February 19, 2011

This column was printed in the Scottsdale Republic on February 17, 2011:

Recently this newspaper editorialized I was fully behind hiring a consultant to study Scottsdale’s water rates because I believe the city charges residents too much. I actually have little interest in hiring a consultant. What I do want is to have an open and full discussion of our city’s water and wastewater rates which, as the editorial correctly notes, I believe are too high.

Here is the problem. Almost all big cities treat their water and wastewater systems as “enterprise funds,” separate from the “general fund” where tax dollars are received and spent to run the day-to-day business of the city. The supposed purpose of these “enterprise funds” is to make municipal utilities financially self-supporting.

However, the real purpose of “enterprise funds” is to allow city management wide discretion to collect money and to use these “enterprise funds” as piggybanks to fund more spending than the city’s tax revenues alone would support. For instance, a tax increase requires voter approval, but water rates can be increased by a simple majority vote of a City Council! City management can then siphon some of this extra money into the general fund through a variety of mechanisms such as in-lieu property taxes and inflated overhead charges for city services to the “enterprise funds.”

Some cities are even more brazen in using “enterprise funds” to support off-book spending. In response to the economic downturn, over the last two years we in the City of Scottsdale have dropped 287 employees from the city payroll. In contrast, last year the City of Phoenix avoided laying off 165 city employees by transferring them from the general fund into the Water Department. In order to pay for these employees (plus another 98 employees they plan to transfer this year) the City of Phoenix Water Department is asking their customers for a $22.9 million rate increase! A $22.9 million tax increase would have to go before the voters for approval and would no doubt, in the current economic and political climate, be defeated. But a $22.9 million water rate increase can be approved by a simple majority vote of the Phoenix City Council! Phoenix residents can thank Councilman Sal DiCiccio for shining the light on this situation and trying to put a stop to it.

The good news is that we in Scottsdale are taking concrete steps to correct this problem in our city. Last year, at my urging, we defeated an increase in Scottsdale’s water rates, reduced the overhead charges to the water enterprise fund and directed staff to phase out in-lieu property tax charges to our enterprise funds.

My goal is to use the upcoming discussion of water rates to establish the true cost of providing water and wastewater services and then to adjust our rates to cover these costs (plus a reasonable amount for reserves) without overcharging our residents. When we eliminate unnecessary in-lieu property tax charges, inflated overhead allocations and excessive reserves, I have no doubt we will be able to lower our water rates.