Monday, April 26, 2010

North Canton Should Rethink City’s Water Policy and Restructure Water Rates

Prepared Comments Made to
April 26, 2010

North Canton’s current water rate structure has become outmoded and is counterproductive in serving the needs of its customer base and in generating needed revenue to pay down the indebtedness of the water fund. I say this because there are some puzzling questions that arise as one studies the city’s water rate structure.

First, why do water rates increase as consumption levels increase for all water users except Aqua Ohio? Wouldn’t this tend to discourage water consumption by these water users who are paying higher water rates than Aqua? If anyone is unfamiliar with the city’s water rates, I should refresh your memory. Residential users, inside the city, pay $4.60 and outside $8.66 per thousand gallons for the first 15,000 gallons of water. Water usage above 15,000 up to 30,000 gallons rises to $5.27 inside and $9.28 outside.

Why does the city discourage higher levels of consumption for residential users who are already paying considerably more than any rate you ever expect to charge Aqua Ohio or any other bulk user? If your goal is to sell more water and bring in more revenue, the current rate structure is counter-productive and limits revenue for the water fund.

Inside and outside residential and business water rates need to be restructured to facilitate greater revenue to the water fund.

Before the city expanded its raw water capacity and its processing production, I surmised that the rate structure was designed to discourage water consumption and stretch limited water resources. The present water agreement with Aqua Ohio seems to indicate that raw water capacity and processing capacity are now of no concern to the city. If that is entirely true, water rates need to reflect that change in policy.

What is the goal of the city’s water policy? Do we want to encourage consumption or discourage consumption? Are you trying to ration limited resources? Water rates affect people’s behavior and thus consumption.

In regards to the Aqua Ohio water agreement, I must ask why the city wants to exhaust the newly added capacity of our water system? To promise two-thirds of the city’s newly added capacity in one gulp could find the city over-committed on water sales when it least expects it and long before the indebtedness of the water treatment plant is paid down?

My second concern regarding the city’s water rate structure is the bulk rate charged to Aqua Ohio of $1.52 per thousand gallons. This water rate defies logic when looking at water rates for all other businesses.

Prior to water sales outside the city, a bulk water rate applied only to bulk sales in the city. The bulk water rate charged to a high-volume business in the city supported jobs in the city from which the city received added income to the general fund in the way of income taxes. Selling water outside the city at a hugely discounted rate in bulk returns nothing to the city’s general fund. There is no added benefit for the city.

The city is not supporting jobs by selling water in bulk to Aqua Ohio. Why is the city interested in such an arrangement?

Clearly, bulk water rates outside the city should be looked at and priced much differently than bulk water rates inside the city.

At last weeks Council of the Whole meeting, the latest draft of the new water agreement with Aqua Ohio limited annual rate increases for Aqua to 3 percent per year for the ten-year term of the agreement. That proposed commitment to Aqua is just as fiscally imprudent as promising all remaining rate payers that same promise.

If you cannot make that same commitment to your constituents who vote for you and the citizens who are responsible for the indebtedness of the bonds on the water treatment plant, why would you make a commitment to Aqua Ohio, a public utility whose only interests are its water customers and its stockholders?

Whose well-being and interests are you putting first?

I would urge this council to table any further action on the Aqua Ohio water agreement until a complete assessment of the city’s water rates is completed and new rates are implemented.

Further, I would like to encourage the city to look closely at the city’s water production costs on page two of the Arcadis Water Study. The city’s water production costs are all over the board, ranging from a low of $5.55 per thousand gallons to $10.45 per thousand gallons. Wide fluctuations in water production costs as detailed by Arcadis are not reality. If these figures are true, practically all water being sold by North Canton is being sold at a loss.

It is common knowledge that water funds must be kept separate from all other fund accounts as water is an enterprise fund. In order to have accurate information on water production costs, only actual expenses directly related to water production should be allocated to water costs.

Rumors abound from several sources that the current administration is using creative budgeting and bookkeeping to charge the water fund a percentage employees payroll expenses to the city’s water fund. I fear something is going on as water production costs in the water study vary wildly and are clearly excessive.

Drinking city water out of a city water fountain does not warrant charging that employee’s expenses to the water fund. I have heard these reports from several reliable sources. If these reports are true it is very unfortunate. Fiscal crisis is apparently leading to desperate actions on the part of the administration.

Creative accounting is simply going to lead to confusion and disaster and put the water fund in the same fiscal crisis that we now are facing with the city’s general fund.

I would urge that an independent auditing agency, preferably, the state auditor audit the entire water fund to give city officials and the public reliable data from which future decisions can be made with confidence on how best to set water rates and water policy.

Thank you,
Chuck Osborne
Resident, City of North Canton