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Water-sewer rate changes fail — back for reconsideration

Posted: June 26, 2013 - 4:56pm
Photo by Michael Armstrong, Homer News
Land’s End chief financial officer Josh Garvey testifies on water-sewer rates at the Homer City Council.

To an observer at Monday night’s Homer City Council meeting, it might have looked like a tennis match between Maria Sharapova and Serena Williams as action on  proposed changes to the water-sewer rates bounced back and forth. When the dust had settled, the council struck down the proposed rate changes — for now — but along the way made these decisions:

• After finance director Zhiyong “John” Li pointed out a budget shortfall if the proposed sewer rates stood, the council in a 3-2 vote, with council member James Dolma absent, failed to postpone action. Council members Barbara Howard and Beau Burgess voted no. Under council rules, four votes are needed to pass a motion.

• On motions by Burgess, the council in a 4-1 vote, with council member Bryan Zak voting no, passed amendments raising the sewer commodity rate to $.0147 a gallon and the lift station commodity rate to $.0218 a gallon.

• On a second vote to postpone action to Aug. 12, the council voted down the motion, again with Howard and Burgess voting no.

• On a vote to amend made by Burgess to add a 4 percent surcharge to cover water and sewer system depreciation costs, the council voted 3-2, with Burgess and council member Francie Roberts voting no.

• Finally, in a vote on a resolution incorporating the proposed rate changes as amended, the council in a 3-2 vote defeated the resolution, with council members David Lewis and Zak voting no.

In literally a last-minute action at the end of the meeting, Lewis, as the prevailing, or no party, in the vote on the water-sewer rates, asked for reconsideration of the resolution. The council will act on that at its next meeting on July 22. That means the rate changes have another chance to be considered and commented on.

If the council agrees to reconsider, it could take any action on the resolution, including further amendments or postponing action. In effect, by moving for reconsideration, Lewis made postponing action on the resolution happen anyway.

The proposed rate schedule uses a cost-causer, cost-payer model that charges all customers a per-gallon fee for water and sewer use. It also assesses additional fees for users in areas that have lift stations, such as the Homer Spit, and users that increase the demand on sewer treatment, such as restaurants. That fee is called the biological-oxygen demand, or BOD fee. The schedule was developed over the past year by the Water-Sewer Rate Task Force, an ad-hoc committee created by the council to re-examine rates.

The confusion over the water-sewer rates began at the worksession at 4 p.m. when new finance director Li, who recently replaced former director Regina Mauras, revealed a discrepancy in a new analysis. The sewer charges on a per-gallon basis that could be captured by billing are less than the actual gallons entering the sewage treatment plant. The system can only capture 25 million gallons in billing when the projected actual discharge is 107 million gallons.

“Our revenue system is getting a wee short of what’s happening,” Li said. “That’s the problem I found.”

Li calculated the fiscal effect would be a shortfall of $244,000 under the proposed rate changes.

City Manager Walt Wrede explained the discrepancy by saying that there are “in flow” issues with the city sewage system. The system takes in storm drainage on top of actual household and business discharge. Water gets into the system because of leaks in the storm drainage system as well as some buildings directing rain runoff and sump pump drainage into the storm system. More water is going into the treatment plant than is billed for. 

Li said to recover those costs, the proposed rate model would need to be increased from $.0132 to $.0147 a gallon — from $13.20 to $14.70 for 1,000 gallons — for the regular sewer commodity and from $.0172 to $.0218 — $17.20 to $21.80 for 1,000 gallons — for the lift station sewer commodity fee. 

For big users like Land’s End Resort, a frequent critic of the proposed water-sewer rate changes, based on 2012 usage of 2.8 million gallons, that’s an increase of about $12,800 with the amended lift station sewer fee. Land’s End chief financial officer Josh Garvey said that by his calculation, with the rates as amended Monday, Land’s End total water and sewer bill would be $23,000 more than its 2012 bill.

“This is really nothing more than an anti-business policy,” Garvey said in public testimony. “It’s trying to masquerade as something that’s fair and equitable, but it’s really trying to take away from the business community.”

Li also presented a chart looking at actual customers and their water usage. The biggest increase would be for high-volume customers who would now pay a lift-station commodity fee. For example, a customer using 2.4 million gallons a year and on a lift station would see an increase of $19,000 a year. Customers with similar volumes but not on lift stations would see annual bills about $2,000 higher.

The biggest savings would be for customers in the 98,000 to 240,000-gallon range, who would see annual bills decrease from $4,000 to $3,200. The break-even point is about 2,400 gallons a month, Li said. A customer who uses 29,000 gallons a year would see no increase in an annual bill of about $960. 

Mike Dye, Land’s End chief executive officer, criticized how the Water Sewer Task Force reached its conclusions. He said the task force should have hired a consultant to help it come up with a rate schedule.

“They have not had the resources to deal effectively with this complex subject,” Dye said.

Garvey and Kachemak City Mayor Phil Morris urged the council to postpone action on the water-sewer rates because of the latest change to the rate fees. 

Roberts cited this testimony in supporting a move to postpone.

“I think they are correct,” she said. “John (Li) brought us more information that changed the whole structure.”

Burgess defended the work of the task force.

“The information they relied on would have been the same information a contractor would have relied on, because it was from the city,” he said.

After the meeting, Garvey said he was disappointed in the failure to postpone action.

“I was shocked that after the city finance director clearly illustrated that the proposed rate model was based on faulty assumptions and would leave almost a quarter-million deficit in the budget, certain council members disavowed any responsibility for their broken rate model, proceeded to arbitrarily raise rates to compensate for their error and then tried to rush the newly amended ordinance to pass without any further public discussion,” he said.

While he voted against postponement, Burgess said he calculated that the vote would come up for reconsideration anyway.

“My feeling was not to ram anything through or slip something in at the last minute,” he said. “Quite the opposite: it was to move the process forward.”

Dye took offense at a comment Burgess made at the end of the meeting. Burgess said that if you accept the idea of a commodity based model, a consultant would have come up with a similar rate model unless a large special-interest bribed the consultant to come up with a different rate schedule.

“I am confident that I have developed an honest reputation doing business in Homer over the last 18 years. Council member Burgess’s arrogant suggestion that we might bribe a third-party firm proves to me that he is not suited to the council and is representative of his approach throughout this process to steamroll alternative viewpoints,” Dye said.

Burgess said he didn’t mean to say Land’s End would bribe a consultant. “It was, ‘Why are you so big on this idea of hiring a third-party consultant unless you’re attempting to influence the model?’” he said.

If the proposed rate model passes, it would mean a cost savings to 75 percent of the users, Burgess said at the meeting.

“If you’re a small business, this plan is for you,” he said. “I really think we owe it to the citizens of Homer to agree on models in advance, and not let it be derailed by misinformation or the interests of a particular group.”

The vote to reconsider comes up at the beginning of the council agenda at its next regular meeting starting at 6 p.m. July 22 at Homer City Hall.

Michael Armstrong can be reached at michael.armstrong@homernews.com.

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