Last week nearly every elected Pinellas County Commissioner voted to continue to raise water and sewer rates every year to needlessly build government bank accounts. The rate hikes, which began every year since 2011 and for several years before that, will continue every year for the foreseeable future. The latest round of rate hikes will amount to a 7-30% increase in the cost of water and sewer bills between now and 2019. The result will be a water department reserve bank account that more than doubles and a sewer department reserve bank account that quadruples. Currently Pinellas County Utilities department has 46% of their annual expenses in the bank: $82.82 million! They just approved to keep 75% of their total annual expenses in the bank PLUS their monthly revenue from bills (50% for Water and 100% for Sewer). Only Clearwater based Republican commissioner Dave Eggers voted against the rate hikes.
In 2012, the county commission voted to raise water and sewer rates annually to achieve reserve fund levels at about $20 million and $17 million by 2022 – while actually building it ABOVE that to $82.82 million total. Last week, the Commission voted to arbitrarily raise the reserve levels to $40 million and $64 million by 2022 – which will be added to carry-forward reserves to reach about $125 million total in the bank! This is a clear change in previous policy which targeted reserves at about 2.5 months for operating expenses and 5% of gross revenue for equipment – that would be about $20 million at most. In addition reserves cover debt payment, but the water department has no debt at all. This means that, on the backs of water and sewer customers – people with no legitimate choice for their service – the government bank accounts will double and quadruple.
About 20 citizens showed up to complain and not one citizen or group presented themselves to support the rate hike. Yet still the rates still went up. The commissioners offered invalid excuses such as planning for future catastrophes or protecting bond ratings. The staff stated they just had “always wanted” more money in the bank. It was made clear that the consultants’ own recommendations to the commission, and historic county policy was for reserve levels at much lower levels than finally approved. Yet the commissioners still agreed to the massive increase in their bank account balances. One wonders how the slush funds will be used.
Here is an evaluation of the phony facts, assertions and the politics.
Protecting Bond Ratings – a False Claim.
The paid consultant from Burton and Associates weakly asserted that the bond ratings could suffer if the reserves weren’t increased. This is the same company that uses faulty numbers and projections for its current recommendations. However, he refused to acknowledge that the consultant’s own report indicated that with prior reserve level they had a “good” Bond rating (pdf page 19 of 2015 report). The commission supplicated to the faulty assertion by the consultant that the Standard and Poor’s was changing their bond rating mechanisms and that higher reserves may be needed. He never outlined any details on that in the 2015 Consultant’s report – seeming to pull it out of a hat at the last minute to provide political cover for the politicians. As it turns out, Standard and Poor’s themselves say that the expected changes will not affect 75% of bonds they rate and of the remainder, 12.5% would improve and only 12.5% would be downgraded. Moreover LESS than 12.5% of public and sewer and water debt will be affected negatively. Here is how Standard and Poor’s describes the coming changes.
“…roughly 75% of our more-than 1,500 ratings in this sector will remain the same if we adopt the criteria revisions. Of the remaining 25% of ratings, we are likely to see an even split between upgrades and downgrades, and nearly all will be no more than one notch. We don’t expect any rating to shift to speculative-grade status from investment-grade status, or vice versa. We view this sector as relatively safe and stable, and most of our ratings are in the ‘A+’ and ‘AA-‘ categories. Moreover, because several very large issuers dominate issuance in this sector, we expect the criteria changes to affect ratings on less than 25% of the par value of public water and sewer debt now in the market.”
The current rating of Pinellas County bonds is AA – the second highest. Even with a theoretical downgrade, which is unlikely, it would go no lower than an “A” at which point a change could be considered. (“A” means “Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances.”) Perhaps cutting spending in the department would be a good place to start so the annual expenses would be lower. But that would mean addressing the continuously bloated union pension and benefit plans.
Planning for catastrophes – A False Claim
The commissioners gladly accepted the political cover that having the money in the bank would help them replace any damaged equipment or pipe from an unexpected disaster, such as a hurricane. However, they did not discuss how the county has insurance that pays the cost of equipment replacement. In addition the county has hundreds of millions in total reserves elsewhere it can use as needed in such an event (to add to the $82.82 million currently in the bank!)
The “Just Cuz” excuse – Maintaining cash flow at all cost.
Prior to the Commission meeting, Sunbeam Times founder and editor Dr. David McKalip discussed the new proposed reserve levels with the OMB staff person for the Pinellas County Utilities Department. Linda Benoit, of the Office of Management and Budget, advised that in the past the reserve levels were far lower. She indicated that never before had a request been made to change policy to get the reserve levels higher. In addition there was no interest expressed in a higher reserve level until it was clear it could be achieved with higher rates around January of this year. When asked why the higher reserve levels were being supported, Ms. Benoit simply indicated “we have always wanted reserve levels to be this high”. She explained that it would ensure good cash flow if a major catastrophe hit and water and sewer revenues dropped as people stopped paying bills. If people leave the county, she explained, then they wouldn’t have enough money to pay their staff. When asked if perhaps the county should cut their staff and expense in the event there is a drastic drop in demand in this scenario, no real response was offered. The fact is that if a catastrophe hits, there will still be large numbers of people paying their bills and $82.82 million to draw on. Hardly a disaster scenario financially.
It is thus clear that the Pinellas county government, and its utility department would just “feel better” if they had big bank accounts – even if it means cutting the bank accounts of the customers they serve. It doesn’t seem to matter that the citizens will have to “feel worse” in the process.
Most Democrats and Republicans Betray their Principles
At the meeting, Dr. McKalip pointed out to them that this was the chance for them to stand up for the Party principles that helped get them elected. The four Democrats on the commission are Janet Long, Ken Welch, Charlie Justice and Pat Gerard. They were asked if they would act as they promised and “stand up for the little guy” so they could have an affordable life in Pinellas County. They clearly chose to raise the cost of living for the little guy so the big government could have even bigger bank accounts. The three Republicans are John Morroni, Karen Seel and Dave Eggers. They were asked if they were now willing to demonstrate that they really supported lower taxes and smaller government. Only Eggers had the courage to vote “no” while Seel and Morroni continued to show their progressive, RINO colors of voting for another massive rate hike. While all offered excuses about how they were protecting the financial stability of the government – they did not face the fact that these were false claims, smoke and mirrors. They also did not address how it acceptable to grow government bank accounts while the citizens became poorer and forced to struggle even harder.
Government corruption keeps growing – time for a water bill boycott?
It is quite clear that the government wants more of your money – even when they don’t really need it. It is clear that the government will be able to leverage these large bank accounts to issue more bonds so they can bring in even MORE money in the future. That means taking out loans (bonds) that will place the taxpayer on the hook for the interest. This will create more government feel-good projects and create an ever growing, stratospheric, teetering house of cards the taxpayers must eternally support. In addition, there will surely be many hidden entities in the background benefitting from the bond financing (e.g. Raymond James and their ilk), as well as government programs and “infrastructure” projects” (e.g. entitlement crowd and cronies). The only solution is for the people- the ones who actually built the government and lend their authority to it –to withdraw consent. That means refusing to re-elect these arrogant politicians. That may mean conscientious objections of simply not paying the water and sewer bills. Maybe that is an idea whose time has come.
By the way, the 24 municipalities, the County government, PSTA, Fire districts and the school board are all set to raise property tax revenues this fall.