Guest Commentary: Marco Island Utilities rate recommendation ... Fair and equitable?

Most property owners on Marco Island probably know by now that the much-discussed water and sewer Cost of Service Study has been underway since the Consultant, Burton & Associates, was hired in December of 2010 and actually started their work in January 2011.

Over the years City Council, city managers, and city finance directors have all been involved in varying degrees with the rate structure for water and sewer from Marco Island Utilities.

On behalf of ourselves personally, and Marco Island Homeowners, we have a problem with the tentative rates that the consultant has come up with (and are posted on the city website) in the respect that if the rates as recommended are adopted it would result in an increase of a minimum of 20 percent for virtually every single family home, 40 percent for commercial establishments, and 43 percent for North Marco Utilities (homes and condos north of Pier 81), with concurrent decreases in combined water and sewer rates for both master metered and individually metered condominiums; these rates do not include the already instituted 10.5 percent increase this past October for the current fiscal year as well as the already-scheduled six percent for the next fiscal year beginning in October of this year.

When the cost of services study was initiated, City Council made it clear that the consultant’s role was to ‘determine the cost of service and implications for the rate structure for Marco utilities’ and make recommendations for a ‘fair and equitable’ approach. Although I’ve sat in for virtually every meeting that the Cost of Service Study sub-committee has conducted, I would not profess to remotely be knowledgeable about setting rates for water and sewer, but I do think I’ve heard enough to comment from the perspective of what is “fair and equitable,” one of the objectives of the study.

As brief as possible some background: the City bought the water and sewer system from Florida Water knowing that the system was in serious need of repair, upgrade, and probable expansion; at the time of purchase a cost of service was not conducted, rates were simply kept the same, despite a purchase price of some $100 million, and further, it was decided that there would be no rate increases for the first five years (although COLA adjustments were added). Along the way, City Council, without referendum, adopted the STRP program; at the time, almost 70 percent of the city had sewer service, however the bulk of the non-sewered 30 percent was predominantly comprised of 6,000 single family homes.

With the exception of those who have a certain type of septic system (who have upwards of 10 years to defer connecting subject to certain regulations), when an STRP District is completed, homeowners have one year to hook-up to the system, and three options to pay the $20,000 or so to cover the various costs, including either removing the existing septic system or taking the option to convert it to a cistern.

In early 2010 Council appointed an Ad-Hoc Committee to address the rate issues, which subsequently became the Utilities Advisory Board (UAB); the UAB worked with the then-City Consultant, PRMG for several months and presented their recommendations to council in June of 2010; council chose to not accept their recommendations and agreed in August to hire a Consultant, however in September Council subsequently voted 4-3 in favor of a “flat rate” for all classes of customers for sewer service while the Study was to be conducted.

In November the Cost of Service Sub-Committee was formed (four councilors and the chair of the UAB) to screen candidates for the consulting position, Burton was chosen in December and started in January. The sub-committee made it a point to not be a “steering committee”, opting instead to allow the consultant to choose their own methodology with reports back to and interactive sessions with the sub-committee. The consultant’s conducted a lengthy fact-finding session with City Staff; some might argue that the Consultant did not necessarily get “all the facts”, although not through any fault of staff, but rather there was some background information staff was unaware of.

The study has analyzed usage by customer class (single family, multi-metered, individually metered, commercial, irrigation, etc.) and produced rate recommendations based on their analysis. We believe that if the rates recommended are adopted they will not be “fair and equitable” simply because of the methodology used to arrive at the rates. Common sense dictates that you cannot purchase an asset for $100 million, not conduct any kind of rate analysis, put a rate freeze on for 5 years, and expect profitable operating results (although apparently Marco Utilities did have a $380,000 or so operating profit for fiscal year 2010 after the finance director first announced a loss of some $1.8 Million!); 70 percent of the Island was sewered before STRP, yet the 30 percent added users are paying almost 70 percent of the cost of the new sewer plant! When the water/sewer plan was replaced the new plant was sized based on the same water and sewer requirements for each residential unit, without regard to whether they were a single-family home, individually metered condo, or master-metered condo; this is not the rate structure now, nor is it in the consultant’s “Water and Sewer Rate Design Module” that is available on the city website.

The UAB had recommended a rate based on a simple two-part formula: first, all customer classes would pay equally the debt service for the water and sewer plants (as was originally intended) and secondly, a universal rate per gallon would be applied based on usage, again, for all customer classes. The rate recommendation thus far is simply unfair and not equitable.

Marco Island Homeowners has created a “Citizen’s Position Regarding Cost of Service Study” that concerned property owners can complete on-line by simply filling-in their name and address and it will automatically be sent to City Council. The “Citizen’s Position” is available to everyone, regardless of whether they are members or not on our website: marcoislandhomeowners.com.

Respectfully submitted.

Larry Sacher, Chairman

Ray Seward, Treasurer

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Comments » 11

ajm3s writes:

For those who missed the last MIH meeting, there was an interesting discussion of the impact of reduced watering of lawns. It was quite a calculus.

There was also an interesting side bar discussion, I had with regard to "capacity". In the calculus of rate structure Burton and Associates makes interesting notes. Such as creating "equivalents" in which Condos with a 4" line meter are assessed 25 units for billing purposes even though it may have 8X that amount in actual condo units. Or that reuse water has no significant associated cost since it is a byproduct of water purification. These are just a few of the assumptions used in creating a new and improved calculus to provide a "revised" cost of study.

Folks, the big gorilla in the room is the debt burden and what the city will refer to as "capacity". That the city must have available "capacity" to the public for the water demands of the public. And this is where the single family home gets the bulk of the burden, since I believe the debt and the capacity will fall to the SFR given the establishment of "equivalents".

I could go on and discuss how the sewer charges are then overlaid on this nice little assessment. All in conformance with AWWA standards that allow the creation of "equivalents" to be determined with such flexibility to allow redefining the calculus.

I wish I knew this stuff, but as I review the data to date, my eyes gloss over and I have to go to the bathroom.

All I can say, I thought capacity, was determined by pipe size, but for the AWWA is the "equivalents" derived from some interesting assumptions.

When you go to the next meeting, ask the rate creators, what happens if lawn watering were banned completely, how that would impact the rate structure?

Now, ask yourself, why the city petitioned and was granted allowance for a third day of watering? Was it to allow for potentially more nitrogen runoff and prop up a landscape ordinance for fertilizer control? For the greening of America to maintain the million dollar island image? Or simply to increase revenue with a new rate structure geared to promote the watering of lawns, and prop up the "capacity" calculus?

naples_rocket writes:

I live in the condo on an individual meter. There's just me and my little kid. Yesterday I received my bill. $126. This is just out of control!!!

JohninMarco writes:

in response to naples_rocket:

I live in the condo on an individual meter. There's just me and my little kid. Yesterday I received my bill. $126. This is just out of control!!!

Thank the city council and their 300 million dollar sewer bill. The condo association supported this fiasco and now its breaking all residents!

marco97 writes:

When the study looked at water rates I hope they took into account that the condos get a lower water rate when they water their lawns with reuse water. This option is not available to home owners who are forced to pay more to water their lawns.

marcofriend writes:

in response to ajm3s:

For those who missed the last MIH meeting, there was an interesting discussion of the impact of reduced watering of lawns. It was quite a calculus.

There was also an interesting side bar discussion, I had with regard to "capacity". In the calculus of rate structure Burton and Associates makes interesting notes. Such as creating "equivalents" in which Condos with a 4" line meter are assessed 25 units for billing purposes even though it may have 8X that amount in actual condo units. Or that reuse water has no significant associated cost since it is a byproduct of water purification. These are just a few of the assumptions used in creating a new and improved calculus to provide a "revised" cost of study.

Folks, the big gorilla in the room is the debt burden and what the city will refer to as "capacity". That the city must have available "capacity" to the public for the water demands of the public. And this is where the single family home gets the bulk of the burden, since I believe the debt and the capacity will fall to the SFR given the establishment of "equivalents".

I could go on and discuss how the sewer charges are then overlaid on this nice little assessment. All in conformance with AWWA standards that allow the creation of "equivalents" to be determined with such flexibility to allow redefining the calculus.

I wish I knew this stuff, but as I review the data to date, my eyes gloss over and I have to go to the bathroom.

All I can say, I thought capacity, was determined by pipe size, but for the AWWA is the "equivalents" derived from some interesting assumptions.

When you go to the next meeting, ask the rate creators, what happens if lawn watering were banned completely, how that would impact the rate structure?

Now, ask yourself, why the city petitioned and was granted allowance for a third day of watering? Was it to allow for potentially more nitrogen runoff and prop up a landscape ordinance for fertilizer control? For the greening of America to maintain the million dollar island image? Or simply to increase revenue with a new rate structure geared to promote the watering of lawns, and prop up the "capacity" calculus?

Your review of facts is very complete and very accurate. AWWA is an antiquated guide used by large municipalities and systems that would find it nearly impossible to get "pure" data. Being the standards are old, they don't fit our specialized community, nor give us the proper data.

The biggest problem is that we bought a utility that we could not afford, that was worn out by those who were on it for so many years and the STRP was implemented to pay for upgrading/upsizing a new system for future growth and canyonization of Collier Blvd. The SFH people are just the suckers who will pay for it.

Just charge debt reduction equally to all (including Condo units and not "equivalents") and then charge the appropriate price starting at gallon 1. If you use too much water, you'll pay a high price.

If the numbers presented by the consutants are accepted, watch the homeowners sell off and property values slide further. Then your tax rate will raise because the City and the County still want to spend more than they have.

......and that "free" reuse water that the Condo's, Residence Beach, and Hotels receive because the SFH has paid the price for creating it, will never be available for those homeowners forced on sewers.

Somebody has to pay for this mess and you can see where it is headed. Your elected officials don't give a blasted about about you. The train has left the station, but we now know who was right and who was wrong when they advised the community about the real cost of the Utility back in 2005/2006.

Fossil writes:

ajm, I agree with you on your analysis. Marcofriend, your account of our recent history is completly accurate and your conclusions are correct. It is obvious to me, that the same people who proposed the STRP are the same ones behind this study. The Chamber of Commerce. One thing is for certain, this study is NOT fair and is designed to put the Council back on track to skim the bulk of STRP costs directly from the homeowners.

happyhorowitz34145 writes:

ajm3s
Very well stated.
The City okays a third day of watering, so I decide that instead of paying twice for the water used on my lawn (Water in -Discharge rate out), I asked for a seperate meter to water my lawn.
Nope, no way,zippo, nada, nyet.

bigdog1970 writes:

Just asking.
What would happen if the 30% of the island now being forced into this STRP just opted for option three and didn't pay right away?
With all the renovations and expansions and the new proposed convention hall and the semi completed timeshare, the Marriott should have paid for half of the new sewerage treatment plant.

ajm3s writes:

in response to marcofriend:

Your review of facts is very complete and very accurate. AWWA is an antiquated guide used by large municipalities and systems that would find it nearly impossible to get "pure" data. Being the standards are old, they don't fit our specialized community, nor give us the proper data.

The biggest problem is that we bought a utility that we could not afford, that was worn out by those who were on it for so many years and the STRP was implemented to pay for upgrading/upsizing a new system for future growth and canyonization of Collier Blvd. The SFH people are just the suckers who will pay for it.

Just charge debt reduction equally to all (including Condo units and not "equivalents") and then charge the appropriate price starting at gallon 1. If you use too much water, you'll pay a high price.

If the numbers presented by the consutants are accepted, watch the homeowners sell off and property values slide further. Then your tax rate will raise because the City and the County still want to spend more than they have.

......and that "free" reuse water that the Condo's, Residence Beach, and Hotels receive because the SFH has paid the price for creating it, will never be available for those homeowners forced on sewers.

Somebody has to pay for this mess and you can see where it is headed. Your elected officials don't give a blasted about about you. The train has left the station, but we now know who was right and who was wrong when they advised the community about the real cost of the Utility back in 2005/2006.

Your last paragraph, says it all especially "about the real cost of the Utility".

What is really interesting, this plays out in almost every spending or expansion project on this island. The new Community Center, the recent tennis court repairs at the last council meeting and I could go on and on. All seeking funding for their essential needs.

This water/sewer rate review is a revelation to me in terms of how to skew the math. It is all in the definitions. And the AWWA has quite an interesting perspective with its table of equivalencies.

To Mr. Waldack, and all those that claim this is a special island, may I recommend we use engineering units to ascertain a fair and equitable rate structure.

Again, I ask if we were to eliminate (as a mental exercise) lawn watering with potable water, how would that impact your rate structure? Couple that with the cost of capital expenditures, (i.e. to meet capacitance) as a fixed cost to provide for a wide seasonal population shift. I believe the current calculus is flawed as proposed by Burton and Associates given AWWA standards and assumptions provided by the city. The current COS does not allow capacitance to be equitably shared amongst all usage classes as evidenced in AWWA's equivalents table showing pipe/meter size vs equivalent NOT actual dwelling units. And to carry this ratio throughout the process to establish apportionment of costs.

If I understand this table, it is a guide for billing purposes. Perhaps my problem is that I am looking for a mass balance equation for equitable rate structure, whereas a COS study is based on accounting principles and assumptions, of which I admit are foreign to me. But some assumptions really impact the structure and are not being challenged.

marco826 writes:

Somethings rotten in Marco. Water should be billed by individual use. This paid consultants plan to charge homeowners the lions share of water bills is insanity. You pay for what you use, equally. Please Council, common sense!

u2cane writes:

naples_rocket writes:
I live in the condo on an individual meter. There's just me and my little kid. Yesterday I received my bill. $126. This is just out of control!!!
.
That is nothing. Try being a homeowner watering only once a week and showering at the gym every day instead of at home and getting a $200 plus water bill.

There was an interesting article yesterday on yahoo about a school in Washington that was looking to go off the water grid. For health purposes they couldn't go completely off, but managed to do a pretty good job. The technology is out there folks.

Another problem with reuse water is that it cuts down on potable water demand, which the utility then has to flush the lines at times of low demand to keep residuals where they need to be so people don't get sick, and they end up using that water anyways. I'm sure we get charged for it down the line, but technically its water loss on the utility's part. Go to the end of just about any cul de sac and you will see a flushing station. It is necessary to keep our water clean and free of dbp's, but none the less it is water that is lost. I'm sure they charge that back to us in the rate.

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