Alameda County Water District Rate Increase Driven by Labor Costs, Not Drought
With California facing a significant drought, many water districts are raising rates on customers who have been asked to significantly reduce water use. Water districts cite the lack of rainfall, the rising cost of imported water, and reduced demand as reasons why customers must pay more. However, many districts fail to explain the role labor costs play in the rising cost of water.
On February 12, 2015, the Alameda County Water District (“ACWD”), a special district serving the southern Alameda County cities of Fremont, Union City, and Newark and governed by a publicly elected Board of Directors, proposed to increase the service charge portion of most water bills by 30%. A public hearing has been set for April 14. This will be at least the 16th consecutive year of rate increase and the third rate increase in the last 15 months.
In 2010, the bimonthly service charge for a single family residence with a 3/4” meter (the most common) was $11.62. The ACWD Board is proposing to increase the service charge to $41.54, a 257.5% increase in just five years.
The service charge is the fixed portion of the water bill all customers pay regardless of water use. Raising the service charge does not create any incentive for customers to save water, which is what most water districts are encouraging their customers to do during this drought. According to ACWD, customers who use 30 ccf (hundred cubic feet) of water will see their bill increase 6.2%. However, customers who use only 5 ccf of water will see their bill increase 19.6%.
Increasing this fee disproportionately harms low income households and households who use less water, including many seniors living on fixed income. Given that households most impacted by this rate increase are the ones who can least afford it, ACWD has a high burden to justify its increased expenses that necessitates this rate increase.
ACWD’s expenses are budgeted to increase $6.0 million in fiscal year 2015. On several occasions, ACWD said that its water supply costs are the main reasons for the increased expenses. In December 2014, ACWD’s Budget and Financial Analysis Manager said, “The primary reason for the is the increase in water supply costs during this drought period.” In a presentation to the public, ACWD said that 70% of their increased expense are due to water supply costs. In a notice mailed to all property owners detailing the proposed rate increase, ACWD again said that 70% of the $6.0 million of increased expenses are due to water supply costs. However, ACWD has been misleading the public for months by failing to mention that labor costs are included in the 70% water supply figure.
To separately examine labor costs, one must compare ACWD’s fiscal year 2014 actual labor costs and its fiscal year 2015 budgeted labor costs. In 2014, ACWD’s actual labor costs were $38.4 million. For 2015, ACWD budgeted $42.9 million, a $4.5 million increase (or 11.6% increase), for labor costs. In other words, 75% of ACWD’s $6.0 million budgeted increase in expenses are due to labor costs. It is clear that the main reason for this 30% increase on the service charge will be used to pay for the significant increase in labor costs and not to help alleviate water supply costs as ACWD would like customers to believe.
To understand whether a budgeted $4.5 million increase in labor costs is justified, here are some facts about ACWD’s employee compensation:
– More than half of employees received at least $150,000 in total compensation in 2013.
– Employees have received annual raises since at least 2003.
– Employees received a cumulative 21.7% raise during the Great Recession years of 2008 through 2012 (tied for the highest raise given in Alameda County government agencies).
– Employees will receive a 2.5% raise in 2015, a 3% raise in 2016, and a 3% raise in 2017.
– Up until July 2014, employees received free medical, dental, and vision insurance for their entire family. Employees currently pay only one quarter of one percent of their salary for full insurance.
– Management employees are reimbursed 2.5% of the employee’s share of the CalPERS retirement contribution.
– Management employees are reimbursed $500 a year for personal Internet and cell phone bills.
– Employees can earn an unlimited number of sick hours, which can then be converted to pension credit at retirement.
– ACWD has $66.4 million of unfunded pension liability.
– ACWD has $37.1 million of unfunded retiree health care liability.
In addition to employee compensation, ACWD gave $6,500 to a slush fund for employees to use how they please, including to attend baseball games, and paid $1,140 for employees to enter a sports tournament, which included 9 holes of golf. Although inconsequential to its finances, both payments were made after ACWD implemented a drought surcharge. Also, ACWD’s former General Manager, who receives an annual pension of about $250,000 a year, will receive $60,000 to write a book about ACWD’s 100 year history.
When a government agency faces a difficult financial situation, some citizens are willing to share in the sacrifice to ease the financial burden. In early 2014, ACWD declared a water shortage emergency and asked customers to reduce water usage by 20% , which customers have done. In mid 2014, ACWD implemented a drought surcharge. Ratepayers, who have reduced water use and faced higher water rates, have done their part to share in the sacrifice during this drought.
ACWD employees, on the other hand, have done nothing to share in the sacrifice during this drought (and during the Great Recession). Employees are generously compensated, receive generous benefits, have received annual raises for over a decade, and will continue receiving raises through 2017.
Yet, ACWD is still seeking to raise the service charge by 30% on the backs of the most financially vulnerable, including seniors living on fixed income, families collecting food stamps, families living paycheck to paycheck, the unemployed, and households who strive to conserve water, to pay for a 11.6% increase in labor costs.
If ACWD believes water rates must rise to support higher labor costs, ACWD needs to make the case on its merits rather than using the drought and water supply issues as a distraction. It is dishonest to ratepayers and especially those who can least afford another significant rate increase.
About the Author: Eric Tsai is a Fremont resident.
(1) See “Tsai-1_Rate-Increases.pdf” for history of rate increases. From 2009 and 2014 CAFRs.
(2) See “Tsai-2_2010-Service-Charge.pdf” for service charge fee in 2010.
(3) See “Tsai-3_Rate-Proposal-Presentation.pdf” for rate increases by water use (page 19).
(4) See “Tsai-4_Budgeted-Expenses.jpg” for budgeted expenses for fiscal year 2015. From Public Records Act request.
(5) Dec. 2014 article about consideration of rate increase: http://www.insidebayarea.com/news/ci_27156807/fremont-water-district-considering-another-rate-hike
(6) Feb. 2015 presentation about rate increase (page 7): http://acwd.org/DocumentCenter/View/923
(7) Notice mailed to all property owners about rate increase (page 2): http://acwd.org/DocumentCenter/View/927
(8) See “Tsai-8_Budget.pdf” for 2015 budgeted labor costs.
(9) See “Tsai-9_2013-Payroll-Records.xlsx” for calendar year 2013 employee compensation data. The first and last names were removed from the file. 128 employees earned over $150,000 in total compensation while ACWD had 215 employees as of the end of 2013.
(10) See “Tsai-10_Employee-Pay-Increases.pdf” for history of employee raises. From three previous MOUs.
(11) See “Tsai-11_Survey-Pay-Increases.pdf” for survey of 30 government agencies. From 2014 Alameda County Grand Jury final report.
(12) See “Tsai-12_Employee-Health-Insurance.pdf” for employee medical coverage information. First page is from prior MOU stating employee will receive full coverage and second page is from most recent MOU stating employee contribution for coverage.
(13) See “Tsai-13_Management-Benefits.pdf” for employer pick up of employee retirement contribution (page 2, Retirement).
(14) See “Tsai-13_ Management-Benefits.pdf” for employee allowance for personal Internet and cell phone bills (page 1, Management Allowance).
(16) See “Tsai-16_Unfunded-Pension-Liability.pdf” for unfunded pension liability as of June 30, 2013 (page 12).
(17) See “Tsai-17_Unfunded-OPEB-Liablity.pdf” for unfunded OPEB liability as of June 30, 2013 (page 10).
(19) Jan. 2014 article about history book: http://www.insidebayarea.com/news/ci_24912579/fremont-based-water-district-paying-280-000-history
(20) See “Tsai-20_Water-Shortage-Emergency.pdf” for water shortage emergency ordinance.
(21) See “Tsai-21_Reduce-Water-Use.pdf” for request asking customers to reduce water use.
(22) Confirmation from ACWD’s Twitter page stating ACWD water use is down 20%.