Tucson Water customers, especially those outside of the city limits, won’t catch a break if the utility’s proposed financial plan is adopted by the City Council.
At the same time, the development community would get a pass, albeit a tiny one.
On Feb. 23, the City Council is scheduled to consider Tucson Water’s financial plan for the coming fiscal year. That plan includes an overall, average rate increase of 9.7 percent, including the imposition of in-lieu property tax on the utility.
Tucson Water director Jeff Biggs told the Citizens’ Water Advisory Committee (CWAC) last week that including the in-lieu tax was a recommendation of City Manager Mike Letcher’s office.
That recommendation certainly isn’t surprising; the city is facing a budget deficit exceeding $20 million in its general fund for the next fiscal year, even after making draconian cuts—and the new property tax that would be passed along to Tucson Water customers would raise an estimated $1.6 million to help offset the red ink.
In short, the tax wouldn’t do anything for water users other than raise their rates, but it would help out the city’s general fund.
As an enterprise utility—which means it should cover its costs with its own revenues—Tucson Water in the past has been exempt from paying property taxes on the property that it controls. However, the City Council has the legal authority to levy the tax inside the city limits.
If the city indeed does that, utility bills would be increased by just less than 1 percent to cover the tax, estimates say. All Tucson Water customers—both inside and outside the city limits—would see the increase. (The rest of the proposed average increase—amounting to an 8.7 percent boost—is slated to cover Tucson Water’s increasing costs.)
“Is it this board’s position to recommend a tax to benefit the city’s general fund?” CWAC member Jim Horvath asked at the meeting. “How we are getting into the city’s budget is beyond me.”
CWAC member Martha Gilliland refuted that statement. “I’m not in agreement that it’s not our role to help out (the city),” she said.
CWAC member Mark Taylor said: “The city is transferring (its budget) burden to its county customers. We need to say we don’t agree and don’t think they should pay (the tax).”
However, in the end, CWAC easily endorsed the financial plan with the in-lieu property tax included.
If the City Council agrees to the in-lieu property tax, it will only be after a series of reversals and alterations on the part of Tucson Water and the CWAC. The first switch occurred in the background material provided to CWAC on the tax. A year ago, Tucson Water staff informed the committee: “Our research indicates that no other major municipality in the state of Arizona imposes an in-lieu-of-property-tax on a municipal utility.”
This year, however, the staff corrected itself: “Our research indicates that one major municipality in the state of Arizona, the city of Phoenix, imposes an in-lieu-of-property-tax on a municipal utility.”
In fact, according to a spokesman, Phoenix has levied the tax for at least 20 years.
A year ago, the committee unanimously recommended the in-lieu tax without much comment. This year, however, there was lively discussion in opposition. In February 2009, the City Council adopted a Tucson Water financial plan with the in-lieu tax included, but prior to implementation, the council dropped the tax.
The fairness of forcing the town of Marana and Pima County residents who happen to be Tucson Water customers to help bail out the city’s general fund is one question the City Council will have to consider. Another question: Should a similar in-lieu property-tax levy be imposed on the city’s two other enterprise operations?
The Environmental Services Department levies a monthly fee of $14.50 to pay its costs. According to its director, Andrew Quigley, the possibility of imposing the in-lieu tax on his agency has been discussed.
“Most of our real property was bought with general-fund money,” Quigley indicates, “and nobody wants it.” As a result, its value for property-tax purposes may not be substantial.
That isn’t the case regarding the city’s third enterprise fund: golf. The vast expanse of open space provided by the city’s five courses could be worth quite a bit for property-tax purposes.
Despite that, Fred Gray, director of Tucson’s Parks and Recreation Department, says the in-lieu tax proposal hasn’t come up regarding golf courses.
There’s one final reversal that has impacted Tucson Water’s financial plan. Before the committee was presented with a draft of the document a few months ago, the committee reviewed a proposed increase in what are known as “miscellaneous fees,” and approved revising them upward.
After that vote, Tucson Water staff members met with representatives of the development community to discuss raising these fees. “Their concerns,” CWAC members were told last week, “were over pipeline-inspection fees.”
As a result of that opposition, and because of the relatively small amount of additional revenue that would be generated, CWAC members rescinded their earlier position, so the fees will stay the same.
The question now: What will the City Council decide on Feb. 23?
This article appears in Feb 11-17, 2010.
Has anyone actually looked at the water department budget? As the water department says, it is now supposed to be self-sustaining and function exactly like any other business. Unfortunately, that never has been true and we’re going to see the situation continue to get worse with this latest increase. When businesses don’t have the funds, they reduce costs (like marginally effective or unnecessary employees — even many good and talented people). A business must live within its income. However, the water department tells us that they will save money by “not filling vacant positions.” At least that’s what they say in their radio commercials. “We’re working harder without as many people so please be patient with us when you call for service. To save money, we’re not going to fill our vacant jobs.” What kind of reverse logic is that? In other words, they don’t cut staff. They simply raise additional funds to pay salaries. That’s management? Additionally, their internal “office supply and services” expenses would bankrupt a “regular” company. But that isn’t changing, either. In fact, many of their expenditures are hidden in “lump sum” line items with labels that are indecipherable unless dismembered piece by piece and that is only possible if you’re actually in the budgeting process in the water department. Citizens aren’t. The budget is presented to the council and they merely say, “yes.” But these numbers aren’t scrutinized by the citizens who will be effected by these price increases. If the average citizen could see these costs they’d go ballistic and insist on somebody being accountable for these expenditures before rates are allowed to rise. In fact, many of the water department’s internal processes and services also are in direct competition with local businesses and the additional costs to maintain the first-class internal functionality is unbelievable. Instead of buying these goods and services from local companies who really need the money, the water department has built an advertising and communications capability that is first-class — one that a water department really doesn’t need and shouldn’t have. It’s interesting to note that it’s not called “advertising,” it’s called “customer education.” Doing their own radio and television commercials, brochures, collateral materials, etc., has become too much fun to turn over to local professionals so they simply keep those funds to themselves. When they run out of money, they just raise the rates to do things that a water department sholdn’t even being doing. And our local businesses go hungry. Additionally, managing and enhancing these internal “office supplies and services” requires staff not used in the normal water department processes. More costs. If they eliminated the tools used to create the “educational materials,” they also could eliminate the staff and all support mechanisms that then would no longer be required. Shouldn’t that be a first-step before raising rates by ten cents on each dollar? With the rate adjustments EACH YEAR for the past several years, this new one is a killer! And, with the present non-management philosophy, there will continue to be rate increases in the forseeable future. Why?
Years ago, our water department created and ran an extensive advertising program year after year called “Beat the Peak.” Our department head, and even the mayor, had fun and laughed and joked in television commercials paid for by the taxpayers. The people in Tucson responded and saved water extraordinarily well. Yet, the water rates went up. Why? The water guru said that the rates had to go up to pay for the department’s personnel and operating expenses because the use of water had gone down so dramatically that sufficient funds weren’t being generated to meet operational costs. How novel. Use went down, yet costs went up to support the existing bloated internal structure. A Catch 22! They raised the rates to pay their existing expenses rather than reduce the size and cost of the business to accommodate the efficiencies they spent hundreds of thousands of dollars on advertising to create. And here we are again. When will someone go inside and tear out the wires holding this department together? Where is the accounting oversight? Where is the management? Everybody talks but nobody has the talent to run this thing like a real company. When does the taxpayer get the professionalism that he’s paying increasingly larger sums of money to create?
The high operating costs are the result of a ancient infrastructure, not office supplies. Expect these costs to escalate in the future.