Jefferson Money Games

KEEP THE JEFFERSON UTILITY COMMISSION

VOTE NO ON THE APRIL 3 CITY OF JEFFERSON REFERENDUM

The April 3 ballot in the City of Jefferson has a referendum question asking if you approve of the City Council abolishing the Water and Electric Commission and transferring supervision of the Utility Manager to the City Administrator.   For the reasons set forth below, I believe you should VOTE NO.

For the record, my name is Phil Ristow.  I have lived in Jefferson for 37 years.  I was Jefferson City Attorney for 11 years and Jefferson County’s Corporation Counsel for 24 more.  During my time as City Attorney, the Utilities expanded by adding a well and converting the electrical service to 138KV to take advantage of cheaper electricity which advantage still exists today.  I am now a member of the Utility Commission, appointed in 2015.

BACKGROUND

In May, 2016, the City Administrator lined up a no-bid handpicked consultant to do an 8-10 week analysis to identify possible “efficiencies”that might be gained in the city’s utilities, Water and Electric supervised by a citizen Commission, and the Wastewater utility managed by the Administrator and the Council.  (The Stormwater utility is primarily a process set up to charge property owners fees for costs formerly paid with tax dollars.)   After well over a year, the final report made a number of recommendations, some of which were no-brainers like doing a citywide infrastructure survey, some of which were unsupported conclusions and others that left many questions unanswered.  Unfortunately, based on the superficial nature of the review, it appears quite possible that overall costs may actually increase if all of the recommendations are adopted as the “savings” consist of leaving vacant positions vacant with no actual reductions in cost at this time. There has been no accounting for probable pay increases.  And, there are no savings from eliminating the unpaid Commission. While there is more discussion of the study below, it is important to note that the study DOES NOT recommend abolishing the Commission operating the Water and Electric utilities.  The last recommendation in the study is to establish a Charter for the Commission, not eliminate it. Before any significant changes are actually considered, numerous questions should be answered based on accurate and real data (with no preconceived outcomes).  More on that later.

UTILITY BILLS ARE NOT SUPPOSED TO BE A SECOND TAX BILL

State law limits the amount that the city can raise property tax bills from one year to the next.  When a city wants to spend more and it runs up against a legal tax cap, where else can it look for money?  Often, like the creation of the Stormwater Utility, efforts are made to use utility bills as a kind of a second, substitute tax bill.  The City Administrator calls the utilities “profit centers” so if the Commission is abolished, there will be no independent citizen group to protect the water and electric utility revenues from being used in “creative” ways to pay regular city expenses or to ensure that proper investments are made every year to maintain the infrastructure.   For example, there was a reported plan to take $250,000 from the utilities for the second half of the payments for the ill-fated Osteopathic College study.  And there has been some “creative” administration in recent years, some of which has generated significant payments  directly into the Administrator’s pocket. Could there be a pay increase for the Administrator if the Commission goes away?  More on that below.

Your utility bill has a number of line items.  Water and electric charges are established by the State of Wisconsin Public Service Commission.  The rest of the items on your bill including sewer charges are determined by the Council.  Services once funded by property taxes that have been “transitioned” to the utility bill over the years include public fire protection, refuse/recycling, and stormwater control.  The tax dollars “saved” can then be spent on other things.  The most recent example is a year ago when leaf removal was added to the utility bill as part of refuse and recycling.  In the words of the City Administrator, it was “transitioned off the property tax rolls to monthly utility bills”.  The Legislature has caught on to this method of evading the property tax levy cap and has enacted new law requiring a city to reduce its levy if it  moves certain services to utility bills.  With the big loophole closed, one new trick will be to “allocate” costs paid by property tax levy to utility  bills.

The Stormwater Utility is a place to allocate costs that used to be tax funded. For one, the City Administrator is charged to this account at the rate of 1.4 hours per week.  (How realistic is this allocation when he didn’t regularly attend the Utility Commission meetings covering its $13 million operation for perhaps 1.4 hours in a month?)  The Storm Water administration charge of $39,560 covers two projects totaling $115,000 in 2018.  The Wastewater administration bill for $170,000 is also built into the sewer charge on your utility bill.  Per the City Administrator on page 8 of his 2018 budget message, the amount “is completely arbitrary and is established annually by the City”. 

How many current city expenses will be (arbitrarily?) allocated to the Water and Electric bills if there is  no Commission around to stop it?  If each utility gets an Administration allocation like the Stormwater Utility, $80,000 will be “transitioned off the property tax rolls to the monthly utility bills”.  That would eat up a good chunk of the paper “savings”that are supposed to occur from not filling vacant positions.    (And, the study failed to actually analyze which vacant positions might actually be needed!)  If the Commission is abolished, who will keep city allocations or arbitrary charges off your water or electric bill?  Can you rely on an administration that looks at the utilities as “profit centers”?

WHILE WE’RE AT IT,  A COUPLE MORE BUDGET QUESTIONS

At its April 5, 2017 meeting, the Council took $150,000 from the Stormwater Utility to fund implementation of the Branding Study and Harry Potter expenses.  After emailing the Finance Director that by city code,  Stormwater funds can only be used for Stormwater purposes, the Administrator stated that the money was “to repay an advance from the General Fund to the Stormwater fund from a few years ago”.  If the money belonged to the General fund, why wasn’t it in there when the tax levy was calculated over the intervening years?  How much other money is floating around, or stashed in other funds that could be used to lower the tax rate if it was pointed out to the public and the Council?

Another interesting budget maneuver has come to light during review of City budgeting practices.  Back in September, 2017, written questions were submitted to the Council about a couple of situations.  One had to do with  $311,500 of grant revenue missing from the 2015 budget. Section 65.90 of the Wisconsin Statutes requires the city when developing its budget to “list all . . . anticipated revenues . . .” for the purpose of giving notice to the public (and the Council) of the financial assets available to reduce the amount of taxes needed to be raised.  The City Administrator prepares the budget.  The question presented to the Council in September was whether the revenue was accidentally overlooked, or left out on purpose. Section 68-4 C (2)(p) of the city code directs the City Administrator to establish communication procedures for citizen questions to get prompt attention and be expeditiously resolved. There has been no effort to answer the question even though it was asked again in November.  The Council should ask the Administrator to review his emails from September, 2014, and advise the Council and the public as to why the funds were not budgeted as a revenue. At the end of the year, did an unexpected $300,000 surplus lead to a good evaluation and a nice bonus for the Administrator?   Are such legal budget rules ignored frequently?

Had the Council been advised of the additional $311,500 anticipated revenue, it could have decided to use it to lower taxes.  If used to reduce taxes, the tax bill on a $150,000 property would have been about $100 lower.

The Water and Electric Utility budget is about $13,000,000.  The City budget is about $12,000,000.  Are you ready to make the Utility cash flow easily accessible for more “allocations” or “creative” uses?  Keep the Commission on the job to keep rates reasonable and make sure the money you pay is used for regular infrastructure investments for the long term health of your utilities and nothing else.

For the past 116 years, the Water and Electric utilities have been managed by a citizen dominated commission.  The Police Department is managed by the Police and Fire Commission.  The library is managed by the Library Board.  Numerous other city functions like Planning, Parks and Zoning Appeals are managed by boards and commissions.  Currently, the Utility Commission has seven voting members: the Mayor, two aldermen, four citizens; the City Administrator is a nonvoting member.  The Commissioners are not paid.

The Commission’s job is to independently make the decisions necessary to provide services today and tomorrow.  Regular investment in infrastructure is the key to long term quality service at affordable rates and low debt.  Discussing the Utility’s low debt in the most recent audit, the Auditor “stated that the percentage of debt is decreasing and that was very positive.  Typically, when she sees a low percentage of debt she questions if the utility is maintaining its infrastructure adequately.  She stated she does not see that as a problem at Jefferson Utilities.  In 2016, Jefferson Utilities spent $800,000 on capital projects.  This is good news.” (Minutes, May 2017)

In addition to making adequate, regular capital investments to maintain the infrastructure, the average Jefferson Water and Electric residential customer enjoys the lowest combined rates in Jefferson County.  And this is after the rate adjustment required by Tyson’s closing.

(Waterloo’s rate increases have now been completed.)

The study was supposed to take 8-10 weeks.  It was approved in July 2016.  The consultant was to interview all of the relevant people and discuss recommendations with the stakeholders.  There was not going to be a final report.  Months later as the study dragged on, Alderman Brandel called the process ridiculous.  Eventually, after more than a year, and without the consultant interviewing six of the Commissioners,  the final product was made available with 19 recommendations. It leads off with some rate information.

Utilities are a little bit like a carpool.  If you share the cost of commuting with three friends, your share will be one quarter, or 25%.  If one friend moves away, your share of the carpool expense would be a third, or 33% of the total.  That increase of 8% going from one quarter to one third is a 32% increase.  This is about what happened to water rates when Tyson closed.  Tyson was about 27% of the water demand.  Just as the car in the example uses the same amount of gas, insurance and maintenance whether there are three or four occupants, the water system has all the same wells, pipes and related costs even though Tyson is gone.  For the average residential customer,  water rates went up about $8 per month, and electric went up a little over a dollar per month.   Jefferson now owns significant excess capacity.  It all must be maintained.  What is missing is Tyson’s contribution.

Perhaps to try to cast the utility in a somewhat negative light, the study says water rates are 20% higher than the average in the county.  (It ignores the fact that combined water and electric bills for the average resident are the lowest in the county.)  Post Tyson, the PSC raised the average Jefferson residential water rate 35%, which means Jefferson was charging 15% less than average before Tyson closed.  So things were evidently being managed rather well.

Over a recent 25 year period, about 38% of the water main was new.  Investment in infrastructure continued even with the low customer rates.  The Utility has less than $1 million of debt, which was used to address radium after that federal standard changed.  The point is, the Utilities did not suddenly become inefficient because Tyson closed.  The consultant noted that because the rates were recently changed, Jefferson will improve its ranking over time as all the other utilities get increases.

Another study “problem” is billing cost.  A chart shows Jefferson’s time spent per customer as three times that of Waupun’s.  The PSC data shows quite a different picture with Waupun’s customer account cost as $29.14 per customer, while Jefferson’s is $19.03, only 2/3ds of Waupun’s cost.  

And Waupun has AMI, automated metering and billing.  Before you get too excited, it cost them about $1,700,000.  Which, without any financing costs, is about $85,000 per year over a 20 year expected life.  Jefferson is old fashioned and uses meter readers.  Meter readers total one FTE (2080 hours) at about $16-17 per hour adding WRS and SS for a total of about $40,000 for the year.  AMI is not a decision to be undertaken lightly.  The Commission has money budgeted this year to review the math in finer detail, but AMI is no magic bullet.  It is like running a city wide wifi system with radios in the meters.  It still needs constant looking after by staff.  It is probably not cost effective to change at this time, but it is worth a look periodically to see when it might make sense by generating real savings.

Another “too much billing time” study finding- two customer service areas, a walk up window indoors and a drive up outside.  The consultant determined there were about 48,000 window visits per year.  The recommendation was to close the service windows and have people make appointments.  For argument’s sake, what business with 48,000 customer visits would say it makes sense to close the customer access points and require a phone call or email to make an appointment?  That would increase the time necessary to help them, and probably anger quite a few, beyond just being very inefficient.

Fortunately, the consultant’s 48,000 number is wrong by a factor of about 5.  The real number is about 700-900 per month, or roughly 10,000 per year.  Staff did a test closure of the drive up window for several months.  It was counterproductive and poorly served the handicapped,  elderly, moms with kids and anyone else in their car by making them park and come inside.  Inside, it created longer lines as only one window was available.  That trial has mercifully ended.  During a rougher part of the winter, the decision was made to allow people to use the drive up.  The consultant’s proposed “fix” turned into a self created problem which has now been solved.

One last comment on the “excess billing cost” issue – the consultant advocates adding the City Finance Director at the top of the office staff column of the organization chart-adding people instead of reducing staff!  How does that save any money?

The study doesn’t have any benchmarks for staffing.  The number of FTEs (one Full Time Equivalent= 2080 hours per year) for similar operations is missing.  It seriously affects the analysis of the Wastewater department. Over several budgets, the authorized positions in Wastewater continue to show a chief plant operator even though the City Administrator stated numerous times it had been eliminated.  There is a half time shared position that is said to be vacant, but the person appears to have been working in the Public Works Department, full time? Both the Chief Operator position and the shared position were on the Council agenda on March 6, 2018.

The Budget’s Authorized positions don’t match the employees actually there, and the study describes a filled position as vacant.  At least the 2018 Authorization has cut the Wastewater FTEs to 4, which the Superintendent says in his state required annual report is enough.  And the study says the lab job is really .5 FTE, so maybe Wastewater needs 3.5 FTE.  Where is some data from comparable cities to know the answer?

The study does point out that pay differentials exist if Water and Wastewater are combined.  Wastewater operators are paid $6.56 per hour less at the 2016 control point, which includes retirement and social security.  If, as stated by some authorities along the way, the Wastewater staff will be brought up to parity, that would cost $27,290 at the control point.  And if the weekend pay goes from 7 hours of overtime to 18 hours at straight time as recommended, the additional cost could be as much as another $12,792 for a total of about $40,000 of new expense.  Not a savings.  The 2018 Wastewater wage budget shows an increase of $51,875 more than the projected 2017 total amount.  Not a savings.

Two substantial issues about the operation of the Wastewater department were missed by the study altogether.  Two years ago, Baker Tilly, the same firm the consultant works for, pointed out that the Fund Balance was excessive and could be used to reduce rates and the system suffered from a troubling percentage of clear water inflow and infiltration.

Unrestricted Fund Balance recommended by the auditor is 25% of estimated operation and maintenance expenses.  For 2018, Wastwewater has O and M expenses of $1.1M, 25% of which amounts to $275,000.  The budget shows a total Fund Balance of $2,417,933 as of 1/1/18, which for the first time includes the equipment replacement account of $1.17M. The unrestricted portion was $673,000 at the end of 2017, for an excess on hand of $398,000.  Before rates are raised, this excess cash should be considered to offset any increase.  

And the inflow/infiltration problem has only gotten worse.  Baker Tilly pointed out that exceeding the industry average of 25% drives up costs and should be researched and resolved.  For 2016, the rate appears to be 55% meaning that more water is entering the treatment plant from outside the system than is being billed to customers.  That number will probably be even higher for 2017 as Tyson was still operating for half of 2016, putting substantial water in that was billed.  Infrastructure would appear to be in poor condition, and although Wastewater has excessive Fund Balance, there appears to be no plan to identify and develop a solution for the problem. (Fort Atkinson is currently testing its entire system at the cost of $150,000.)

It looks like Wastewater may be overcharging for and under maintaining the sewer system.  When concern for the aging sewer pipes on Church and North Street was cited as a reason not to replace water mains with lead joints, the Utility Commission had to push the issue to get the new water pipes in.  The old sewer lines were just paved over. Is this the way you want to see a combined department be run?

Another unquantified potential expense the study left out is potential raises for various managers if the proposed organization chart is adopted.  The City’s compensation system is designed by Carlson Dettman.  A standard part of the Carlson Dettman system is that job changes adding new responsibilities are the basis for pay review.  One factor is the size of the budget a person answers for.  If the City Administrator goes to the top of the chart with the Utilities in it, his budget will more than double from $12 million to $25 million.  Comparable positions with similar duties elsewhere are used to come up with market pay for the new set of responsibilities.  Plymouth, a city of similar size, has an organization chart like what is proposed here, with the City Administrator at the top of the city operation and the utilities.  From the most recent data I could find (2013), the Plymouth Administrator was paid $17,000 more than the Jefferson Administrator.  That should be reviewed as well as whether the Finance Director, Wastewater Superintendent and perhaps the Engineer will all qualify for some increase.  Again, this is all new expense, not a savings.

Did the City Administrator fail to tell the Council of this possibility? He advocated for the Carlson Dettman system.  And there is a prior history of strange things that just happen to positively affect his pay.  In September, 2009, the City Administrator was notified by the State of Wisconsin that one condition of the City getting state health insurance was the requirement to end payments to employees to opt out of insurance.  The City approved the state program in October, effective January 1,2010.  

The second paragraph from the bottom of Larson’s letter says opt out payments to nonunion employees should end what would have been January 1, 2010.  Instead of following the contract, payments continued to the Administrator and a few others.  There is no reference to opt out payments in the current personnel manual.  so how do they continue?

The written questions above were submitted to the Council twice.  After a records request showed the payments continued to be made over the years at the rate of about $7,000 to $9,000, the Administrator did mention as an aside at an unrelated meeting that the “City determined’ to do that.  Unfortunately, it doesn’t appear that there is any record of that decision.  And would the Council have done it had they received the email from the state and been fully informed that it was prohibited? Were they kept in the dark?

In 2015, the state legalized the opt out program effective January 1, 2016.  They decided to pay $2,000 for an employee to waive insurance.  In 2015, the Administrator received $8,900 under the unauthorized program.  The Utility Commission, seeking to save some money in 2016 as would be allowed by the changes, requested that the City adopt a policy allowing its employees to opt out.  The Administrator handled it before the Finance Committee.  Surprise!  There wouldn’t be a new city policy to that effect.  And there appears to have been no disclosure of the $2,000 amount either.  So, the payments continue to 3 people at the higher amount, even though no one has been able or willing to produce any official action as to how it could be paid in the face of the contract prohibiting it, the 2012 Personnel Manual or any policy created once it was able to be done in 2016.

Want to save some money?  Adopt an opt out policy today.  Use the money paid to three people (estimated $24,000) at the rate of $2,000 per person.  If 12 people sign up, the net savings would be about $180,000.  The Council probably hasn’t gotten that information from the Administrator.  As to the Carlson Dettman question above, the  Council could consider calling Charlie Carlson at an open meeting and ask if the changes proposed would support a pay increase for wastewater operators, the Administrator and perhaps others, and what sort of comparables would be used to arrive at an appropriate salary.  Then net out all the “savings” after the Wastewater  increases, the filled vacant positions and the management salary adjustments.  More savings from RFPs for professional services could help, too.  The Commission lowered its audit contract by $20,000 by an RFP process.  The Commission recently got an engineering bid from a firm different from the City’s long term no bid firm that was 77% less than the city’s regular engineering firm.  But maybe the Utilities should close the drive up window . . .

For all of the communication/collaboration issues mentioned, it takes two to make it work.  Those issues could be resolved by the City Administrator’s attendance at Commission meetings .  After all, he is a (nonvoting) member by city ordinance.  If he has material information, it should be presented so it can be considered.

And finally,  remember, the study DOES NOT recommend the Commission be abolished even though the resolution presented to the Council on November 21 says it does.  Just one more fake fact.

It ain’t broke.  Don’t “fix” it!!

If you have a question, you can email me at moneygames@mail.com.  I will answer questions as I can and update this from time to time.

Remember to VOTE NO on April 3.