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Sewer rate increase in hands of council
Plan calls for 71% jump over 4 years

Monday August 04, 2003

By Martha Carr
and Gordon Russell, staff writer

The New Orleans City Council is poised to approve a series of sewer fee increases this week that would raise customers' bills by 71 percent during the next four years as officials struggle to pay for massive upgrades to the miles of crumbling pipes beneath city streets.

The four-year rate plan includes a 15 percent increase that would go into effect immediately, raising fees to the second-highest level in the metropolitan area. The Sewerage & Water Board requested the rate increases to help finance more than $600 million of sewer work mandated by the federal government.

The council will consider the plan Thursday.

If approved, the monthly bill for a household using an average of 5,200 gallons of water would jump from $17.27 to $19.78, leaving only St. Charles Parish with higher monthly sewer rates. Sewer fees are assessed on 85 percent of water consumption.

The sewer bill for the same household would be $29.46 in 2006 under the schedule of rate increases the council is being asked to adopt.

"Considering the amount of poor people we have in this city, this is a major
issue, whether you are talking about an increase in sewer rates, sales tax, bus fares, fees or property taxes," Council President Oliver Thomas said. "On the other side of the debate, we have infrastructure needs that have to be met, no matter what the per-capita income is."

Council members have been loathe to approve rate hikes in recent years but may be under the gun to vote "yes" this time around, a council consultant said.

The federal government has ordered the city to repair its aging sewer system or face steep fines. And now the Board of Liquidation, City Debt is saying it won't allow the water board to sell bonds if the council doesn't approve the four-year rate plan.

In 1998, the water board signed a consent decree with the Environmental Protection Agency to settle a $29 million federal lawsuit concerning leaky sewer lines that were polluting Lake Pontchartrain. Under that agreement, the board pledged to invest millions in the system over 14 years. Rate
increases were identified as a primary way to finance the work.

Running for cover?

In the past, the council, which has to approve all rate increases, has dithered and sometimes punted when confronted with rate increases, mostly because of how unpopular they are with residents. But this year, knowing rate increases were sorely needed, council members and the water board took a different tack, resorting to some parliamentary pyrotechnics in search of political cover.

It worked like this: Last week, the little-known but powerful Board of Liquidation voted unanimously to refuse water board requests to sell bonds unless the City Council approves the rate hikes through 2006.

The decision allows the council to tell the public it has no choice but to raise rates.

What may elude the casual observer is the fact that there's crossover among the Board of Liquidation, the City Council and the water board.

Three of seven council members -- Marlin Gusman, Eddie Sapir and Oliver Thomas -- sit on the water board, as does Mayor Ray Nagin. The nine members of the Board of Liquidation, meanwhile, include Sapir, Thomas and Nagin, as well three other water board members: Sidney Evans, Norma
Grace and Barbara Lamont.

Sapir and Gusman did not return phone calls seeking comment.

"Getting the statement from the Board of Liquidation that we would not issue these notes any other way allows (council members) to say they have no choice in the matter," said Mary Zervigon, vice president of the board. "How well that works with people who are irate over rate increases, I don't know."

Thomas, however, said there was no gamesmanship in the maneuver.

"The Board of Liquidation doesn't play politics," Thomas said. "That's just not their thing."

He added: "The board didn't give the council much wiggle room. I think the Board of Liquidation has basically issued us an edict, and it's up to us to talk to whoever we need to talk to and do what needs to be done."

Zervigon, also a former member of the water board and a longtime government observer, said she sympathizes with the council's difficulty in approving rate increases.

"Utility improvements are among the most difficult projects to fund, because, unlike road projects, no one sees them," she said.

Of course, Zervigon said, there are sound reasons for the Board of Liquidation's actions that go well beyond protecting the City Council's political interests. Because the board is responsible for approving bonds to retire debt incurred by the water board, it makes sense that the board would want some assurance that the water board will be able to meet its obligations, Zervigon said.

Past intransigence

The council's reluctance to raise rates is nothing new, and, in fact, helped get the water board into the jam it's in now.

For 14 years, the council did not pass a single sewer rate increase. That streak ended in 2000, when the council approved an average 30 percent jump in the wake of the federal consent decree. An average 8 percent increase followed in 2001.

Last year, the council approved an average 15 percent increase but refused to enact the rest of a five-year series of increases requested by the water board. It's that same schedule of increases that is on this week's agenda.

The water board wants an immediate increase of 15 percent, another 15 percent increase in 2004 and a 14 percent increase in 2005 and 2006. If all are approved, operating revenue would rise from about $64 million this year to $103 million in 2006.

Avoiding such rate increases has been a primary rationale behind the water board's renewed effort to privatize the city's water and sewer systems. But after one failed attempt and a second bid process that will be scrapped if only one company participates, it's not a sure bet that a private operator will be chosen.

In addition, though the bidders in last year's privatization process promised the water board savings, the numbers they projected were not nearly large enough to offset the rate hikes being contemplated.

Nonetheless, the council's consideration of rate increases this week likely will give proponents, such as Sapir, another chance to tout privatization as a means of lessening the severity of the jumps.

The rate question should not have any real impact, other than rhetorical, on the privatization process, Nagin administration officials said.

If the council approves the rate increases this week, the water board is not required to enact them, they said. So if the water board were to choose a private company to run its sewer and water operations for less money than it now spends, the board would not have to raise rates to the level approved by the council.

High-water mark

Sewer fees in the metro area range from as low as $6.65 in Jefferson Parish to $35.80 in St. Charles Parish for a household that uses 8,000 gallons of water, according to a study on utility rates conducted by GSE Associates in Houma.

The study, however, is based on user fees and does not factor in taxes that some communities, including Jefferson Parish, charge to subsidize sewer operations.

The infrastructure problem became a crisis in the past decade because officials consistently deferred maintenance to keep rates low, said Marcia St. Martin, acting executive director of the water board.

The federal government is mandating that today's taxpayers pay for the mistakes of former decision makers.

Mickey Landry, a consultant hired by the council to evaluate the need for higher rates, said he's convinced another increase is needed and says he will recommend approval of the Board of Liquidation's recent position.

"This has actually taken the pressure off the City Council," he said. "The City Council has no choice."

Landry also said the water board has done a good job of complying with council mandates issued last year ordering the agency to streamline its operations and educate the public before asking for more money.

Among the demands were that the board provide the council with monthly reports on the sewer repairs, hold quarterly public meetings in every council district and implement the cost-saving measures outlined in a bid from employees vying for the private management contract.

"The council's position is that board has had a bad reputation for being inefficient and . . . that it should save and cut waste," Landry said. "Now they have more of a comfort level that the public is being educated about why these things are going on."

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Martha Carr can be reached at mcarr@timespicayune.com or
(504) 826-3306. Gordon Russell can be reached at
grussell@timespicayune.com or (504) 826-3347.