Does the Present Structure Render Water Ballot Measure Meaningless?

Water Rates Would Increase Regardless of Vote Outcome – So far the bulk of the criticism of the city’s surface water ballot initiative by Bob Dunning and others is that the water rates are not on the ballot.

That may not be the only, nor the biggest, flaw with the current ballot schedule, a schedule that has the ballot measure voting close  on March 5, but the Prop 218 rate process close later in March.

The Vanguard has learned that because the Prop 218 process is separate and distinct from the ballot measure, the water rates that would be approved through the Prop 218 process could be placed into effect by the council regardless of the outcome of the ballot measure.

While the city undoubtedly would lower the maximum rates if the ballot measure fails, the voters will have little say over what the eventual rates are other than through a Prop 218 process that remains largely flawed.  As we will show, this runs contrary to the intent of the referendum that qualified for the ballot back in October 2011.

Davis Enterprise columnist Bob Dunning has correctly noted that when the voters cast their ballots, “we won’t know the actual cost to us, individually or collectively, of this very expensive project because that information will not appear anywhere on the ballot.”

The city has provided the counter argument that the Prop 218 process will be concurrent with that of the ballot initiative and that, while the rates will not be either approved or protested, the voters will know what the rates are well in advance of the voting close date of March 5

As we wrote previously, the Vanguard agrees with Mr. Dunning’s view here, that it is problematic that the voters will not know the rates prior to their casting their votes, and that that situation was created because the council chose to listen to legal counsel on the timing of the electoral ballot measure, while seemingly disregarding the timing of the Proposition 218 process.

The problem of rate transparency pales, however, when compared with the political problem that the city now faces,  because legally there is no direct linkage tying the Prop 218 process to the voter initiative.  That means if the voters vote down the surface water project in early March, but the Prop 218 process is approved – as it almost invariably will be given the high hurdle a challenge faces – the rates still could go into effect, rates whose financial underpinnings are based on incurring the capital costs of the surface water project.

The council will no doubt point out that the Prop 218 process only sets the maximum rates for a five-year period and that if the surface water project is rejected by the voters, they will need a rate hike that will be lower than the Prop 218 set maximum, and that implementing a rate hike that is below the maximum will not violate the letter of the law.  That is strictly true in a legal sense, but we seriously doubt it is true in a political sense.

Councilmember Rochelle Swanson told the Vanguard, “What I believe is being misinterpreted is that the rates would simply move forward without analysis. That is simply untrue.”

“Staff will be working on laying out what those costs will be should Measure I fail, in addition to laying out other additional costs and fines related to discharge permit issues,” she continued. “I would anticipate we would be assessing rates in relation to the well system. I believe it is imperative that the City be transparent and clear that we now must raise rates to even maintain basic infrastructure.”

At the same time she noted, “It would be unfair for citizens to believe a no vote on Measure I means their rates will not increase.”

“In the unfortunate event Measure I does not pass, we will have to proceed with plan B. If the upcoming 218 fails, we will have to go through another process as we do not have the necessary revenue to cover the costs of a new project or a rehab of the current system,” Councilmember Swanson said. “Staff has assured me they are working on this information as well.”

While there is little doubt that the council will tell public that they need to trust the council when it says that they will not go forward with the five-year rates hikes approved by the Prop 218 process absent the surface water project, the political problem with such a “trust us” statement is that council, city staff, and the WAC have all made it clear that water rates will go up regardless of the outcome of the March 5 vote.

As City Manager Steve Pinkerton points out, “We face significant expenses whether we do the water project or not.”

At a recent council meeting, Herb Niederberger estimated that rates would increase roughly 62% even without the surface water project. “Even if the City does not participate in the surface water project, the WAC was informed that rates could still increase from approximately from $34 to $55/month by 2018 (a 62% increase). The water utility is currently running at a deficit due to the deferral of rate increases scheduled for 2011. In addition, with the loss of a viable surface water supply, the City will still be obligated to invest in additional groundwater production facilities and infrastructure as well as demand side management tools to meet consumer demands.”

The opposition to Measure I will surely take full political advantage of the disconnect between what Mr. Niederberger testified and the council’s “trust us” statement.

Mr. Niederberger’s testimony clearly says that the question is not whether water rates will go up after the passage of the Prop 218 rates, but rather a question of  how much they will go up.

“You first have the notice and the notice has max rates,” Mr. Pinkerton told the Vanguard.  “Once the council meets post-March 5 election, they’ll actually be setting new max rates.  Those max rates will either be based on a project with the surface water project or without.  The max rates will be significantly lower than the max rates that were in the Prop 218 notice.”

“Our recommendation for the ultimate max rates will be based on what happens with the ballot measure,” he continued.

Mr. Pinkerton argued that you could not keep the Prop 218 prescribed maximum rates if the project failed.

“It’s a utility, if you end up with a surplus of funds, you have to reduce the rates,” he said.

The question we then posed to the city manager was what happens if the project is approved and by the time the bids came in, the project far exceeded previous projections.

Mr. Pinkerton did not believe this was a likely scenario.

“If it came to a point where the bids were too high or let’s say the financing market drastically changed, we would have to do a new Prop 218 notice,” he said.

But this is precisely the problem that opponents and skeptics of the ballot structure fear – the fact that because they rates are not tied to the ballot, all they would have to do is another Prop 218 notice rather than go back to the voters for approval.

“It’s like anything in the political process, you can send out a new Prop 218 notice every six weeks if you’d like and make a moving target,” he said.  “But I think that’s why you spend all of this money doing due diligence.   All you can do is minimize the chance that that would happen.  There are no guarantees in life.”

“I think it’s highly unlikely given the level of due diligence that we’ve performed,” the city manager reiterated.

The Vanguard believes that this is a potentially devastating political error that goes far beyond the disconnect between trust in the council and the realities outlined in Mr. Niederberger’s testimony, in that it renders the original purpose of the qualified referendum effectively null and void.

The clearly avowed purpose of the referendum was to allow the voters, many of whom were excluded in the Prop 218 process, an opportunity to directly vote on the water rates.

Language signed by the petitioners was: “We hereby protest the adoption of Ordinance Number 2381, adopted by the City Council on September 20, 2011 (attested on September 22, 2011) and request that Ordinance Number 2381 be reconsidered and repealed by the City Council or that it be submitted to a vote of the People of the City of Davis at the next regular election or at a special election called for that purpose pursuant to Cal. Elec. Code section 9241.”

Ordinance No. 2381 amended Chapter 39 of the Davis Municipal Code Related to Water Rate to increase the Base Rates and metered Rates.  It was introduced on September 6, 2011 and adopted on September 20, 2011.

By simply putting the matter of the project on the ballot, with a separate Prop 218 process for the water rates, the intent of the signers of that referendum is negated.

Critics like Bob Dunning will argue that this is a meaningless election because the critical factor is the water rates, which will not be tied at all to the ballot result even if they are known at the time the voters cast their ballots.

As we argued last week, the city’s primary concern is one of timing.  By moving the election to May, they could avoid this problem.  The Prop 218 process would at that point be completed, and then the rates would  either be ratified or rejected by the voters in the May election.

We fully understand that the issue of timing is a thorny issue.  Woodland has made it clear that if the city delays their vote again, they are willing to go it alone, but Woodland will be facing that reality anyway if the Davis ballot produces a negative outcome.

In addition, City Manager Steve Pinkerton argued in November that a two-month delay would delay the project by a year.

When the Vanguard pressed Dennis Diemer to explain why Davis could not move the vote from March to May, Mr. Diemer responded, “If Davis were to change the vote from March to May there would be insufficient time for the DBO teams to prepare priced Proposals and award the DBO contract in September. As I mentioned at the Council meeting on Tuesday night, the procurement schedule has  been compressed and adjusted two times to accommodate the time Davis needs for its decision making,”

As we argued a few weeks ago, we believe there is probably more wiggle room on that time line than Mr. Diemer was willing to offer.  He clearly was playing it safe and is thinking inside the box.

We continue to believe, based on his answer, that there has to be some leeway from a mid-April completion time to a May election, and that a delay would not cost the one year that is estimated by Mr. Pinkerton.

Another idea is for the city to put through an ordinance binding the Prop 218 process to the ballot measure.

Steve Pinkerton was not so sure this was possible.  “We always caution that you have to not to mess with the Prop 218 process,” he said.  “I’m sure there’s a way to write it, but it’s very tricky given the independence process.  The same reason we don’t think you can referendum a Prop 218.”

So why can’t you write an ordinance that binds the Prop 218 to the election results?

Mr. Pinkerton argued, “I don’t think you can do that with a Prop 218.”

But we are not so sure, because all the ordinance would have to state is that the council could not act on the Prop 218 to write the rate ordinance absent a positive ballot result.

The bottom line here is that we believe there is considerable risk in running the campaign as presently structured.  The idea that the ballot measure is window dressing for the real Prop 218 rate process is one that could easily be exploited by the opposition.

—David M. Greenwald reporting