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The $15 minimum Wage

October 17, 2015
economy
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Bernie Sanders wants a $15 minimum wage law.  Voters in Seattle have agreed.  Starbucks and a variety of others companies have acted.  The change is great for the many low wage earners who struggle to get by working multiple part-time, minimum wage jobs.  Low wages are a drain on the talents of society who struggle with juggling food, medicine, education, shelter and other costs while supporting families. Since 1980, the actual wage rates, when adjusted for inflation, have fallen form many people, shrinking the middle class and expanding the number of economically challenged.  Economic challenges lead directly to social, and health vulnerability.  If you want to cut medical costs, increase the standard of living for people at the lower income levels. You want to sell more stuff, create more disposable income for people to spend across all income levels, not just at the top.   Ditto if you want to have less debt, and more savings.  That is what the intent was in the 1960s under the reforms of the “Great Society.”   Progress started, then 1980 showed up and many reforms were reversed before the trends could really show.  Not that those 1960s ideas were perfect, but clearly the last 30 years has shown the reversal is not unless you are among the 0.1%.

As an example, back in the day, fast food restaurants were the purview of students, not twenty and thirty something adults and grandma.  These were low income jobs, and have remained so.  The intent was not to make these jobs “permanent.”  But they have become jobs for adults.  Back in the day there were more workers, more customer service and more food prep.  Over the years, though, ingredients started to arrive packaged and pre-mixed, so that the only labor was to heat it up, bag it and hand it out the window.  Fast food is now packaged at factories in mass production which requires less labor. Less jobs, same low pay. Gas station attendants were also commonly kids, who washed your windows, checked your oil and pumped your gas (no, really they did!).  They got paid minimum wage as well. Not anymore – that was too costly and got cut.  The list goes on.  Customer service is apparently only important if you are trying  to attract customers.

So now more adults are in these industries, and many must work multiple jobs to make ends meet.  So a higher wage is welcome news.  Or is it?  Let’s see what happens when the wage doubles up without increased growth.  Well, the gas station attendants that used to pump gas were replaced with computers.  You even have gas stations that are completely automated – no people!.  You have computers putting in orders now at restaurants.  About 30 percent of the restaurant industry’s costs come from salaries, so could burger-flipping robots and computer ordering system like some restaurants already employ, become more cost-competitive and may displace more workers if the current federal minimum wage of $7.25 an hour is doubled.  At risk are 2.4 million wait staffers, 3 million cooks and food preparers and 3.3 million cashiers.

So where will we see this?  Electronic menus can be constantly updated so that items that are out of stock can be removed. Connecting the point of the sale to the oven’s operating system allows precise amounts of food to be cooked, which helps cut down on costs. Other inventions save energy, reduce maintenance and better dispose of grease. On the digital side, restaurants are working on apps that include reward systems and location tracking that prompt customers to eat with them more frequently. Olive Garden said earlier this year that it would roll out the Ziosk system at all its restaurants, which means that all a server has to do is bring out the food.  The employees would be reduced to fixing things when they break.  That could be a lot less employment.

Corporations have a priority to make money, which can mean cutting costs and becoming more efficient.  Bottom line profits are king, not people. See GM, VW and others who ignored defects in their products, preferring to pay the costs of the lawsuits as opposed to fixing the defect.   So the $15 minimum wage will be cheered by those making less, but jeered by low margin corporations that will be forced to raise prices and become more efficient.  Too often those changes do not include paying people – at least in this country.  The winner will be……. to soon to tell, but I won’t bet against the corporations.

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Reserves for Government

September 22, 2015
borrowing for infrastructure, economy, finance, politics, Reserve Funding, reserves, Revenues
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Your grandma always told you to save money for a rainy day.  She wasn’t really talking about rainy days, but days when you had less or no income.  The press talks about the huge percentage of Americans that have little or no savings, and how compared to other countries, we are at a disadvantage during economic times.  A huge problem is that the same argument can be translated to governments, which must provide services, and often more services during economic downturns.  But if they have no savings, how are they to accomplish this?  They do not want to raise taxes and fees in down situations, so won’t the loss of services just make things worse?

A recent PEW reports suggests that states “had about half the reserves necessary to address budget gaps during the first year of the Great Recession.  The 50 states had about $60 billion set aside in the summer of 2008, but in fiscal 2009, budget gaps across the country totaled $117 billion, about twice what states had in reserve. The budget gaps continued to grow in 2010 and many states struggled with shortfalls for years afterward.  Bad news, but the news really does not improve.  They report that 37 states have legal caps that prevent them from saving enough to weather recessions or even enough to substantially offset revenue losses, and most of those are based on some percentage of the prior year’s revenues.  Why?  Short-term views?  Most governments figure on keeping enough cash on hand to pay bills during tax seasons. That accounts for 60-90 days of funds.  Far too little for dealing with economic impacts.  Far too few state governments recognize the importance of saving, figuring that cutting taxes during time of plenty and giving back to taxpayers is a better use of funds.  Then it is someone else’s issue when the next economic hiccup occurs – and it will.  Unless you raise your cap now as Minnesota and Virginia have recently done.

But the issue is not just a state issue.  It is a local and a utility issue as well.  Local governments are closer to the ground, have less leeway in their budgets and often have far too little funding as a result of resistance to raising property taxes, user fees and over-dependence on state shared sales tax, which often drops precipitously during a recession.  Same goes for sin and gas tax dependence.  When people slow smoking, or as oil prices drop, so do revenues.  Ask Alaska, Louisiana, Kansas, Texas, North Dakota and others that are oil rich states about their budget this past year.  The legislatures were begging Grover Norquist to let them out of their no tax increase pledges.  He said no of course, because he doesn’t want government to function properly.  So those legislators were stuck in the either “do the right thing” or “get whacked by Grover in the next election” conundrum.  You know what they did because they want to get re-elected  That doesn’t help the citizens of those states.  Standard & Poor’s revised its outlook on Alaska’s general obligation and appropriation-backed debt from stable to negative. That will cost them in the future. St. Louis, Moody’s downgraded the city’s credit rating one step to A1, citing “the city’s weak socioeconomic profile; reliance on earnings taxes which are due for voter reauthorization in 2016.”  Diversity in industry and taxes is beneficial.  Too often this gets lost in the desire to do more with less, but doing more means you need more funding!  And you need to collect those savings as grandma counselled!

Inflow success stories

August 24, 2015
inflow to sanitary sewer, Leadership, sanitary sewer, Water Funding, water sewer management
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Wastewater utilities and water utilities are intrinsically linked.  Wastewater utilities often discharge to water bodies that are water supplies for downstream water plants.  In other cases, wastewater plants provide additional supply options to reduce water demands in the form of reclaimed water.  However as a wastewater utility, costs are often associated with power- pumping and aeration, which can be 30% or more of the utility’s costs in the worst cases.  However, substantial savings in operations can be achieved by reducing the amount of wastewater that must be pumped and treated and in some cases that reduction also is associated with water quality benefits for the reuse of reclaimed water.  Utilities have long dealt with the infiltration and inflow (I and I) issues in their system by televising their pipes and identifying leak points, but this primarily addresses only the infiltration part of I and I.  Inflow and infiltration are not the same thing – they are very different and must be addressed differently.  Inflow causes hydraulic issues during rain events – like sanitary sewer overflows and basement flooding.  Both subject the utility liability from lawsuits and/or regulatory fines.  Inflow is the risk issue that must be addressed to protect the utility.  A cost effective solution to inflow involves low tech, low cost methods can identify the problems that can corrected easily.  Removing the inflow portion from I and I, often leads to a more focused plan for infiltration correction.  What are those tools?  Smoke testing, cleanout repairs, sealing manholes and manhole dishes.  But each of these needs to be carefully selected.  Because these solutions, pipe that leak can be seen through another low tech solution – a midnight monitoring event.  Recent efforts here in south Florida indicate that only 15-20% of the pipes in a sewer system need to be televised and within those, about half the leaky pipes are actually not leaking – they are broke laterals.  Laterals are one of the most ignored parts of the sewer system – often they are small pipes and much of the piping is on private property so the utility does not address those pipes.  And in many utilities these are the pipes in the worst condition.

Other things that our efforts have shown are that new pipe can leak, just like old pipe, clay is not the only pipe that leaks and that the inflow solutions can be very helpful.  Figures 1-4  show how the solutions affected three lift stations and one community.  The graphs show rainfall vs flow.  Before these efforts, the flows increased with rainfall events.  After, they did not.  Hence this utility was able to resolve its risk for overflows at a cost of under $500/manhole.  That is relatively inexpensive.

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It’s Budget Time Again

July 14, 2014
debt funding, economy, finance, funding, planning, Reserve Funding, reserves, Revenues, Risk, Rural Utilities, Surpluses
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The good news is that for many local governments, property values are up and so is the economy, especially in urban areas.  However that does not mean that the budget approval difficulties of 2009-2012 have passed or been resolved.  In fact the arguments may continue despite improvements in financial position.  Why?  There are a number of policies that were implemented in the recession years that were especially difficult for utilities:

  1. Borrowed or transferred water and sewer monies to avoid raising taxes against falling property values (note that raising taxes on falling values would have yielded a zero sum game, but raising taxes commensurate might have “un”elected a few people
  2. Failing to have long-term financial plan and even fewer have multiyear budgets.  Included are automatic rate adjustments that some are questioning or deferring now, despite having been approved several years ago
  3. Bad investments – public or private.  In either case, if the revenues are not realized, the local entity gains no benefit.  This can include public private infrastructure investments, privatization or investing cash.  Scenarios need to be created to figure out what happens when things don’t go as planned.
  4. Failing to save for a rainy day before the crash.  Our grandparents knew we need to save for a rainy day.  We talk about the lowered level of savings among Americans and the potential issues that could arise if economic difficulties occur.  So exactly why do our elected leaders think it is a great idea not to collect monies in good times for a rainy day?  Other than politics that is?

 

We have identified four errors in public policy at the local level.  The questions for the 2015 budget are:

 

  1. Can we repay those funds we “borrowed” from during the down years?
  2. Can we keep the total revenues increasing (may not mean a tax increase, but certainly not a rollback)?
  3. Can we develop realistic scenarios for public investments.  Nothing worse than stranded infrastructure like that $6milion parking garage that grossed under $100 in the last 6 months because no one uses it because there is not business need for it.
  4. Can we develop reserve policies that allow local governments and especially utilities to create and maintain repair and replacement funds, reserves, and “savings” for the next rainy day.  It’s coming.  At some point.
  5. Can we develop a 5 year plan of where the community vision is?

I think this would be a start for a lot of us.

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.

 

 

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