Montgomery County Taxpayers League

The Voice of Taxpayers of Montgomery County, Maryland

Maryland

Questions for meeting of May 16, 2018

Topic:  “WSSC and its Financial Future”

Speaker:  Joe Beach, Chief Financial Officer, WSSC

                         Free and open to the public

The following questions have been sent to the speaker in advance of the meeting:

1.  What criteria does WSSC use in its decision-making process given the need for new pipes, old pipe repair and replacement, processing facilities, IT investments, etc. especially as WSSC is reaching its debt limit and thus must carefully set priorities for capital spending while maintaining quality and service levels?

2.  We understand the approved capital budget for WSSC includes a $250 million project to build a new anaerobic sewage treatment plant at Piscataway for bio energy.  While WSSC policy does not require that a return on investment justification be provided for projects, do the economics of this project justify this large expenditure of $250 million?  Or could the sewage be more economically transported to Blue Plains for processing.  The documented business case dt. 6/21/12 does not address this option.  Alternatively, are there other projects with a higher return on investment that have not been approved?

3.  Debt service is the largest driver of WSSC’s budget and is projected to hit 40% of its total expenditures in 2023.  We also note that the “new debt” projections for FY 2019, 2020, and 2021 jumped from:
In fall of 2014 (FY 16 budget): $327 million, $278 million, and $219 million for a total of $824million
In fall of 2016 (FY 18 budget): $505 million, $510 million, and $429 million for a total of $1.44 billion
In fall of 2017 (FY 19 budget): $558 million, $562 million, and $545 million for a total of $1.67 billion
New debt projections for the next three years have doubled. Could you address this?
4.  Debt shows big drops in FY 22 and 23 for new water and sewer debt issues.  Is this realistic?  Are the projections based on current known costs with no contingencies for unknowns.  Does this assume that there will be no change to the water loss rate which was 17.9% in 2016 and for sewer line infiltration of 40%?

5.  With the new rate structure, will the highest tier (the rate paid for practically all of the water used by the largest accounts – hotels, NIH, UMd students), meet the Public Service Service Commission’s (PSC) criteria for non-discrimination? Also would let’s say anything over $17.00 per kgal be unjustifiably high and thus not meet the PSC criteria?

6.  We also note a rate increase jump to 6% from 2020 to 2023.  Since presumably this will be determined by the size of the CIP, the operating budget, weather events, interest rate for debt issued and change in the number of customers, it is also obvious that the first two are well within the control of the WSSC.  Will the PSC weigh in as to whether such an increase is reasonable?  How often has the PSC done so in the past?

7.  The negative expenditure adjustments that begin in 2020 appear to be an artifice to make the debt service coverage ratio work. Is there a more rational explanation for this?

8.  The expenditure increases in the fiscal plan assume no new hires (except for attrition).  Are the collective bargaining agreements negotiated by the union affordable?  By how much will these increase the budget?  Also are the health and retirement benefits of WSSC employees similar to those of Montgomery County Government employees?

Next meeting:  TBA

Questions prospective voters could ask candidates for county and state office.

Many voters have asked us to come up with thoughtful questions that they could ask of candidates for local and state offices.  Too often we hear the same promises of greater support for schools, better transportation and lower taxes.  But very little is said about how a candidate intends to achieve these goals.  Our questions below are designed for voters to ask candidates directly so they can get a specific answer as to how the candidates intend to fulfill their promises.

 

County Level:

1.  Now that debt service accounts for 10% percent of the county budget and is for all intents and purposes at its ceiling, how would you address school construction needs?

2.  The Department of Liquor Control is run by the county government and handles the purchase, warehousing and sale of liquor bringing in $28 million in revenue in a $5.5 billion county budget.  Do you believe that the county government should employ 442 county staff and cover their salaries and benefits or does this function belong in the private sector?

3.  The County Executive’s budget proposal for FY 2019 gives the school system $2.59 billion of which $19 million is over and above the mandated Maintenance of Effort level.

–  Do you believe that the school system, while it describes how it will spend the increase, should also show how the increase will produce results?  How would we know that such results have been achieved?

  • 45% of the MCPS budget is overhead (non-instruction), Should MCPS cut overhead costs before it gets an increase in county funding? By how much?
  • Public school budgets are created by non-elected public employees without formal input from the taxpaying public.  What would you do to make the taxpayers feel more confident that the schools are spending their tax dollars wisely? Is it time for an Inspector General for MCPS that would look not only at waste, fraud and abuse but also at program performance?

4.  According to Maryland’s State Department of Assessments and Taxation, there were just 19 new filing for new businesses in Montgomery County in FY16. In the year before there were 57 new business filings in the county. What specifically would you do, at the county level, to encourage business growth in Montgomery County?

5. In addition to reduced income tax forecasts, recordation/transfer and energy taxes are forecast to be lower than expected over the next 5 years.  What are some of the programs or services where you would reduce spending to balance the budget?

6.  County employees will get a 2% cost-of-living increase along with a 3.5% “step” increase in FY 2019.  Do you believe this comports with wages in the private sector in Montgomery County?

7. It has been said that collective bargaining gives unions an unfair advantage in arbitration, leading to pay raises way above market and the highest paid employees in the region.  Would you support changing the arbitration rules? Also would you support more transparency in collective bargaining negotiations so that the public is aware of the “going in” positions of labor and management and is allowed to express their opinions at a public hearing before the agreement is finalized?

8. County income taxes have varied significantly from forecast for the last 2 years.  Property taxes are less volatile, but stagnant, and subject to Charter limits.  Would you support increasing property taxes on home improvements by treating them as “new construction” and thus gaining more for the county in property taxes – without Charter limit restrictions? In other words, do you support the inequity of property owners of unimproved properties supporting those who have made major improvements to theirs?

9.  WSSC, the largest monopoly in the state of Maryland, has prepared a six-year fiscal plan that requires 6% rate increases to maintain the debt service it has accrued to meet its net revenues.  WSSC also has ad valorem taxing authority to raise county property taxes. What oversight would you propose to make WSSC an efficient and effective monopoly to avoid these annual rate increases or even an increase in property taxes? 

10. What specific experience do you bring to the office to which you wish to be elected which demonstrates your development or implementation of a program in the public sector.

State Level

1.  The Maryland State Retirement and Pension System has $20 billion in unfunded liabilities.  The last time the State fully funded the system was in 2000.  Further, the State pays $500 million a year to financial management firms to manage pension investments at no higher a return than low-cost index funds.  Should we continue to pay out $500 million a year to these firms?

2.  For every $1 that Montgomery County taxpayers send to Annapolis, we get 20 cents in return in direct aid.  Howard County, a wealthier county than ours gets 24 cents on every dollar.  How would you get us, at least, to Howard County levels?

3.  Our delegates to Annapolis inform us, every year, that they have passed a “balanced” budget.  True, in one sense.  However it excludes long-term liabilities which in pensions alone exceed 10s of billions.  How would you provide transparency in budgeting?

4. According to the State Department of Assessments and Taxation there were just nineteen new business filings in Montgomery County in FY16.  In the year before, there were 57 new business filings in the county.  What specifically would you do, at the state level, to encourage more business growth in the county?

5. Would you support Maryland Public Service Commission oversight of the WSSC, the largest monopoly in Maryland? Would you support privatizing the WSSC?

6. Do you favor the modernization of the state’s laws governing breweries? Breweries—most of which are small businesses—are limited to 2,000 barrels of beer they can sell to visitors in their tasting rooms. They can sell an additional 1000 barrels but only by adhering to a “buy back” provision requiring that they sell the extra beer to a distributor and then buy back their very own beer. This puts our breweries at a competitive disadvantage regarding surrounding states and hinders job growth and the concomitant increased tax revenue.

State Report Blast Dept. of Assessment and Taxation

A just-released 49-page fiscal compliance audit report on the operations of the State Department of Assessments and Taxation (SDAT) has found the state is foregoing millions in property tax revenue because of inefficient assessments.

“According to DAT’s records, only 275,461 of the 676,066 residential real properties (that is, 41 percent) that were to be reassessed during the 2015 assessment year received an inspection of any kind….DAT estimated that the use of oblique aerial imaging for real property assessments across the State should result in increasing the assessable base statewide by as much as $1.4 billion.”

Maryland is one of only two states in which property assessments are done by the state; in all others it is done by the local jurisdiction.

Improved Properties Are Not Being Reassessed Properly

Unimproved property taxpayers are subsidizing more expensive, improved property owners.  How big is the under-assessment problem?  A 2017 report estimates that Montgomery County’s residential property assessment base would be $2.7 to $3.6 billion higher, resulting in an additional $140M in annual property tax revenue.

Read the report by Gordie Brenne and Carol Placek

 

 

Accountability in Education Act: MCTL View

 

Testimony sent to the Senate Education, Health and Environment Affairs Committee

SB 302 – Accountability in Education Act of 2018

February 8, 2018

The Montgomery County Taxpayers League supports SB 302 – but with major reservations. The premise of the bill makes eminent good sense – the establishment of an Investigator General (IG) at the state level. No such investigatory body exists at present and oversight suffers. However, there are some problems with the bill.

  1. We do not see the need – nor the expense – of setting up a whole new commission with all its trappings to select the IG and to whom the IG will report. We have a State Board of Education that could very well fill that role. The Educational Monitoring Unit could be housed either in the Maryland State Department of Education or could be situated within the State Board with the investigative and analytical functions listed in the bill.
  1. Other than sub poena powers, we are not sure as to why many of the other functions are not currently being performed by the MSDE or through the oversight of the State Board.
  1. How will the functions of this new entity comport with those of the various boards of education in the state who currently perform many of the same functions. Will IG decisions over-ride personnel decisions protected by local collective bargaining agreements? Will corrective actions mandated by the IG be funded by the state?
  1. Will it benefit the Investigator General to support the establishment of inspectors general in the larger school districts? Should local jurisdictions elect to do so, will the state fund the establishment of these positions?

It appears to us that the premise of the bill is worthwhile; the creation of yet another free-floating commission is not. The tightening of oversight is worthwhile; the overreach in some of the functions is not. And lastly, though the bill does not intimate it, the establishment of inspectors general in some school systems would strengthen local oversight – and lighten the work load of the proposed Investigator General.

Joan Fidler, President

Montgomery County Taxpayers League

 

“Will the Montgomery County delegation fight for us?”

From “The Seventh State“:

“In 2010, almost all MoCo state legislators promised to oppose a shift in their election campaigns.  But just two years later, Governor Martin O’Malley proposed a partial pension funding shift, backed by both the Speaker and the Senate President, and most MoCo lawmakers voted to support it.  The cost of the shift to the Montgomery County Government increased steadily from $27 million in FY 2013 to $59 million this year, with $6 million offset by the state….. MoCo taxpayers get back just 24 cents for every dollar in taxes they pay to the state.  The state average for all residents is 42 cents.”

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.