Q&A
Debate over water rental payments and water system bond ratings
5:46:47
·
5 min
Council Member Brannan and Director Jiha engage in a detailed discussion about the reinstatement of water rental payments and their impact on water rates. Jiha defends the decision as necessary given the city's financial situation, while Brannan expresses concern about the impact on ratepayers.
Key points:
- The city has reinstated water rental payments, which had been eliminated in 2017
- The Water Board is proposing an 8.5% increase in water and sewer rates, the largest in 14 years
- Jiha argues that only 2 percentage points of the rate increase are due to the rental payment
- Brannan questions the necessity of extending the payments into future fiscal years
- There is disagreement over whether the city is subsidizing water ratepayers or vice versa
Justin Brannan
5:46:47
I have a lot more, but I wanna give my colleagues some time.
5:46:50
I wanna talk about the water rental payment and the water system bond ratings.
5:46:55
Preliminary plan included a return of a water rental payment, which after much work by the prior prior administration had been eliminated in 2017.
5:47:04
The return of this payment will require the water system to divert funds from its own operations and debt service to pay the city for things completely unrelated to the delivery of clean water.
5:47:15
The preliminary plan included the receipt of 440,000,000 in rental payments from the water authority over f y 24 and 25 as a way to close the city's budget gap.
5:47:25
The executive plan subsequently added over $300,000,000 in payments in each year from 26 to 28.
5:47:32
In effect, it appears that this administration is proposing to make the rental payments permanent.
5:47:37
At the same time, the Water Board is proposing an 8 a half percent increase in the water and sewer rate, which would make it the largest rate increase in 14 years.
5:47:47
Funds to pay the rental payment must come from higher water rates or from existing resources, which could be used to reduce the need for the water rate increases.
5:47:55
So if the water board was not required to remit the rental payment to the city, how much lower would the water rate increase be for f y 25?
Jacques Jiha
5:48:05
I just want to, clarify one point because, the city issued debt, okay, to acquire the, the watershed.
5:48:16
And, and we expect to pay debt service to cover those bonds.
5:48:21
In addition, we pay for services like police, fire, and sanitation.
5:48:27
So it's not like, you know, they're not getting.
5:48:30
This is properties of the city that is leased to the water authority for 39 year.
5:48:35
We have a lease in place.
5:48:36
For 35 years, the city has collected those rental payments.
5:48:40
Okay.
5:48:41
It's only when the city's financial situation was very, very well, was very good that, the mayor decided to basically provide subsidies to, the water, to, water consumers.
5:48:57
So so I just wanna make sure we we understand this piece.
5:49:02
From our perspective, the based on our calculation, it's only 2 percentage points of the 8.5% is would be as a result of the, rental, payment.
5:49:14
We expect the, water rate to increase by $8 which is about $2 of those $8 would be because of the rental payment.
5:49:24
So the large part, the large segment of, the, stat subsidy goes to which landlords, not to the average person who's paying who's gonna pay only $8 as a result of the increase.
Justin Brannan
5:49:40
The the the general obligation debt that the rental payments were designed to cover is almost gone.
5:49:46
Is that
Jacques Jiha
5:49:46
No.
5:49:47
No.
5:49:47
Not not yet.
Justin Brannan
5:49:50
Alright.
5:49:50
One could make the argument then that the reinstatement of the rental payment was an extreme step taken to meet the balanced budget requirements for f y 24 and 25, but the city is not required to balance the out years.
5:50:01
So then why did OMB find it necessary to add the payments request for f y 26 to 28?
Jacques Jiha
5:50:07
As I said to you, in the, the city is in a financial situation.
5:50:12
The financial situation of the city is, is very precarious.
5:50:15
So therefore, the city has to find all the city cannot afford to give up resources at this point in the budget site at this point in the cycle.
5:50:24
Okay.
5:50:24
The city cannot afford to subsidize which landlord when we have a lot of programs, okay, that are under fire.
5:50:32
Okay.
5:50:32
We are under pressure.
5:50:33
Okay.
5:50:34
So therefore, we can at at this point in time, we cannot afford to give up those rental payments because we need them to basically save many of the critical programs that that need to be funded.
Justin Brannan
5:50:49
Okay.
5:50:49
Because I I mean, I wouldn't say the city I I wouldn't say that the city is subsidizing the water rate payers.
5:50:56
I'd say it's the other way around.
Jacques Jiha
5:50:59
It is because, the rental payment is supposed it's like, every utility you got you have to pay rent.
5:51:05
They have to pay rent, they have to pay the cost of the operations, they have to pay salaries.
5:51:09
So if you don't pay if they don't pay the rent to the landlord, okay, the the landlord is basically subsidizing them.
5:51:16
The city is the landlord.
5:51:17
The city has a lease with the water authority where the water authority has to pay the city the land for payment because the city issue bond.
Justin Brannan
5:51:25
But doesn't some of that money go towards, DEP to, you know, to manage stormwater resiliency project?
Jacques Jiha
5:51:32
This the the, this is the the the water rate in general goes toward to pay for all the operation.
Justin Brannan
5:51:39
It it just seems like an extreme measure that we didn't take during COVID, but we're taking it now.
Jacques Jiha
5:51:44
No.
5:51:44
Because we we in a extreme, situation.
5:51:47
As as you know, we are in a very precarious situation, and, the city
Preston Niblack
5:51:51
more extreme.
Jacques Jiha
5:51:52
The city is gonna have to find $300,000,000 that is subsidizing some which landlord.
5:51:57
Instead of subsidizing those landlord, we're better off taking those resources to pay for critical services.
