If the water issue has been Davis’ Soap Opera, its closing act may have been last night. Following a 5-0 council vote to ask the staff to bring back a Prop 218 process reflecting 87-13 water rates, Michael Harrington was his usual coy self, declining to make any direct comment about the evening’s events. Several councilmembers also declined to comment.
However, there is sufficient circumstantial evidence to believe that Mr. Harrington (among others) helped engineer the majority council vote on the condition that there would be no further legal action, and that the new water rates will be allowed to take effect following the Prop 218 process.
Mayor Dan Wolk made the motion for adoption of an 87-13 rate as follows, “Consistent with Article 10 of the California constitution my motion would be two parts. First, we would adopt an 87-13 rate structure with uniform tiers by class. Second, We implement a drought surcharge.”
Any drama, about how that motion would fare, ended immediately when Rochelle Swanson and Lucas Frerichs instantly offered simultaneous seconds. Rochelle Swanson’s was accepted as the official by the mayor.
The language of the motion built on a point made by Herb Niederberger during the staff presentation. He recommended that, if the council adopted either the 70-30 or 87-13 structures, they include the following language, “Consistent with Article X of the California Constitution, the City is electing to recover more than 60% of the costs from the volumetric rate. This is to provide additional incentive to encourage conservation and discourage the waste or unreasonable use of water is Davis.”
After making his motion, Mayor Wolk stated, “I think I have been motivated on two things. One is finding a fair and viable rate structure and the second is honestly trying to find a global solution to this water issue. I feel that an adoption of a rate structure 60-40 does not address really either of those. It doesn’t appease a large group of our community and I think there is a real fairness issue about that 40-60 rate.”
Between the staff presentation and Mayor Wolk’s motion, Matt Williams (perhaps for the final time) argued for the 87-13 proposal. However, there was a critical difference this time, as he was finally able to use assumptions established by Bartle Wells in terms of conservation and usage patterns.
Mr. Williams, during his presentation, argued that the 87-13 achieves a number of important goals for our community.
- It honors the democratic process.
- It comes closest to “charging everyone the same amount per gallon used” and thus satisfying most citizens’ fairness standards.
- It provides a solution to the community’s long-running water disputes, and
- It achieves equity at a far greater level than the 60-40 or 70-30 alternatives.
He argued, “It never puts the water district in a position where it cannot pay its bills… its revenues are never less than the water district’s costs.” He added, “With the Reserve Fund and revenues protected by the provisions of the Revenue Stabilization Surcharge, Mark Northcross should be able to procure the best possible financing.”
The point made by Matt Williams and others is that 87-13 is not an experimental rate. San Francisco and Palo Alto are at 90-10, Arcata is at 87-13, Santa Rosa, Anaheim and Santa Ana are at 85-15, Santa Barbara, San Diego and Hayward are at 84-16, and Ventura is at 82-18.
In his presentation, Herb Niederberger presented the following information that he had received from Mark Northcross the NHA Advisors, “Most California water utility rate structures generate between 30% and 50% of their water sales revenue from fixed charges. Some utilities do use rate structures that generate as little as 10% of their water sales revenue from fixes charges. However, due to this larger than normal reliance on volumetric revenues, these more volumetric rate structures are considered by the rating services to be more subject to volatility and uncertainty in actual revenues received.”
They added, “Accordingly, they negatively influence the actual rating the utility would receive on any publicly offered water revenue secured debt. Applying this experience to the City of Davis’s proposed water rate structure alternatives, we believe that the 13% fixed rate alternative would most likely result in a rating downgrade of one notch, from A+ to A, for example.”
NHA Advisors concluded, “This would add under current market conditions anywhere from 15 to 25 basis points to the interest cost of the City’s bonds (0.15% to 0.25%). It is possible that by mandating more actual cash reserves (rate stabilization fund) in the bond legal documents, that the rating downgrade could be eliminated, but no assurances can be provided in that regard.”
Councilmember Swanson later noted in her comments that part of the reason why some people saw this rate proposal as experimental was that instead of simply referring to it as “an 87% Variable and 13% Fixed rate” we referred to it using people’s names. She said, “Even if we do 13-87, we’re not doing something outside of the box. I think maybe we have done ourselves a disservice by adding a level of complexity by calling it by the proposers’ names. It was well intended, but probably we shouldn’t have done it.”
She emphasized that point by stating that just because we do not use the specific numeric assumptions of Matt Williams and Donna Lemongello, “the philosophical reasons for going to 87-13 hold strong. I think that’s where there’s confusion for some of it being experimental because we’ve assigned a name to it. When they talk about equity, they are talking about the split.”
Herb Niederberger responded to the Swanson comment by stating, “We used all the same assumptions (for the rate comparisons), it’s just the revenue split (that’s different).” He added, “The 87-13 that was analyzed behaves very similarly to what Matt and Donna had done.”
Lucas Frerichs in support of the motion stated, “The reasoning for supporting the proposed rate structure this evening, if we have a high fixed meter rate charges, we really are heavily penalizing low users. If we are to adopt a high meter size fee without tiers the city would have imposed the ultimate anti-conservation rate.”
He said he appreciates the work that was done by staff and their consultant, “but I respectfully disagree with the staff recommendation and will be supportive of the 87-13 rate scenario.”
Brett Lee was more cautious when he stated, “We hired experts to hire expert advice and we are free to do what we please. I think that we found ourselves in this situation because we ignored the expert advice in the past.” He added, “I am a little apprehensive about the additional costs of financing potentially. I am apprehensive about the potential increased likelihood of a lawsuit. I guess we’ll just see what happens.”
However, during public comment, it was many of the members of the Yes On Measure P committee … people like Sue Greenwald, Pam Gunnell, Don Price and others …who pushed the council towards 87-13 because they felt it represents an acceptable compromise for people who had opposed the water project and the previous water rates.
In addressing Brett Lee’s point, Rochelle Swanson would note “The unique position of governing is that you hire the best that you can that gives us great professional advice. Then the policymakers have to make a political calculation with the best information possible.”
She added, “I don’t think this community has the stomach for more litigation and more issues on this.”
In the end the council voted 5-0.
In other water-related issues, while council met in closed session on the YRAPUS lawsuit, nothing was reported out. However, it is our belief and understanding that shortly this historical part of the water controversies will also all go away, and that the water project will now be able to proceed.
Can the city get the low interest revolving loans? That remains to be seen.
—David M. Greenwald reporting