For your Reading Pleasure….
As technology advances I have an observation, and a question that needs to be asked and answered. And this could be a pretty interesting question. Back in the day, say 100 or 150 years ago, there were not so many people. Many activities occurred where there were few people and impacts on others were minimal. In some cases ecological damage was significant, but we were not so worried about that because few people were impacted by that ecological damage. In the 20th century, in urban locations, the impact of one’s activities on others became the basis for zoning laws – limiting what you could do with your property because certain activities negatively impacted others. And we certainly had examples of this – Cuyahoga River burning for one. Of course this phenomenon of zoning and similar restrictions was mostly an urban issue because there potential to impact others was more relevant in urban areas. We also know that major advances in technology and human development tend to occur in population centers (think Detroit for cars, Pittsburgh and Cleveland for steel, Silicon Valley, etc.). People with ideas tend to migrate to urban areas, increasing the number of people and the proximity to each other. Universities, research institutions, and the like tend to grow up around these industries, further increasing the draw of talent to urban areas. The observation is that urban areas tend to have more restrictions on what people do than rural areas. So the question – do people consciously make the migration to urban areas realizing that the migration for the potential financial gain occur with the quid pro quo of curbing certain freedoms to do as you please? Of does this artifact occur once they locate to the urban areas? And is there a lack of understanding of the need to adjust certain activities understood by the rural community, or does it become yet another point of philosophical or political contention? I have blogged previously about the difference between rural and urban populations and how that may affect the approach of utilities, but read a recent article that suggests that maybe urban citizens accept that financial gains potential of urban areas outweighs the need to limit certain abilities to do as you please to better the entire community. They are motivated by potential financial opportunities that will increase their standing and options in the future. So does that mean urban dwellers understand the financial tradeoff differently than rural users? Or is it a preference issue. And how does this translate to providing services like water to rural customers, who often appear to be more resistant to spending funds for improvements? While in part their resistance may be that their incomes tend to be lower, but is their community benefit concern less – i.e. they value their ability to do as they please more than financial opportunities or the community good? I have no answer, but suggest that this needs some further study since the implications may be significant as rural water systems start to approach their life cycle end.
The true risk to the community of pipe damage is underestimated and the potential for economic disruption increases. The question is how do we lead our customers to investing in their/our future? That is the question as the next 20 years play out. Making useful assumptions about increases in demands, prices, inflation rates etc. are key to useful projections and long-term sustainability. Building too much or too little capacity for example can have disastrous consequences (to the ratepayers on the former, to the local economy for the latter).
Getting funding relies on economic strength, a problem of you are in a depressed area (Detroit) or a boom that could crash at any time (North Dakota). P3 opportunities are available for cash strapped communities but they come with a cost. Risk must be allocated fairly – the private community will not take on too much risk without increasing costs significantly. Loss of control is one of those risk conversion issues. Extensive planning and feasibility analyses should be expected – far more scrutiny than most utilities are used to. The economic strength of the community is important to private investors.
In a prior blog we talked about the boom towns of North Dakota. Things were booming in 2013 but the downturn in oil prices may get ugly. The need for more fracking wells may have decreased (at least temporarily) and the decrease in the oil and gas costs has cut into local revenues, so is this is the time to keep planning for the boom? South Florida did this in the early 2000s – and well, that real estate boom put quite a dent in the economy and population estimates for 2020 and 2030. The balloon popped and so did the economy. South Florida had the resiliency to bounce back because of weather and proximity to South America. We have seen the result to an industrial economy – where a community relies on industry, well industry can be fickle. Ask Detroit. Or Cleveland. Or any number of other Rust Belt cities. Now they have infrastructure, but much of it is underused.
So while the Plains states plan for the boom, the boom has settled in some places. Already the oil and gas industry has shed 100,000 jobs (many high salary). Texas, Kansas, North Dakota and Oklahoma are facing financial challenges in 2015 due to funding losses. Alaska is dipping into reserves. But that doesn’t mean the results of the 2010-2014 boom are not continuing, or at least portions of them. Frack water continues to be discharged to local wastewater systems, but the revenues to pay for the needed upgrades is lacking. Effluent limits for nitrogen and TOC for some rivers have decreased as a result of constant increased loading to the streams (more flow increases total loads, so if flows remain the same, the concentrations must decrease to maintain total loading). The costs to reduce ammonia, for example from 10 mg/l to 2 or 3 mg/L can be $1-2/1000 gallon – over 50% or more of the current cost for treatment.
So is it a surprise that some communities fight the boom times? Booms create disruption and uncertainly, and a need for technology (and costs). Maybe stability does matter, as it can contain costs and treatment requirements. However the boom can help communities in financial distress. Detroit and Flint would love a boom – both have the infrastructure in place to support it as opposed to rural communities in the Plains. But that’s is a key – they already HAVE the infrastructure in place. The Plains, well, do not.
There is a lot of older, underutilized infrastructure out there. Detroit, Flint, Cleveland, Akron, Toledo and Philadelphia are among the older industrial cities that have stable populations – people that live there most of their lives, have a trained and educated workforce, and normally have lots of water and infrastructure, and lots of potential employees, all of which are underutilized and at risk due to economic losses. But the booms rarely go to older cities. How that is? Is this a leadership issue? Convenience? Quick profits? And how long will the boom last? Is it a matter of lack of understanding or regulations that creates the boom? A combination of factors? A better PR program?
Remember we all play defense. Industry does not. Industry plays offense all the time. The private sector mode is play offense. Get the message out. Frame the message. Win the game. Is winning the game at any cost the right answer? For boomers it is. What about the rest of us?
Since 2010, the Federal Reserve Bank indicates that the wealthiest 10 percent of American have seen their income rise by 2%. The Bottom 20% have seen their income DECLINE by 4 percent and the average for all families DECLINED 5%. That tells me that the majority in the middle income brackets, decreased at a rate greater than the bottom 20%. In other words more of us are moving down in economic standing, not up. To make matters worse, the Federal Reserve Bank indicates that the top 3% actually had their incomes increase by 27.7% since 2010, meaning that the upper middle class people are falling back with the rest of us. Quite the opposite of what our parents had hope for us.
Wages have not rebounded as many people had to take pay cuts or find new a career at lesser pay, which places all kinds of issues at risk – retirement age, retirement goals, college for the kids, investments, home ownership, etc. All play a role in the economy of the country. People spend less on eating out, new clothes and other things – generally more frugal, which means less demand for goods and services, and therefore less employment. A vicious cycle that doesn’t help the economy. We have already started to see real estate cool off as wages have not rebounded and people figure it is time to defer or get out. Places like Miami and Las Vegas may remain warmer than say Cleveland or Detroit, but the Miami market has cooled in the past year.
Real losses in purchasing power goes back to the 1980s form the lower half of earners in the US. And we argue about the minimum wage – which is the very bottom of the pile. The failed concept of the Great Society was to try to get enough money in everyone’s pocket that the total purchasing power of the population would increase. Did not work out that way, but the concept of increasing purchasing power of all has appeal. Inflation goes up. Purchasing power goes down. The economy will stagnate if wages for the bottom 90% do not increase. That makes official less likely to raise water and sewer rates to pay for those needed infrastructure upgrades. Which will put more assets at risk of failure and stress operations budgets further.
The first month of the fall semester has slammed me, which accounts for a little less blog activity on my part. But as fall rolls in many local governments are dealing with final budgets, new projects and dealing with taxes and fees. Students are back to school and industries are looking to the end of the year and 2015. How fast time flies. Our students that graduated last spring all have jobs and half of our seniors that will graduate in December do as well. With engineers or contractors.
The good news is that the economy continues to tick up, construction and construction jobs are back to 2005 levels (which if you recall was a lot), and the stock markets are making money for somebody because they are up as well. Alan Greenspan can complain that housing maybe lagging, but that is more a lack of people having funds or being able to move. Meanwhile construction of projects that were deferred might be addressed? Time will tell but it raises an interesting question – can we plan on growth forever? We assume a continuous growth rate (like 1 or 2% per year), but is that reasonable since it means more people come to an area each year than they did the year before? Works for bacteria, maybe not so much for people. Ask Detroit. Or Cleveland. And does this type of growth create unintended consequences for us? I think this is a good question for a future blog and of course a question that economists and politicians do not want to answer. It would be highly disruptive to our plans. So since it is election season again, we all need to be prepared for the inundation of campaign sales pitches that try to convince us to vote for someone, or more likely to vote against someone. That’s probably not the way it was intended to go, but it’s what politics has degenerated to in so many places. Ideology and adherence to it under any circumstances often prevents us from looking objectively at issues and reaching real solutions, some of which may have winners and losers, but may be necessary to improve long-range forecasts. Listen to the political patter and decide where the plan is.
For example, ignoring the evidence that the climate is changing, places constituents in perilous positions…..in the future. Not now and few climate impacts need drastic immediate action. But longer term, storm sewer will be inadequate, there will be less water stored in glaciers, less rainfall in places (like the southwestern US), more frequent flooding in coastal areas, etc. The problem may be 50 years from now, but wholesale infrastructure programs take that long. It took the US 50 years to build the interstate system. Nearly 40 years to dig canals in south Florida, 20 year to acquire property for a reservoir in North Carolina, etc. Things take time and meanwhile if we need to alter current practice, such as elevating roadways and building to avoid flooding, the time to start is now, not in 50 years when solving that problem is overwhelming. Find those water sources now, so development and competitors can be controlled. Finding water that may take 20 years to secure and construct is an unmanageable issue the year before you need it. You need a plan. Where do you hear that planning?
What about that failing infrastructure? We tend to ignore it until it fails. But if it fails, that can be catastrophic. Engineers and operations personnel know deterioration occurs, and know that it will take time to plan, design and refurbish of replace infrastructure. But projects continue to get deferred for lack of funds. Aggressively planning repair and replacement may actually save money in the long-run, but our planning tends only to be short-term. So how do we change that? Perhaps the state agencies that require local planning to be submitted and approved will push for better evaluation of infrastructure. GASB 34 clearly did not go far enough. Too many communities do not track their work and even fewer document the conditions when they make repairs. Too little data is collected on what fails, when and why. WE can collect huge amounts of data with work orders that track work. Perhaps a regulatory frontier. Or maybe, just maybe, some enlightened managers will decide tracking information is actually fairly easy. The question is the platform. Stay tuned… we are working on that…
Last week was one heckuva week for societal problems related to race relations. Seems like someone turned over a rock and the 1950s crawled out. We started with Cliven Bundy, the Nevada rancher who has been using federal property (read our land) for grazing his cattle for 20 years without paying for it, said after the armed confrontation with federal officials, that “I wonder if Negros weren’t better off as slaves.” But he says he is not a racist, but wow. That’s right up there with Rush Limbaugh’s comments about Native Americans in his book 15 years ago.
Then we had newspaper columnist and right-wing wonk, Thomas Sowell, who is black, saying in a recent column that “you are poor because you don’t work.” And it is your fault you don’t work. In “higher income families, people work.” So using that line of racist nonsense, given that minorities are disproportionately un- or under-employed, does Mr. Sowell really believe that it is really the choice of all of these people not to work?! Could there be any other causal links like the lack of education, decaying infrastructure or the lack of local opportunities in their community that might just come into play? That’s like saying Detroit’s problem is not the lack of job opportunities, but the fact that no one wants to work in Detroit. I think not.
The we have Donald Sterling, the owner of the Los Angeles Clippers NBA team, who was taped making racists comments, then received a lifetime ban and multi-million dollar fine for his comments about minorities, and then, instead of apologizing, states that he wishes he’d just paid the woman who taped him off. Huh? Of course it is not the first time for Mr. Sterling who lost a case several years ago over his practices of renting property in LA, so I guess we should have expected it.
Of course there are those who argue these folks were simply misunderstood. Maybe Mr. Sowell was just pandering to his fan base, but what does that say about his fan base that he can write a column that purports that “you are poor because you don’t work” because you don’t want to work and no one says anything? He clearly appears to be besmirching the inner city minority population, but as I noted in a prior blog, rural America is significantly worse off economically than urban America. Rural America is where health care suffers, the lack of health insurance is pervasive, income are lower and unemployment higher. There are poor across all races, and in all settings. And given his fan base is includes a lot of poor, white, rural people who aren’t making a lot of money or who can’t find jobs, he’s talking about you!
The Bundy comments stem from his standoff with federal officials over many years of not paying for grazing (like the rest of us could get away with that!). He and those that came armed to his defense are more indicative of a larger, far-right, anti-government sentiment around the country that has persisted for years. The west has a number of these groups (recall Ruby Ridge, Waco, Black Hawk helicopter-ists, etc.) that are basically anarchists that disagree with America as it is today. All white. But of course as we have seen in the Sudan, Rwanda, the middle east and throughout history, hate can come from all races and religions. All harboring hatred of others not like them. Understanding why is more difficult, but the commonality seems to be that they all have the perception that the others are somehow treated differently, which allows them to move up the economic ladder faster or allows them to “game the system.” The perception, which may be completely false, persists because it somehow justifies the actions of these people.
So given the comments of the past week, are we back in the 1950s? Or 1870s? How are we here in 2014? Prejudice and hate were not wiped away magically by civil rights legislation, integration, communication and education alone, but really, does this type of attitude have a place in today’s world? If so why? Hate has created trouble in the world for thousands of years. Hate is a problem because hate is a means to distract people from real problems or to force your problems on others. But in truth, psychologists will tell you that in most cases, the Haters tend to hate themselves, which is something we all need to remember. Hate is developed because you cannot control a situation or someone else gets something you want. Therefore it is that someone else’s fault, not yours. It is easier when race, sex, sexual orientation, religion or other factors represent the “somebody else,” but the reality is haters hate themselves first, then project their hate onto others. They need help. Professional help. Counseling. Many of them. Even whole societies. They need to go get help for themselves and the rest of us.
So Detroit defaulted on it’s debt obligations. Do does that impact you? Well, that depends on whether you are a utility looking revenue bonds, a city looking for general fund bonds or some combination. The issue in Detroit with debt is that they pledged the full faith and credit of their taxing authority to repay the debt. Their taxing ability was insufficient to accomplish this goal, which means that there could now be distrust in that promise for other cities. So if you are a city and you are making this pledge, Detroit could impact you, or at least create more review on your balance sheets. If you are a utility that is pledging revenues that have no limitations on amount, the concern is likely less. Of course in either cases, the question is what the rest of your balance sheet looks like. If you have no reserves, do not charge the full cost for service, have a heavy debt load, have high rates already, or send a lot of funds to the general fund, that could be a problem. If you have avoided these pitfalls, the bond market will see much less of an issue.
Keep in mind that Detroit is not the only default – another big one is the Birmingham and several other create questions about general fund uses of funds, which makes it of greater importance to keep our financial house in order. IN part this can be done by creating the appropriate enterprise funds and remove those services from the general property tax fund. That permits local focus on the true cost of general taxing users and creates a delineation between general fund and enterprise costs. That can help elected officials focus on the true general fund issues: police, fire, EMS, administration without hiding those costs with subsidies from other funds.