In 1930, the average per capita cost for local government was $40.73. With inflation, that cost is $570 per capita while an average household of 3.2 people is $1824/yr.
FUN FACT
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Tag Archives: water and sewer
LOCAL REVENUES BLEAK? Part 1
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. For most of the 1990s and the mid 2000s, many states and local governments operated with surpluses, or could have. Many elected officials, like those in Florida (or Congress in 2001), 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. In fact, the property values lag so badly, it may be 10-20 years in many jurisdictions before they return to their former selves. In South Florida’s suddenly “hot” real estate market, local officials are raving about the 28% increase in property values in 2012/2013. Sounds great until you realize that they need to increase 100% to return to pre-2008 levels. Even in a hot market it may be over 5 years to recover. So property values are not a short-term problem. Some communities may never recover. So much for saving for that rainy day.
It should be plain to all of us that the failure of those in power 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. The failure to address the root cause – the failure to set revenues collections at an appropriate level and accumulate surpluses when you are lucky enough to get them. Unfortunately the political discussion keeps going back to keeping costs down, but cuts in costs means cuts in services. Sounds great to cut the Plantation trolley because of budget needs, but what about those citizens that rely on the trolley? Or the businesses it serves. Cutting Meals on Wheels which primarily serves shut-ins is a great idea in Broward County with a hue population of elderly that find it difficult to get out of the condo? And does it really make much impact on the overall budget? Not really. There are cosmetic issues. There a more symptomatic issue here?
GAO points to health care as a cost increasing faster than the rate of increase in revenues, but the latest data seems to indicate that the rate of growth may be less than projected by those opposed to the new Health Care laws. Underfunded pensions are also a potential area of concern, but cutting employees is not the solution for that as outlined in a prior blog. Cutting employees cuts the funding for pensions which guarantees future problems. So that idea actually works against the goal of shoring up the problem. So, no that is not the answer. We are clearly paying for the sins of 15 years ago when we were awash with funds, but decided to cut or public “income.” Who does that anyway?!?!
I never like Chicken Little, because he never had a solution for the problem. Part 2 will outline some thoughts…
GROWTH CORRIDORS MISSING THE WATER COMPONENT?
A recent Manhatten Institute for Policy Research report titled “America’s Growth Corridor: The Key to National Revisal” noted that the future economy in the US will tend to growth in certain corridors, which echos a prior report that identified “super-regions” where population, manufacturing, education and economic growth were likely to be concentrated. Both reports suggest that the super-regions will prosper, with the rest of the country lagging behind. The seven high growth areas in the Mnahatten Institute report are the Pacific Coast, the Northeast, the Front Range, Great Lakes, the southeast/piedmont, Florida/Gulf Coast, and Texas/southern plains. This new report focuses more on the politics of the region, noting that each region is politically fairly consistent internally, indicating there is more than one way to do business. The current business climate, driven primarily by energy favors the Plains, with the southeast starting to import jobs from Japan and Korean as a result of low wage rates. The report goes on to draw a series of political conclusions about business climates and the politics of why growth is occurring in certain areas. But let’s look at a different view of the report. Each of these regions has had “ it’s day in the sun” so to speak, and some a couple of days, like California. Business cycles are cyclical so shifts in growth corridors is not unexpected. However there are some potential limiting issues that are not addressed in the report that are of significant interest or concern.
First, where is the water? Texas and the Plains have significant water limitations, as does much of the southeast. Trying to build an economy when you lack a major resource becomes difficult. That is why the Northeast, Great Lakes and later the Pacific grew earlier than the south, mountain and Gulf states. The Northeast and Great Lakes had water for industrial use and transport of goods, a real key historically for industry. Those regions also had (and still have) better embedded transportation facilities (rail, roads, airports).
The next question is where is the power coming from? The answer that will be given is that the Plains states and Texas have created 40 % of the jobs in the energy sector in the past 4 years so that is where the energy comes from, but having energy and being able to convert it efficiently to power that is useful to people or industry is a different issue. You need water to cool natural gas plants, unless you want to sacrifice a lot of efficiency. Back to water again. Moving the gas to other parts of the country to convert coal or oil plants to natural gas would work, but getting the electricity back does not come without 6% losses and a real need to make major improvements to the electrical grid. Not a small job.
So while the Manhatten Institute reprort suggest that all seven corridors will grow, but that the southern corridors are growing faster, the sustainability of this growth is at question. I recall a similar prediction when I graduated from college in the early 1980s, when the jobs for engineers were limited to the energy fields in Texas and Louisiana and the prediction was that al the industrial growth would be in the south. And then Silicon Valley happened, and then the housing boom in California, Nevada and Florida happened, and a few things in between. Oh and that energy economy collapsed in the late 1980s …. You get the picture. This is not to say that some marketing the power, water and transportation benefits of the historical industrial areas of the north are not needed – they are, but the fact is that there is significant available water, power, transportation and people capacity that is unused. If I am an industry, I may want to look at the power/water issue a little more closely.
Week 3 Radio Interview on Funding
Radio Program last week
Hi all. Here is another radio show I did last week talking about my company Public Utility Management and Planning Services Inc. and water sustainability. Take a listen. Let me know what you think. Thanks
Fred
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
Planning for Change (like sea level rise)
After my last post, I was asked about sea level rise and how to get started with the issue in a very “red” area as it was characterized. I have come to the conclusion that the insurance industry will make sea level rise real for politicians in those places where it is impermissible for bureaucrats to discuss it. Here’s why. Say you have a house in a low lying area that is vulnerable to sea level rise and/or storm surge. One is permanent, the other temporal, but in both cases are potentially catastrophic if you live in this house. You bought the house, got a loan for 80 or 90% of its value and then got insurance for it. Now the insurance is there to insure that if your house gets swept away or damaged, there will be enough money to pay off your loan. That’ s what many people miss. Insurance is for the bank, no you, which is why your loan documents require that you get and hold insurance while you have the house. After your loan is paid off, there is no such requirement.
Now let’s say we are out 20 years. You have enjoyed your house but have decided to sell it. Now the banks will value it and are willing to loan say 80% of its value. They of course assume that the house will increase in value with time so even if you make no improvements, if they have to foreclose on it they will get their money back (a major part of the problem with the financial crisis of 2008 was they banks could not get their money out of the properties). Even if it doesn’t, as your loan is paid down, their risk decreases. The loan documents require that you get insurance to cover your costs.
So far so good, but what happens when the insurers will not give you insurance for the full value of the property? In Florida the State creates Citizen’s to deal with the fact that private, commercial insurers saw too much risk in coastal areas and refused to issue policies. Now the State and Citizen’s have the risk. Fine, but that isn’t dealing with the same issue – if the insurer think the value of the property will decrease, or the risk increases a lot, they will not issue policies. Or they will revise policies to say they will pay once – but will not insure you for rebuilding. You may think this will not happen, but Citizen’s is already discussing this option. Hence if you lose your house, they will pay you (so you can pay the bank, and then you are on your own. Now the bank may be willing to offer you a distressed property as an options (Welcome to Detroit), but that won’t be in the same risk zone.
Take this further, let’s say Citizen’s for example says we will pay full value if you lose the house but will not insure a rebuild? That means they probably will not give insurance to the guy who wants to buy our house in 20 years. How much is your house worth now? Probably nothing, which means now the bank will be looking at your insurance coverage and say – whoa – if the house is not worth anything on a resale, that means they may not get paid when you sell your house if you sell if before it is paid off (the norm)!! That is an unacceptable risk, and they need a solution. Of course if your house suddenly has no value, it means local governments get no revenue for taxes (good for you, but bad for providing essential services like storm water. You may not believe this discussion is happening, but it is.
So here’s what I think happens. I think the banks figure this out and start looking at vulnerability as a part of loans. I think they start thinking about what the value in 20 or 30 years might be and if they can get their loan monies back out of property. That will slow property values. I think the insurance industry does the same, and working with banks will further set the prices acceptable for vulnerable property. They are not good investments. If you own such property, you may get insurance in the short-term, but long-term your house value may decrease. At some point, your house will have no resale value, unless……
BUT there iis a big caveat to all this. Coastal areas are high value markets. Lots of activity and lots of investment opportunities. It all depends on what is being done to protect those properties, and depending on the federal governments to bail out private property is unrealistic. It is a local issues, so I also think the banks and insurance industry will start looking at what local governments are doing to protect investments in private property. Do they have a sea level rise adaptation plan? Are the storm water systems updated/upgrades/maintained? Are roads, water supplies and sewer systems capable of functioning under the changed condition? Is there a 50 or 100 year vision on how the community adapt to nature? If yes, there is comfort that investments are protected. If everyone’s head is buried in denial…..Detroit’s calling. U-haul anyone?
PS No disrespect to Detroit, my father’s hometown and the home to many of my current and departed family. For those who do not know, Detroit is high, has access to lots of water, sewer, roads, power and lots of land at reasonable cost, along with a jobs and manufacturing history. Perfect opportunity, one not lost on our ancestors.
How Long should the Leadership vision be?
We do 5, 10 and 20 year plans for infrastructure. But how long do we expect to this infrastructure to last? For example, how many roads only last 10 or 20 years? Most roads only seem to grow with time. Ancient Roman roads are the basis for many current roads. We keep adding roads – few are ever abandoned. They simply do not go away. So a 5, 10 or 20 year planning period makes little sense.
Roads are not the only limit. The WPA-era water mains are approaching 80 years old, and still providing good service, and our Clean Water Act-era sewer improvements are approaching 40. Sewer lines are similarly situated. Many water plants are over 70; we celebrate 100 years on many. Again, planning for only 20 years makes little sense in the context of the larger length of time.
More interesting, we rarely borrow money to pay for these projects for less than 20, 30 or 40 years. So our infrastructure outlives our plans and our borrowing. Often permits are less that the borrowing for infrastructure, which can cause stranded capacity in plants that may never be used. Miami-Dade County has such a situation – they are not alone.
Let’s look at this in the context of groundwater withdrawals. There are areas across the US where groundwater levels have fallen. They have fallen because of human activity to pump them for crops and water use. Colorado has a 100 year management plan in the Denver basin which is basically make the water last 100 years. Then what? Texas has shorter plans. The eastern Carolina drained parts of the Black Creek already, so this is not a theoretical western state issue only. How do we address this?
Or let’s go back to Miami-Dade County the outer banks of North Carolina, historical downtown Charleston, SC, and many other venues where sea level rise could impact water, sewer, storm water and roadway infrastructure. As we redevelop those area, should plans look at the true life of those assets (100 years) vs. the 20 year plan?
Both issues involve the sustainability of infrastructure systems, which means the ability to adapt them to changing future conditions. We have known for 10-15 years that stationarity is no longer accepted for future projections. But we need leadership to move the infrastructure planning to the future changing conditions.
Barriers to Public Sector Leaders? Part 3
In the last two blogs we discussed the three issues were associated with risk tolerance in the public sector which stifles innovation, application of business principles to public sector efforts, and the lack of vision and understanding of consequences. In this blog we will explore the third issue – the lack of vision. This is perhaps the hardest of the three parameters discussed. One would think that applying private sector business principles would help with the vision process, but it does not because the terms for elected officials are comparatively short term. In addition, our demands on the private sector are short term profits which has hurt the long-term vision of both public and private sectors.
What is a vision? It is supposed to be a concept of where you want your organization to be in a longer-term future. It is an agent for change and those developing the vision are outlining the change they want in the organization. What services are to be provided, what water sources are to be used, energy self sufficiency, wastewater reuse opportunities, incorporation of storm water to sources waters, etc.? All possible ideas, but they only scratch the surface of the universe of opportunities that might exist. The key is change, which normally requires thinking outside the proverbial box. Change rarely comes from doing the same thing over and over. Change requires innovation. So by its very nature, the status quo is not leadership because no change is required. Managers who “don’t rock the boat” may be excellent managers, but they are not leaders. Elected officials who’s mantra is not to raise rates, are not leaders either.
Your customers often are a great source for defining vision. They will tell you what services they want. I recall a meeting went to where I was talking about leadership to some elected officials. The public was present in force. I brought up the concept of developing a vision. The public was encouraged. They spoke out about ideas. All very good. Then one of the Board members informed everyone that vision statements were the job of the attorney and he would just write one up. That did not go over nearly as well as that Board member had hoped. He was abdicating his roles in overseeing the utility as well as any leadership role he might have hoped to have. The public knew what they wanted, and it was clearly change, something the Board member clearly did not want.
So the question is “are we that afraid of change that we cannot tolerate leadership?” Are managers and elected officials so concerned about change that they actively suppress it despite public outcry? I often raise the following question when talking to elected officials – how many statues have been raised for politicians who did not raise rates? We’ll talk about that next time…
Barriers to Public Sector Leaders? Part 2
In the last blog we discussed the three issues were associated with risk tolerance in the public sector which stifles innovation, application of business principles to public sector efforts, and the lack of vision and understanding of consequences. In this blog we will explore the second issue – application of business issue into the public sector. The public and private sectors are different. We need to recognize this. For the most part, the public sector does those things that the private sector deems to be averse toward profits. Clearly everyone needs water, but if you can’t get people to pay for it, you can’t make a business out of it. Enter government, which has the ability to lein and condemn houses for failure to be connected. A bit more incentive.
Or take fire service. Fire service in New York was once a private affair. You paid and the fire company would respond. If your house caught fire and you had not paid, then what. No one shows. This was illustrated nicely in the movie “Gangs of New York” and was the catalyst for creating the NYC fire department. And many others. It simply is not acceptable to have some people but not all, because of the risk to everyone. Vaccinations are the same way. Much easier to implement by government. And historically this is what has happened.
But we often hear the commentary about how we should be “running government like a business.” However I suggest this is an oversimplified argument that ignores true differences in the objectives of the public and private sector. The two sectors are different and let’s look at an example. If you were in charge of Ford Motor Company and let’s say you had only two vehicles, the F150 pickup (largest selling vehicle in the US) which has a high profit margin, or a passenger vehicle which does not have a high profit margin and does not sell nearly as well. If you determine that your revenues are likely to decrease as a result of the economy, where do you make cuts? There is an easy metric – cutting costs and reducing production of the passenger vehicle might actually maintain or improve your profit margin. So that manager looks like a brilliant leader.
He (generic) now gets hired to run a City because of his success at Ford. The City of course has a revenue shortfall, so what does he do? Much more difficult. He has police, fire, parks and recreation, planning, etc. so where do you cut. None of them are profit centers; they are all services, the value of which cannot easily be measured. He could evaluate the risk of higher losses if he cuts the fire department, but that likely has other issues. Hence there is a distinct different in the metrics between the sectors. So he cuts all services the same amount – sharing the pain because there is no means to measure the impact of success of cutting costs. Every government employee recognizes this method to reduce the budget. So how would that have worked at Ford? Well, cutting back on the F150 and the passenger vehicle the same percent would likely make the overall situation worse, not better. A Ford executive making that type of decision would be roundly criticized and likely dismissed, but that same person is viewed as a successful manager in the public sector. Nonesense. He’s still an idiot and deserves to be fired. Ditto the other officials that go along with such simplistic decision-making.
The public and private sectors are different, and while there are commonalities, the inability to directly measure impacts on the public sector make private sector applications suspect in many situations. Curtaining services that have much larger, unanticipated consequences, a risk that dissuades innovation because of the inherent risks and the risk of impacting some powerful constituency. Simplistic solutions that are commonly offered up simply mean that these “leaders” simply do not understand what their “products” are nor which ones are a priority. And hence they abdicate their decision-making for simplistic solutions that seem “fair.” Successful leaders in business and government will tell you lesson #1 is life is not fair. We need leadership to help us make better decisions.
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