor Control “monopoly earns money for the county and the [County] Executive does not want to lose it…Through a combination of a few more stores, incremental revenue sharing with the state and restructuring of the liquor bonds, the county could free itself from its liquor monopoly with no significant financial consequences.  No new taxes or fees are necessary.  And the county would see the creation of new jobs, more income, more economic activity and greater competitiveness with its neighbors as a result.”

As always we invite your comments.

 

 

Maryland Homeowners Property Tax Credit Calculator

From the Montgomery County Civic Federation:

The State of Maryland and Montgomery County offer credits against a homeowner’s property tax bill if the property taxes exceed a percentage of homeowners gross income.  If your income was $60,000 or less in 2015, there is a good chance that you can cut your property tax bill by hundreds or thousands of dollars by applying for the Homeowners Property Tax Credit.

Every year, many homeowners who are eligible for the credit fail to apply because they either don’t know about the credit or don’t realize that the small amount of paperwork required to apply can save them hundreds or thousands of dollars.  This calculator is intended to spur homeowners to apply for the credit.  The deadline to apply is September 1, 2016.

“Is Maryland building ‘Cadillacs or Buicks’ for its new public schools?”

From the Maryland Reporter website of July 7, 2016:

“In a heated discussion with the head of the [state] school construction program, Gov. Larry Hogan and Comptroller Peter Franchot aired serious concerns about the state’s spending on public school projects at Wednesday’s Board of Public Works meeting.  “We can’t just keep shoveling more and more money without accountability,” Hogan said.  “The taxpayers are getting pretty frustrated with the results.”

Questions for Meeting of October 21, 2015

Questions sent to the speakers in advance of the MCTL meeting of October 21, 2015

Topic:   “Independent Transit Authority:  Financial Boom?  Or Financial Bust?”

Speakers:  Mark Winston, Chair, Montgomery County Transit Task Force
Rich Parsons, Member, Montgomery County Transit Task Force

1.  Affordability – Given (a) the huge construction and operating costs associated with the Purple Line, it’s not entirely a risk-free public-private partnership, and (b) the generally rosy cost projections at the beginning of such mega projects, can County taxpayers afford another mega project – the BRT and CCT – which will cost $2.2 billion in capital and $3.5 billion in interest in Phase 1 alone?

2. Borrowing Costs – Contrary to the draft report’s logic, debt incurred by the proposed Independent Transit Authority (ITA) would have a higher interest rate than that of the county and would be several percentage points above the state’s borrowing rate.  ITA debt would incur over $1 billion in extra interest costs, ironically reducing funds available for transit projects, and resulting in a frozen capital market if rates jump.  A state infrastructure bank would reduce interest rate risks and costs.  Do you agree?

3. Operating Costs – The proposed ITA will receive nominal revenues from operations (unlike the WSSC) and will depend heavily on undefined and likely unsustainable Federal and state tax revenues ($40M).  This could result in “going concern” issues during economic downturns.   Also, shifting current DOT costs to the proposed ITA would have to be offset by property tax credits to avoid using the ITA as an ATM to re-purpose current county revenues.  A state infrastructure bank could help smooth revenue issues during a downturn and avoid the need for a separate ITA bureaucracy altogether.  Do you agree?

4. Economic Development – Planned tax increases on top of the already high and growing county tax burden will undermine economic development.  Why increase local taxes when calculated state benefits are many times greater than those of the county?  Establishing a state infrastructure bank to finance the projects shifts taxes and risks to the state which has more control over taxes.  Do you agree?

5. Ridership projections – The underpinnings of arguments for the BRT have been glowing ridership projections.  However, the Institute for Transportation and Development Policy in its 2012 Market and Demand Study for the County concluded that the potential peak hour BRT usage on Route 29 is only 66% of the Federal Transit Administration’s minimum standard for BRT ridership.  Viers Mill Road and Rockville Pike peak hour demands are estimated at about 25% of the minimum.  Do you agree with these figures?  Is there a credible study of an urban area similar to Montgomery County that shows a sufficient number/percentage of motorists switching to a BRT system that would justify the enormous costs and accompanying tax increases associated with it?

6. Paying the Piper – Who should cover the costs of this large and ambitious venture?  The business community that will gain from it?  The residents along the route?  The riders who will use the BRT?  All the taxpayers of Montgomery County?  Also, who should be held accountable when costs exceed projections?

Next meeting: November 18, 2015