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LOCAL REVENUES BLEAK? Part 2

August 30, 2013
economy, finance, funding, infrastructure, innovation, Leadership, management, politics, Uncategorized, Water Funding
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A new GAO report suggests that the short and long-term future for state and local revenues may be more difficult that currently anticipated, despite the economy recovering in many places.  My last blog outlined a number of the problems including that many public entities chose to reduce tax rates to balance the budget as opposed to restocking reserve funds.  When property values plummented and tourism and consumer buying diminished, the taxes related to all three plummented as well.  None have yet returned to their pre-2008 levels.  The failure to stockpile reserves caused many governments to spend down what limited reserves they had in the past 5 years as a means to avoid the hard and unpopular decision – raising taxes to collect the same revenues as before the mid-2000s cuts.  Now the lack of reserves creates an issue going forward – as costs increase faster than revenues, there are no reserves to tap into.  It is a problem that just keeps on giving. –

As I noted, I never like Chicken Little, because he never had a solution for the problem. There are solutions for local governments, some good and some bad.  Clearly local governments need to revisit the revenue production tools.  Taxes and fees will go up.  Taking more money from the utility, an all too popular decision in the past 5 or more years IS NOT THE ANSWER!  That just transfers the problem to the utility system and we already know that there are huge amounts of deferred maintenance and capital projects with utilities – $300 billion and counting at last count. The utility should be run as an enterprise, not as a cash cow to avoid hard political decisions.  Solutions for replacing those ARRA funds and federal grants for police are needed.  Just saying “We ran out of money so lay those people off” is not a solution.  What that is, is poor leadership and planning – a failure to develop the investment made by the feds to better the fiscal position of the community.  A lost opportunity.

There are many options.  And we can lay blame at the feet of elected officials, but it does not all belong there.  The citizens who elect those officials, are to blame.  Most elected officials react to citizenry, not the other way around.  And don’t forget the managers who bring bottom line business practice to local government management who recommend options. We’ve lost a generation of good government managers who understood the service aspect of government who have been banished in favor of the bottom line approach.  We need to change this as well. 

A more entrepreneurial spirit is needed.  I recall a prior entity I worked for where we proposed doing lab work in our certified water lab for other utilities.  That got shot down because it was “unfair to compete with the private sector for this work.”  Really?  That sounds like a private sector red herring.  They know they will lose business, and they can’t compete.  How is that in the spirit of capitalism? It cost less for other entities to have us do it?  A huge missed opportunity.  There are many.  If we want government to operate more like a business, we need accept the opportunities that come with it, not quash them. 

We need to market the community.  Not just give money away hoping to attract businesses that will locate for a short while.  That certainly has been a fiasco in Florida.  Other places as well I am sure.  No, we need to “sell ourselves.”  We need to marketing program to distinguish the community, its assets, its water and sewer reliability and quality, its people, education and opportunities.  It means spending money to invest in the community, not just spending money to fix a few roads and install some pavers, although they are good.  It’s also not just fixing up the distressed neighborhoods, but investing in the better ones as well. The most distressed City in America is quietly encouraging new artists and startup businesses to relocate to Detroit to take advantage of the availability of warehouses, cheap rents and a talented workforce.

We need to avoid the pitfalls of falling victim to reinforcing the past.  Florida’s economy is based on tourism, agriculture and building housing to attract retirees.  Weird business model.  Two of the three are highly susceptible to economic disruptions.  We are still recovering from 2008.  The economy also produces mostly minimum wage jobs, not the way to build a better tax base of encourage investment in education.  The state manufactures nothing, yet fails to take full advantage of what assets it might have to create industry.  As Sun-Sentinel writer Stephen Goldstein noted recently, why is it that south Florida has yet to take advantage of the private sector interest in investing in understanding age –related diseases?  Much of the local economy and the two local public universities are not positioned to take a leadership role?  Yet it is an easily marketed issue given the current population, assuming funds can be secured.  Public investment is needed, and of course that’s the rub.

We can market ourselves.  May communities have.  And most deserve better than their current lot in life.  Alexis de Tocqueville,” you get the government you deserve.”  I think we deserve better, and I think we can do better.  I think we can develop a better future and I think we can overcome challenges.  So maybe it is time for to us to change the perspective!

Increase Revenues without Raising Rates

July 27, 2013
finance, Leadership, management, Meter Reading, Revenues, Uncategorized, Water Funding
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It surprises me how many utilities ignore their meter stock.  Water meters are the “cash registers” of the utility – they are how we bill our customers.  Many utilities allow their meters to age without checking how much loss their may be.  I have a client who regularly has issues with high unaccounted for water, which is a permit condition.  Every time the issue arises, they ask me what to do.  Each time I ask the Finance Department, which is responsible to for meter reading and billing, to check the number of meters with 90 days of zero readings.  The past two times I had them do this the number of meters was about 10% of the system! Both times I have had them replace all 10% immediately.  The result each time was to decrease the unaccounted for water amount in half (15 to 7%).  In essence they received a 7% rate increase without raising rates.  Yet, the Finance department NEVER runs the zero read report unless I ask them to. 

 

This situation is all too common.  Meters lose accuracy with time.  Small meters lose accuracy slower than big meters, which may lose 50% of their accuracy (for low flows) within 2 years, but the small meters may not last the 15 to 20 years they are typically installed.  The easy way to monitor this is to run a zero read report monthly, and to run a report to compare the water billed 12 months apart to see if the billing amount decreases significantly from year to year.  Water utilities need regular meter maintenance to insure they are receiving the revenues for services delivered.  But it is often too easy, or too politically difficult to spend the dollars to insure meters run accurately and to bill people appropriately.  But we should ask if it is fair to bill others disproportionately to avoid fixing the meter problem?

 

Similarly utilities need to insure that everyone is being billed.  Some cities do not charge themselves for water, which means they cannot track it adequately.  Other potential users that are not metered or charged include churches, parks, and schools.  There is a fairness issues associated with not billing everyone.  Likewise, large losses that cannot be accounted for may be indicative of water theft.  A water audit program can help identify potential water theft.  Theft is an affront to all customers.

 

Utilities should also look at fees for services.  Sometimes these have not been adjusted for years.  Utilities should determine exactly what it costs to provide services like meter turn-ons, turn-offs and call outs.  A couple utility clients of mine have contracted to perform services for other utilities as a mean to raise revenues without big rate increases. 

 

Keep in mind though that rates need to increase because power, chemicals and capital needs are constantly increasing.  Power, cable, telephone and other utilities increase to insure they recoup their costs.  Water and sewer utilities should incorporate CPI-type increases in their rate structures to insure they can sustain ongoing operations and capital replacement programs.  Insuring everyone is billed properly and the meter inventory is up-to-date insures that rate increases are limited to what is actually needed.

 

 

SEQUESTRATION HITS US ALL

July 23, 2013
Congress, infrastructure, Monitoring Water, planning, Sequestration, sustainability, USEPA, USGS, Water Funding, water sewer management, water supplies
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Sequestration is the word we are all using to explain the failure of the Congress to put together a budget with appropriate revenues and expenditures.  Congress can’t figure out how to reach a budget agreement, so the federal government set itself up for mandatory cuts in services. I had a recent grant sequestered, then cancelled.  It really could have helped a local community with long-term water supply and quality problems identify adaptation and mitigation strategies fo rites future.  Minor money for Washington, but a big deal down here.  Likewise I have spent the last 6 months on a subcommittee for USGS that is focusing on what could be cut from USGS.  That means less testing water quality, water levels in groundwater, stream gauges and less evaluation of results.  Most of the water issues USGS looks at crosses local and even state lines.  Since we all rely on water, this is at national concern.  Precisely when we need the information most, we may be getting less.  Expect to start seeing more sequestration issues. 

 

 

The problem is that the biggest expenses, social security and debt, cannot be cut without major backlash in the financial and voter markets.  So the cuts come from the smaller accounts – things like the federal share of state revolving funds, water research and water/wastewater programs.  The community and tribal assistance account was slashed $210 million while the environmental program budget was cut $135 million. While some may be cheering EPA cutbacks, the reality for water and wastewater users is less federal assistance to our industry.  That means more of the onus is on us, and on our customers.  The  unintended consequences of the failure of Congress to act….

Differences in Perspective: The Generational Approaches

July 9, 2013
Banking industry, communciations, Leadership, management
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I have been inundated by articles recently about the issues with integration of Gen X and Millennials workers into the workplace.  Not sure why, but this is a hot issue in trade journals and newspapers.  The recent articles seem to focus in on the potential conflict between older, and younger workers who seem to have different perspectives on how work gets done and protocols.  These folks would do well to read Dan Pink’s book Drive, which discusses the differences in motivation and how supervisors can carefully cultivate innovation and efficiently by recognizing the differences. 

 Since I teach at a university, I deal with Gen X and Millennials all the time.  There are huge differences in their use and comfort with technology versus older workers.  It is truly second nature for the younger workers, while the older generations had to learn these technologies.  Many, if they had access to computers, they wrote programs by using punch cards and wrote their own compute programs in FORTRAN.  The younger workers don’t know even know what a mainframe computer is let alone punch cards.  Technology accelerates exponentially with time, which is why people feel left behind. 

Funny how technology works though.  While the kids I teach today are far more savvy than their predecessors 5 years ago (and those five years before that), they have to keep up of get left behind.  That’s the older worker problem – the older guys cannot compete with the use of technology, but not to worry, in five years, same for these kids.  As a result the older crowd may resist helpful technology.  It surprises me how many engineering firms resist 3 dimensional design programs, despite my students knowing how to do it.  By the way, the contractors hire my students because the contractors see the value in profits (and change orders). Younger workers know how to integrate the technology into the workplace.

 While comfort with technology is the big difference you notice, it is not the driving issue as Dan Pink points out.  Most of them make a decent wage so they are looking for more than salary to motivate them.  Interestingly money is not the primarily motivation like it can be for older workers.  The younger folk avoiding the rigid looks for flexibility, especially as it relates to family and friends.  They are comfortable with working at home and at times throughout the day.  It’s not that they work less, it’s they work differently.  We should focus on productivity, versus conventions.  Maybe we’d spend time appreciating each other more!

 

 

Go back to Drive and you realize that the Gen X and Millennials want to pursue these new technologies and integrate them into their jobs.  They are motivated by responsibility, flexibility and independence, much because that’s what their baby boomer parents taught them.  They are comfortable with flexible schedules and working when needed.  Baby boomers need to help them use these concepts to innovate and create in the workplace.  We need to learn to use this to our advantage in the workplace, not fight it.

Sustainability and Risk Managers as Future Water Manager Obligations?

June 27, 2013
Climate, communciations, Environment, finance, funding, groundwater, Holistic Water Planning, infrastructure, innovation, Leadership, management, Marketing water, planning, Risk, Risk Management, sustainability, water sewer management
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In the past week I have had the opportunity to experience the extremes with water – heavy rains/tropical weather in SE Florida, and dry weather in Denver at America Water Works Association’s Annual Conferences and Exposition. Two months ago with was snowing in Denver and there had been limited rain in SE Florida. Six months ago we were both dry and there was significant concern about drought in both places. How quickly fortunes change and the associated attitudes as well. It is part of a perception problem – looking at the near term – instant gratification, as opposed the long-term consequences. In truth neither set of conditions is historically different or should have created major panic or much shift in attitudes, but it is the potential to predict conditions that require the water manager’s scrutiny. We have all become risk managers.

Managing risk is not in the job description of most water and sewer personnel (risk managers aside, and they are focused on liability risks from incidents caused by or incurred by the utility like accidents, not water supply risks). We spend a lot of effort on the engineering, operation and business side, but less on planning or risk/vulnerability assessments. EPA has required vulnerability assessments in the past, but having seen some of those exercises, most are fairly superficial and many put on a shelf and forgotten. I have had clients ask me if I still had copies because they did not. Clearly we need a renewed commitment to vulnerability assessment.

Vulnerability starts with water supplies. Groundwater is particularly tricky. A new USGS study reports significant decreases in water levels in many aquifers across the US, especially confined aquifers in the west. That situation is not improving, and the situation will not correct itself. Loss of your water supply is a huge vulnerability for a community. Finding a new supply is not nearly as simple as it sounds or as many are led to believe. Confined aquifers do not recharge quickly and therefore have finite amounts of water in them. Remove too much water and all too often land subsidence occurs, which means the aquifer collapses and will never hold the same amount of water. USGS has mapped this and it matches up well with the drawn down aquifers. More data needs to be collected, but Congress is looking to cut USGS funds for such purposes, just when conditions suggest the data is needed most.

Many watershed basins and many aquifers are over allocated and overdrawn, and not just in the west. New England and the Carolinas have examples. Overallocation means competition for water will increase with time and it will be utilities that everyone will look at to solve the problem. Afterall the utilities have money as opposed to agriculture and other users, right? To protect themselves, water utility managers will need to look beyond their “slice of the pie” to start discussions on the holistic benefits to water users throughout the watershed, which will extend to understanding economic and social impacts of water use decisions. It is not just about us, and paradigm shift that is coming and one that we as an industry need to be the leading edge for. Our use impacts others and vice versa. Every basin wants to grow and prosper, but decisions today may reduce our future potential. Klamath River is a great example of misallocated water priorities. The biggest potential economy in the basin is Salmon ($5B/yr), followed by tourism ($750 M and growing), which relies on fishing and hiking. But agriculture ($0.2 B/yr) get the water first. Then power, which warms the water (salmon like cold water). Then a few people (a few 100,000 at the most in the basin). The result, the salmon industry gets reduced to $50 M/yr. Now how could we create more jobs, which would result in more income and a bigger economy? The easy answer is encourage the salmon industry, but that doesn’t sit well with the other, smaller users that will become more vulnerable to losses.

I suggest that to harden our water future in any given basin, we need to start looking a little more holistically at the future. This type of analysis is clearly not in the job description of the utility or its managers, utility managers may have the best access to technical expertise and information. As a result to protect their interests and manage risk, we may need to shift that paradigm and become holistic water managers.

PAY YOUR BILL

June 24, 2013
communciations, Development loans, economy, finance, funding, Leadership, management, Marketing water, sustainability
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A recent Wall Street Journal article noted that 50 % or people have paid their utility (water, sewer, electric) bills late, but only 24.8% have paid the internet late, 39.5% the cable late and 44% the phone bill. Really? We are willing to pay water, sewer and electric late, but not the internet bill? This should be a wake-up call to water and sewer utility leaders nation-wide that we have a problem. Combined water and sewer bills across the United States average something around $50. True they are often higher in California, SE Florida, and some other areas, but they are also lower in many areas. Most of the time even in those high cost areas, the bill is under $100.

I have done a number of rate studies and I find that the cable bill, and the cell phone bills are almost always higher than the water+sewer bill locally, so why are people willing to pay our bill late, but not the others? Is it the perceived benevolence of local utilities, most of which are public entities? Is it a perception that water should be free so it is not important to pay the bill? Or is it the lack of marketing of an essential product by waterutilities? I have heard all these arguments, but I am thinking the latter may be more important. Most people know they need to pay the bill, and I don’t really know anyone who thinks water should be free in the US. People are used to cheap water, and costs are going up. Complaining to local elected officials often keeps rates artificially low, which means maintenance and replacement programs get deferred. That makes the utility more at risk to failure. EPA, GAO and others report regularly that we have been keeping rates low and deferring capital and maintenance for years to the tune of hundreds of billions of dollars. So what is wrong?

I suggest that as an industry, we have failed in marketing water. Treatment plants, piping and pump stations are out of the way, pipes are buried. No one sees them and people assume these faciliaites will work, but rarely ask how they work or how long they will work. They do not understand the complexity or the regulatory stringency of operating a utility. They do not understand that the number one priority is public health, and protecting the public health costs money. We have not made people understand this because we do not market our product. I have taught elected official classes where the elected officials tell me public dollars should not be spent on marketing, but they never say why when pressed. Rarely is marketing included in a budget. But if water and sewer is a business, isn’t marketing an important strategy to maintain that business?

Meanwhile we have a host of celebrities marketing cellphones, which are not required to survive. We have a host of glitzy cool advertisements for cable service options, but we don’t need cable to survive. The power companies send out glitzy stuffers in their bills that no one reads, but they do end up in the papers regularly. And power really helps us survive, but we could do without it (although it would be unpleasant). Our forefathers did. But no one ever survived without water. Maybe it is just too obvious. But maybe because it is so obvious, people are less conscious of it. We need to market better. As a private sector marketing manager would say – we have lost our market share!! We need to get it back.

Social Security Not Nearly So Bad…

June 11, 2013
economy, finance, funding, management
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Previously I blogged about retirement systems since they were getting a lot of negative attention in the Florida Legislature and in Congress. One of my tenets was that the economy is more of an issue in dealing with the sustainability of retirement systems than most other factors. Specifically I outlined the current Social Security issues, noting that the long-term borrowing rate and number of people paying into the system affected the apparent long-term viability at any given point in time. I also suggested that as a result, trying to opine about the viability of any retirement system at a specific point in time is a futile exercise, unless there is some underlying political agenda. The economics changes constantly, so the long-term trends are far better means to view the viability of pension programs. After the 2008 economic collapse, few retirement systems looked like they were in good shape, yet a few years earlier, they appeared much better, much like Florida’s did..

Fast forward to 2013. After all the hoopla in Congress about the fate of Social Security and scary Congressional statements that Social Security will not be remain for future retirees unless drastic changes are made, guess what? The annual trustees’s report on Social Security (and you though Congress managed it!) reported that as a result of the economic uptick in the past couple years, the outlook for Social Security in the short term is good, and the long-term is far better than it has been in years. Surprised? Only if you don’t understand how pension systems work. The economy has improved, so the investments made by Social Security likely are getting a better return. The jobless rate has dropped, and more people are paying into the system, precisely the two things that improve the long-term sustainability of any pension system. But we don’t hear Congress talking about that because that doesn’t address the political agenda.

Worse for certain Congressional leaders, the report suggests that Social Security is positioned better than many 401K programs, the type of system some in Congress suggest should be the future of Social Security, because the risk are far lower with Social Security’s investment strategy than any 401k invested in the marketplace. They noted that most 401k programs lost half their value in the 2008 financial collapse, while Social Security’s portfolio, invested in far more conservatively, did not see near the same type of drop in investment value. The report outlined that the lower and middle class retirees were hit less severely buy the 2008 downturn than upper middle class pensioners who relied more on 401K returns. That should be no surprise either.

The findings are particularly important for lower and middle class families that receive 2/3 of their retirement income from Social Security as private pension systems become a thing of the past. Those private pension programs suffered from investments in private companies that can have shifting stock values and outsourcing of jobs to other countries – more risk and fewer payees equals unsustainable pension program. No surprise the private sector has shed many of those programs, but precisely why Social Security becomes more relevant for most Americans. The private pension systems are precisely the opposite of the Social Security model.

So why the push to try to change retirement programs? Some are in difficulty, especially where there are generous benefits, and fewer people paying in due to cuts in government employees, and at risk investments strategies that have performed poorly. All three are management issues, and the second is a political issue. Bash public employee pensioners, because fewer private entities offer them, seems to be politically popular, but it is a political means to pit people with pensions against those who do not to hide the real issue which is simply money. The investment value of Social Security’s portfolio is huge. Wall Street would love to see that portfolio in the stock market. More investment dollars will drive up stock prices. That seems good, but recall that the repeal of the 1930s vintage banking rules that prohibited banks from investing YOUR savings in the stock market, drove stock prices up fast in the 1990s, but it didn’t turn out so well in 2008. Investing Social Security’s portfolio similarly can be expected to have a similar result. And then, Social Security will really be in trouble and someone in Congress will tell you – I told you so. Maybe the better argument is that all these politicians should keep their fingers out of pension plans.

Talk Radio discussion

May 18, 2013
Climate, communciations, economy, Environment, funding, groundwater, infiltration, infiltration gallery, infrastructure, innovation, Leadership, management, sea level rise, stormwater, sustainability, Tidal flooding, Uncategorized
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Talk Radio discussion

Hi All.

This is a radio show I did this week.  One of 4 I have scheduled.  It talks about me and my company, outlook, thoughts.  Take a listen.  Let me know what you think!

Fred

ONE Water?

April 25, 2013
Leadership, management, Marketing water, Uncategorized
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One.  That’s the mantra.  I started blogging a year ago with the statement that “It’s all one water.”  And that is true, regardless of the form it may be in (raw, waste, storm, reclaimed, gray, industrial, etc).  But I may have used too many words.  Dan  Pink notes in his newest book “To Sell is Human” that one of the recent trends is to try to get  your  message to one word.  Obama did this with “Change” in 2008 and “Forward” in 2012.  Others have noted that branding to one word is in vogue with private companies as well.  So what about the water industry? So what about water?  Maybe we simply need to say “One.”  It is all one.  We can treat any water quality to meet whatever your need may be.  So why differentiate the water source? There are many water associations out there for a variety of reasons including unhappiness with another associated (so they creates a breakaway group).  But how does this help the water industry?   There are too many water associations that are way too specialized in what they do.  Differentiating them create silos, silos that make you think water is different.  But we know it is not.  It’s all one.  So for example, the America Water Works Association is the oldest of the water industry associations and is the only one that sets standards for the industry.  It has long created manuals of practice that have been updated numerous times by industry professionals.  And water purveyors must treat all types of water to deliver healthy, safe water to your household, and they do, and have for over 100 years.  Tap water is as safe or safer than any other option.  So what would happen if AWWA were to reassert its leadership role with a new mantra that pulls the industry together.  What if they tried “One”?

Challenge or Change – What makes leaders?

April 15, 2013
Edison, Ford Motor Company, Leadership, management, Uncategorized
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Let’s think about great leaders in business and politics in the US. Our two greatest leaders were Lincoln and FDR. Lincoln led us through challenging times, but his means to govern and organization of the federal government was a huge change from those before him. FDR led us through the challenge of the Great Depression and WW2. But government and the world was hugely different as a result of his tenure in Office (and thanks to Truman for completing it).

Other political leaders included all those crazy radical forefathers who had the audacity in 1776 to think that average people could actually govern themselves. We have no conception to day what a crazy idea that was in the 18th century as we take it for granted today. Teddy Roosevelt changed how we viewed open space. But mostly is change that people wrought that made them leaders.

In business, Ford changed how car were made in an effort to sell more at lower costs. Edison changed the world with the light bulb. Los Angeles would not exist if William Mulholland had not conceived of bringing water and power across the mountains. So is it change or challenge that creates leaders? Or both? Or something else?