Extra information from the Ron Manfredi Report to the City Council on water rate costs
WATER RATE REPORT: CITY COUNCIL MEETING — WEDNESDAY, APRIL 4
The following is provided to complement and offer additional background regarding the Saturday, April 7, 2018, headline of the Madera Tribune: “Water rates should stay high (Manfredi says years of low rates have created problems)." Because I understand that sometimes deadlines and limited space constrains the press from providing extensive reporting on complex matters, I am providing additional details included in my Wednesday, April 4th, City Council presentation.
Because the impetus for my review was partially initiated as the result of criticism of City of Madera’s Water Rates and related complaints that total Management & Administrative Overhead “Cost Allocation” to Enterprise Funds such as Water Rates were excessive, my review focused on the actual categories or “cost centers” that constitute the City’s Total Water Services Cost Expenditures.
My findings may be summarized as follows:
1) WATER DELIVERY COST ARE ONLY SLIGHTLY AFFECTED BY ADMINISTRATIVE AND OVERHEAD COSTS
A) Administration/Direct Costs) — 2 percent (adjusted from 1.2 percent in report*). These are the “DIRECT salaries/benefit costs of management and mid-management personnel directly related to providing services, billing and customer relations, and managing such service (*In my April 4th presentation I corrected Chart B and increased these costs from $145,420 to $240,436 resulting in an allocation increase to 2 percent).
B) Overhead Allocation (Indirect Costs) — 3.6 percent — Necessary support services not directly related in providing the services (Personnel, Purchasing, Space and Utilities, Legal, City Clerk, etc.).
Therefore, the total Overhead (including management) costs for a two years average are approximately 5.6 percent — 2 percent plus 3.6 percent (*slightly higher than what my Charts indicated and I corrected during the presentation). These overhead costs when considering administering a $12,250,000 Water Fund Budget (2 year average) are very reasonable and not the cause of the City’s high customer water rates.
2) Capital Outlay Cost are 35.4 percent — Capital improvements for the water system (Wells, Storage Tanks, and Major Repairs) is the highest cost factor in the delivery of a safe and adequate community water supply.
3) PG&E Water Well Pumping costs are $1,380,000 and represent 11.3 percent of total costs. The more water used the higher the costs.
4) The Raftelis Report (commissioned by the city in late 2014 and approved in June 2015) recommended the current customer rate structure now in place. This report clearly indicates that the city was under-funding its Water Capital Improvement Program resulting in a backlog of water facility development.
It is my conclusion that the City was underfunding its Capital Improvement Plan (wells, storage tanks and other major improvement) because of a long history of assessing low Development Impact Fees (DIF) charged for new development. Furthermore, these fees were rarely updated to keep-up with increasing development costs. Due to a lack of collecting sufficient funds, the City fell behind in capital developments and placed a stress on the water system. Thereby creating the need for increasing fees from customer rates.
5) This report is not ascertaining that the City’s current system of cost allocations is completely accurate or that management salaries and compensation should not be reviewed. There remain certain concerns regarding this matters and examination is under review and should be available in several weeks.
6) The conclusion of my report is there is overwhelming information that indicates that for a substantial period the under-charging of Development Impact Fees on new development primarily necessitated the recent customer rate increased to fund backlogged capital improvement needs and increased maintenance cost.
The full report may be read on the City of Madera Web site: City Council Meetings, 04/04/2018 — View Agenda, View Reports: Item A-2 Water Rate Review.
— Ron Manfredi
Management Consultant
