SD1 Leader Defends Proposed Rate Increase at Covington City Hall
Two weeks after the Covington City Commission passed a resolution (by a contentious vote of 3-2) opposing proposed rate increases by Sanitation District 1, that organization's executive director appeared at City Hall to explain why he believed the increases were necessary.
David Rager began by thanking the commission for its resolution, "because it's very helpful to hear from the communities."
He went on to say that after reading the resolution, he found a number of inaccuracies within it, echoing the same claim made by Covington City Manager Larry Klein.
On the table are two possible levels of rate increases, one of 9% or one of 17%. The lower increase, Rager argued, would only service SD1's debt while the higher increase would allow for some new work to begin.
The resolution passed by the commission urged no increase at all.
Rager provided background on the issue.
He said that in 2001 the Environmental Protection Agency enforced action against SD1 for sewer overflow violations (SD1 took over municipal sewers in the region in 1995). The violations were causing sewage and waste to go into people's yards and streets.
Fines from the violations, Rager said, could be as high as $37,000 per day.
In 2007, SD1 entered into a consent decree with the EPA "to buy some time", but then the economy went south causing SD1's payment plan to be "unaffordable".
Rager said SD1 asked to re-negotiate the agreement with the EPA which triggered a series of meetings. He told the city commission on Tuesday that late last week the EPA agreed.
"(The EPA) finally concluded that what they are asking from us in Northern Kentucky is unaffordable," Rager said, adding that this was the first public announcement of that news.
Meanwhile, "(the SD1) board finds itself between a rock and a hard place," he said.
Between the $500 million SD1 borrowed from bond holders and the consent decree, "there's not enough money to pay for both."
"If we default on bonds our credit rating will tank and so will the communities in Northern Kentucky," he said.
City Commissioner Steve Frank told Rager that he spent the morning looking over SD1's income and balance sheets. "The costs don't seem feasible, $3 billion over the next thirteen years," Frank said.
Rager said a payment plan that was prepared was not feasible.
Frank, reiterating that a 9% rate increase covers bond debt while a 17% increase brings in an extra $15 million, said, "The net effect, you'll need $150 million in annual income to service that debt. You're talking a huge increase, a tripling, a quadrupling of people's bills."
At 9%, "There is no new development fund at that rate," Rager said. "That pays the debt and runs the plant that treats sewage."
Frank continued, "We have had worse direct effect of rain events than other communities. Even if we were to raise to 17%, it wasn't envisioning doing anything with our combined sewers."
"Those would be a long time coming," Rager responded.
Covington neighborhoods like Peaselburg that are often hit the hardest after large scale rain events are hoping for work to be done soon. The city recently purchased property in Peaselburg in anticipation of such work.
"We can't do Peaselburg at 9%," Rager said. "At 17% we would have latitude to help."
City Commissioner Michelle Williams, who introduced the resolution opposing increases at the previous meeting, asked if SD1 could cut operating expenses.
Rager explained that staffing is roughly 10% of SD1's budget and that there were few places to cut. Whereas a city (Rager was once city manager in Cincinnati) can cut jobs or services, SD1 doesn't share in that possibility, Rager said.
"We can't stop people from flushing their toilets," he said.
Frank argued that taxpayers would be looking at their monthly bill increasing from $40 to $120.
Rager said that increase would come over time. "We have a high number of people on fixed income and we need the EPA to understand," Rager said. "What I'm trying to do is not default on the bonds and I have to provide the services."
Williams remained skeptical. "So are you asking seniors to skip a meal to help pay the bonds?"
City Manager Klein said that Covington taxpayers find themselves in a pickle. No one wants to pay a higher rate but there are several projects going on here, he said.
Debate moves to Commissioner's Facebook page
Commissioner Frank later posted his analysis to Facebook which got a response from the mayor of Ft. Mitchell. These comments are transcribed without alteration or corrected spelling or grammar.
"Where things get major league ugly is that beginning in 2015 and picking up enormously after that, SD1 would be required to be spend $3 BILLION Dollars to meet FULL COMPLIANCE. The cost tom borrow and sustain that much debt would cost the rate payers at today's low interest rates about $150 Million dollars per year to service. Given that interest rates may rise back to more normal levels during the construction which goes out to 2027...debt service could easily be $200 Million dollars per year.
OK math students. What should the annual rate of increase be in sewer rates be if an 8% increase raises only $5 Million dollars in year one if you need to have at least $150 Million rolling in year 14? You can mail in your best guess.
The only good news I can tell you is that the EPA is allowing SD1 to enter a conversation about perhaps lengthening the time horizon to get the work done. that is new news revealed at tonight's Covington Commission meeting. Go to the head of the class if you think that slowing the work down might lower costs in early years but make them ultimately higher in the out years."
Ft. Mitchell Mayor Chris Weist doesn't buy it. "Steve, that is a load of garbage, and I am sorry you are drinking the cool aid," Weist wrote. "SD1 chose to enter into the current agreement with the Feds. That agreement calls for SD1 to eliminate sanitary sewer overflows and dry weather combine sewer overflows by 2025. Since entering into this agreement, the markets and economy have taken a hit. In my view, allowing a client enter into the decree without some sort of reopener for significant rate increases borders on legal malpractice. Putting that aside, for a moment, numerous local government agencies have gone back and extended deadlines. Ideally with EPA on board, but over EPA's objection if necessary. SD1 told the Kenton county mayor's group on Saturday that they submitted cost info in 2009, and have not heard anything back from EPA. Time to go back to federal court and extend the deadline. This, in essence, is like an interest free loan and it results in not gouging the rate payers. Several SD1 board members have offered a number of efficiency cuts, which do not affect critical operations. Those cuts have not been adopted. I am sorry, but for years SD1 has played scare tactics with public officials and the public and conveniently pointed the finger at the federal government, when it was SD1 who signed onto the consent decree and SD1 that has failed, to date, to go back to court to extend the end point compliance date. You missed a 30 minute back and forth between Mr. Rager and I last Saturday at the mayor's group, but the bottom line that came out of it for me is that these rate increases are not necessary and SD1 has not taken affirmative steps that it can take to lessen the impact on ratepayers. You are a math guy, and I am a guy who practices a lot of environmental law, regularly fights the EPA for clients, and knows when a public agency is snowing the public."
Frank responded, "Chris, Im not drinking Kool Side. I do math for fun and profit. I also have a cousin who is a US attorney in DC who does DOJ and EPA work. All reopening gets you is an extension of time to comply if it is granted. Nobody is getting an "Oh we were just kidding". Did you really believe an Obama EPA would change it's spots? I think we are letting the perfect become the enemy of the good when it comes to the environment. The public cannot afford these costs for only marginal benefits. If I was in charge I would not be approving the full extent of the consent decree. That said if you go not care if SD 1 defaults on it's debt, give it no increases. Clearly they can before to run down reserves and delay capital costs, but that only lasts so long. Their long term debt, electric, chemicals, and other costs that they cannot avoid is over 65% of their budget. They have to have a base level of personnel to treat waste. When you net it out, about 10 to 12% of their 90 million dollar budget may be tweaked. Their costs are going to rise ,3 to 5% each year. They could go 2 maybe 3 years before they start canibalizing. They will default on their debt in about ,6 to 8 years. Math isn't political. It is what it is. I like doing it myself rather than choosing to take people's word for it."
Written by Michael Monks, editor & publisher of The River City News
Photo: SD1's David Rager speaks to Covington City Commission on Tuesday/RCN