Despite a report from the city’s audit department that called for lower increases and protests from a packed room of residents about a lack of collection of $25 million in delinquent water bills, the Board of Estimates, Baltimore’s spending board. voted Wednesday to approve a three consecutive years of rate hikes for city water and sewage bills.
The first increase — 15 percent — will go into effect immediately. Two other rate hikes of 11 percent each will go into effect in fiscal 2015 and 2016. When all hikes are complete, water rates will rise by 42 percent in three years compared to current rates.
City Comptroller Joan Pratt and City Council President Bernard C. “Jack” Young voted against the increases. Mayor Stephanie Rawlings-Blake, Department of Public Works Director Alfred Foxx and a representative of the city solicitor’s office voted for it.
“I do not have the luxury to vote against this increase,” Rawlings-Blake said, reading from prepared remarks. “If there is a catastrophic water infrastructure failure or if our system breaks down, if DPW doesn’t have the financial resources to prevent or repair such an incident, that is my responsibility. If the water system doesn’t work because it doesn’t have the funding it needs, that is my responsibility.”
City Auditor Robert L. McCarty Jr. presented an alternative to the hikes before the vote. In an analysis, McCarty said rate hikes of 13 percent in fiscal 2014 followed by two consecutive increases of 11 percent in 2015 and 2016 would meet the minimum requirements the city needs to build cash reserves to sell bonds for expensive water and sewer infrastructure upgrades and replacements.
“According to utilities’ personnel, the proposed rate increases provide more reserve funds than required to meet expected legal covenants and required revenue bond coverage so that utilities’ bonds are more attractive to investors,” McCarty’s report said.
McCarty said the city is owed $24.5 million in delinquent water bills that are more than 260 days overdue. That totaled 15,063 accounts. About $7.3 million of those accounts are in bankruptcy proceedings and at this point are slow to collect, but $17.2 million are fair game.
Of those water-only accounts, 3,986 are Baltimore County customers, whose outstanding delinquent balances total $3.6 million. Baltimore County residents are not subject to losing their properties through tax sale for delinquent water bills, McCarty said, as are city residents.
Foxx said the department is following procedures to collect on those county accounts.
He also recommended that the Board of Estimates only vote on one increase for fiscal 2014 and then revisit the need to increase again in 2015 based on economic circumstances. That was voted down by the board in an overall motion to approve all three rate hikes.
Rudolph Chow, head of DPW’s Bureau of Water and Wastewater, argued against McCarty’s recommendations, saying, “reducing the recommended rate increase will create undue financial risk for the utility and city.”
He said the uncertainty of projecting revenues and expenses, as well as a pressing need to begin to repair the city’s aging and crumbling infrastructure, formed the basis for the bureau’s rate proposal.
“We believe a three-year rate proposal provides the best balance between this uncertainty and the need to provide the stable working environment to most efficiently and effectively manage utility operations and long-term capital planning,” Chow said.
He added that the city needed to keep more than 90 days of cash reserve on hand for private revenue bond investors, funds that would come from the rate hikes. Ideally, the reserves should total about 365 days, he said.
“An increase in interest costs on long-term debt of 0.25 basis points would result in approximately $140 million of additional interest expense on the 10-year capital spending projection of $2.5 billion,” Chow said. “Holding a less than 30 day, a bare minimum in cash reserve, will be fiscally irresponsible.”
McCarty said Chow and his deputy, Blake Bornkessel, stonewalled repeated requests to meet Tuesday to discuss the audit department’s findings prior to the Board of Estimates meeting. When Pratt questioned Bornkessel in the open meeting, he laughed.
“You think it’s funny,” Pratt said, to Bornkessel. “They waited all day, until 6 p.m. You never responded. That speaks to the lack of collaboration, arrogance and lack of respect. I remind you, we are one city.”