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Some Observations on the July 2011 BWD Water Rate Increase

Digger - May 21, 2011

Borrego Water District is clearly in serious, complex, and difficult circumstances caused entirely by the misfeasance of its previous General Manager, Richard S. Williamson, and an incompetent Board of Directors between early 2008 and the end of 2010.

The financial plan that Raftelis Financial Consultants, Inc. recently prepared for the district is sobering. It makes clear that rate increases surely to be perceived as draconian by many in the community are absolutely necessary for the district to remain a going concern. The amount of those increases, however, surprised even those who have been paying close attention to the district's death spiral over the past several years; so it will surely come as a rude awakening to the majority of ratepayers.

In addition to increasing rates, however, the board must, in fairness to its ratepayers, cut costs as much as it can wherever it can. Unless there is at least a demonstrable effort to reduce expenses across the board at BWD including, but not limited to, staffing, compensation, and other perks, the proposed rate increases will not go down well with ratepayers. Many in Borrego perceive the district as spendthrift and will resent assessing themselves to continue business as usual at an agency that they believe is already living too high off the hog. The general perception may not be entirely accurate, but it must be dealt with.

The present board argues that "the drivers for any proposed rate increase are not employee compensation" but rather: the very large cost overhang engendered by the need to solve the overdraft (whatever that means?); and the continuing need for repair and replacement of existing infrastructure. They also maintain that only small adjustments to employee benefits are possible; so they would be insignificant when compared with the capital required to deal with the overdraft and deferred maintenance. But there is no magic bullet. The solution to BWD's financial problems will require many seemingly small economies, some of which will almost certainly have to come in personnel costs which are ongoing and constantly increasing; so, while the annual savings achieved there may be small compared to the amounts required for overdraft management and maintenance costs, the cumulative effect over time is not. Savings will continue to accrue year after year. The district is in dire financial straits and a cost center as large as personnel, which amounts to 51% of its entire FY 2012 budget, cannot be simply ignored or given short shrift.

Brian Brady, who, until he was fired by a unanimous vote of the Imperial Irrigation District (IID) Board of Directors, on 27 January, 2010, served as the general manager of the IID and is now a self-employed consultant, was asked to perform a review of District staffing and budgets to determine, among other things, whether:

(a) the district had the right number of employees;
(b) the salaries paid these employees were within reason;
(c) the benefits paid these employees were within reason.

Brady conducted a cursory review of BWD staffing and costs and compared them with those at other, purportedly similar but undisclosed, southern California water agencies. He deemed BWD staffing levels appropriate and found salaries, wages, and benefits comparable to those in the benchmark group of water agencies, but did recommend combining the General Manager and Operations Manager positions which the board has done for an annual savings of $200,000. That recommendation was, however, a no-brainer given the fact that Jerry Rolwing, the former Operations Manager and now General Manager, of the district, already had been ably running the day-to-day operations of the district for at least the past 6 or 7 years.

Beyond the fact that he was fired by the IID, there are other legitimate concerns about Brady's report and its findings. His comments on the cost of benefits for BWD employees need to be fleshed out in more detail. His sequestering of the data on which they were ostensibly based is scientifically questionable because it prevents the consumer (the district) from knowing what is packed into the data and allows for neither independent detailed investigation of the "fit" between the data and BWD's situation nor the methodology used to arrive at the data and derive conclusions therefrom. This latter is especially important in a district such as BWD that is facing financial exigency and therefore atypical. That is, BWD's precarious financial situation may well require it to get by with fewer than the optimal number of employees and offer reduced benefits.

Brady's report does not answer the critical question of whether there would be an immediate economic benefit to BWD from doing an in-depth analysis of staffing and compensation packages; it merely offers a comparison with a black box of other agencies that are presumably not under severe financial stress.

In any case, the point is not simply to learn if BWD is by some gross measure on par with an unknown group of other agencies, but to make its own operations as efficient as possible within the constraints of its now severely limited financial resources.

The extravagant pension benefits Williamson put in place represent a significant part of overall benefit costs for the district. If rolling back or eliminating this benefit for existing employees is not possible, as may be the case, then it is the more important to reduce personnel costs in other ways to compensate for this unavoidable expense. That will also require a more thorough going analysis than Brady's; although to his credit, he recommends retaining a benefits analyst to review the district's overly generous retirement plan. The same analyst should be commissioned to perform a detailed review of and provide advice concerning the entire benefits package and especially the costs thereof.

Another matter of concern is the postponement of a rate structure and schedule intended to ensure that everyone who pumps or uses water from the aquifer pays a fair share of the cost of dealing with the overdraft of the aquifer. Delaying work on such a rate structure and schedule to hold down the rate increase is a mistake and a false economy because:

It is essentially a revenue generating measure and the sooner it can be implemented the sooner the district can begin to work its way out of the very deep financial hole Williamson and his toadies on the previous board left it in and the less severe both rate increases and cost reductions will have to be. Postponing it will only further delay any meaningful effort to address the overdraft which has already been stalled for many years to the frustration of many.

The implementation of some sort of tax or assessment on irrigators:

may cause many irrigators to reconsider the economics of their operations in the valley and so contribute directly to reducing the overdraft even as it generates additional income for the district;

would, or should, satisfy the most common complaint about conservation measures enacted so far, i.e. that they impact only BWD ratepayers while irrigators use 90% of the water but pay nothing for it and are subject to no constraints on use;

would address the related equity issue arising from the fact that irrigators pump huge amounts water to support profit making enterprises and are often justifiably viewed as the cause of the overdraft, but have never contributed so much as a dime toward correcting it;

would give the district something to point to other than business as usual when questions about and objections to the rate increases arise, as they surely will.

Given the competing goals of keeping rate increases within reason while dealing with the overdraft and the district's deplorable financial situation as soon as possible, the prudent solution would seem to be reducing expenses overall to pay for implementation of a comprehensive rate structure and schedule as soon as possible. That will require a careful assessment of everything the district does and pays for to eliminate inefficiencies, redundancies, and any expenses that are not absolutely necessary. A thorough study that looks at the district's organization, technology, operating strategy, and people to ensure that the district is as lean and efficient as possible should be given high priority and follow directly on the heels of the rate increase.

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