Faulty Forecasts, Targets and Overfunding are Basis and Pinellas Utility Rate Hikes.

The Pinellas Board of County Commissioners is set to consider approving a water and sewer rate hike for over half a million customers on Tuesday night in Clearwater. (Rate hike meeting at 6 pm, 5th floor, 315 Court Street).  The BOCC will base their vote almost exclusively on a paid consultant, Barton and Associates. The Sunbeam Times began analyzing excess reserve fund growth in part last week. Now, the Sunbeam Times has obtained documents showing that the consultant has made faulty cost projections in the past. Further, the Consultant is basing the rate hike on a major over-funding of reserve funds that is well over the policies of Pinellas County Utility department itself. Further, the BOCC has not been presented with any options for cutting costs in the water department. Based on the faulty analysis and poor track record of the county’s hired consultant, and the opportunity for government spending cuts, the BOCC should delay any approval of a rate hike until they have fully analyzed this information.


Over ten years, an excess of $98 million is planned to be transferred to the R&R fund for water, about twice the required amount of about $49 million. (That required amount is also artificially inflated by the planned rate hikes!)

Given the utility department seeks about $8.65 million additionally each year from rate hikes, there is no reason to put that much extra money in that one reserve fund alone!


Barton’s Faulty Projections Water use projections

The 2015 Burton Rate Study  shows that there is a planned decline in water use by 12.5% from 2016-2019, the term of the planned rate hike. However, Barton has been off on these projections before and the rate of water use is an important factor in setting rates. For instance, in the 2012 Rate Study , Barton projected a -1.3% drop and no change in retail water use from 2013 and 2014 respectively. Yet the water usage rate went up in 2013 and down  in 2014 (table). The wholesale water projections (that sold to other cities like Clearwater) was also off. They had projected a -12.9 and then a -12.0 drop in 2013 and 2014 respectively, but the actual change was +1.5% and -0.4% respectively.

Now Barton is projecting a 0.2% increase per year in total water demaind from 2016-2024. Yet, from 2007-2014, the rate dropped anywhere from -2.4% to -7.2% every year except in two years (+2.0 in 2013 and +4.9 2011). So the utility rates are recommended to increase based on increased water use for the next 10 years, while history has shown decreasing water use as the population has decreased and conservation measures are in place. (see page 10 of 2015 report). 

Retail water projection vs actual Projected(page 23, 2012 study) Actual(Page  59 2015 study)
2012 n/a -4.8
2013 -1.3 +2.0
2014 0% -3.8

 

Wholesale water growth projection vs actual Projected(page 23, 2012 study) (Page  59 2015 study)
2012 NA  -11%
2013 -12.9 +1.5%
2014 -12.0 -0.4%

Barton’s Faulty Capital projections off – by $28 million!

In 2012, Burton projected a Deficit of (-)$12,679,937 in cashflow for 2014 for the unrestricted capital reserve fund (page 60 2012 report). However there was actually a $12,596,995 surplus in the same fund. Thus the projection abilities of Burton in this important cash flow was off by $25.28 million! (page 55 2015 report). Their 2015 projection was also off by $3 million with about a $3 million actual shortfall, versus the $6 million projection shortfall in the 2012 report.

Moving and over-shot Targets.

moiving water fund targets

Figure 1. Water reserve funds are projected to grow over target. The R&R funds TRUE growth is not shown. Finally the “Target” MOVES! in the “combined balances”. This is some odd accounting on which a county commissioners to base a rate hike. They need to pause and evaluate the numbers.

According to Burton and associates graphics, the targeted reserve amounts are well over what is needed. The Utility department has set a target of 2.5 month’s worth of annual Operating and Maintenance (O&M) cost as their reserve target. That would mean about  $14.44 million in 2016 based on a O&M expenses of $69.2 that year. Yet the Burton analysis shows that the O&M reserves (for water) would be funded at about $30 million that year, more than twice the required amount.

The R&R (renewal and replacement) is designed to keep the water system up and running. It is designed to be funded at about 5% of annual gross revenues. Thus the R&R funding should be at about $4.5 million per year. But the Burton analysis shows the annual planned transfers to the R&R fund (water only) to be about $11.5-$21 million annually. Over ten years, an excess of $98 million is planned to be transferred to the R&R fund for water, about twice the required amount of about $49 million. (That required amount is also artificially inflated by the planned rate hikes!)  Given the utility department seeks about $8.65 million additionally each year, there is no reason to put that much extra money in that one reserve fund alone!

 

moiving sewer fund targets

Figure 2. Sewer reserve funds are projected to grow over target. The R&R funds TRUE growth is not shown. Finally the “Target” MOVES! in the “combined balances”. This is some odd accounting on which a county commissioners to base a rate hike. They need to pause and evaluate the numbers.

Finally, Burton and associates themselves admit that the reserve funding is way over target. They also do not properly describe the planned R&R contributions in their report to the Board of County Commissioners. Figure one is extracted from page 34 of the 2015 rate study. It shows the water portion for O&M (“unrestricted reserves”) going well over the target. The R&R does NOT show that the planned contributions will be will over target. Then, somehow the target is moved to a higher level on the “combined” graph. The same phenomenon occurs for the Sewer reserves (figure 2 -page 62 of the rate study), although those numbers still have not been analyzed in detail by the Sunbeam Times.

Board should PAUSE on planned sewer and water rate hikes.

This reports shows that the Board of County Commissioners are being advised to raise sewer and water rates based on the recommendations of a consulting firm with a clear track record of poor forecasting. Further, Barton has not accurately described the reserve fund targets versus actual contributions and uses excess amounts in reserve funds as a basis of proposed rate hikes.  Finally, there does not appear to be any attempt to evaluate the actual spending on staff pay and benefits or to look for other cost cutting measures by the utility department or the Board itself. The planned increase in staff and benefit costs is 4.3% per year for ten years.  Why? Given the questions raised here, it would be wise for the Board of County Commissions to postpone any rate hike in water and sewer rates until they fully evaluate these reports and the underlying assumptions in the consultant’s report.

 

 

 

 

 

 

 

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