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Critics say citys utility fees used as slush fund

Ratepayers subsidize program, but where does the money go?
by: CHRISTOPHER ONSTOTT Madrona Schubert, 5, plays under two large water towers at Sabin Hydro Park in Northeast Portland. The park, funded through Portlanders' water bills, is one of many city commissioner pet projects that critics say shouldn't have been billed to sewer and water ratepayers.

What do these have in common?

A. City Commissioner Amanda Fritz's 2008 campaign

B. the new Portland Rose Festival headquarters

C. scenic land next to River View Cemetery

Answer: All were paid for, in part, by Portlanders writing out checks for their water and sewer bills.

Critics of such spending sued the city Tuesday, accusing city councilors of using water and sewer rates as a 'slush fund' for pet projects. The lawsuit filed in Multnomah County Circuit Court, likely financed by large industrial users of water and sewer services, cited 16 questionable uses of ratepayer money, and the group's attorney, John DiLorenzo Jr., says that's the 'tip of the iceberg.'

The group won't have to look far for other items, because what experts say are the two largest 'non-mission critical services' were left off the list. Those are the utility license fee and subsidies for low-income water and sewer customers.

Defenders and critics both say the City Council's liberal use of sewer and water funds is small potatoes and eliminating it won't bring much relief to Portlanders paying some of the nation's highest sewer and water rates.

'It's not a huge percentage of the budgets; we're talking about a couple of percentage points of spending,' says Justin Delaney, a vice president at The Standard, and a member of a city charter review panel working on a proposal to create an Independent Utility Commission.

But that's not the case if the city re-evaluates its license fee and low-income assistance, which dwarf the other questionable spending items.

This year, the city will levy $17.3 million in utility license fees on sewer and water customers - though ratepayers won't see a word about it on their bills. Essentially, the city is taxing water and sewer ratepayers for using the city services, and funneling the money into the general fund to be spent wherever the City Council deems necessary. The city license fee is 7.5 percent of sewer and water bills, though the City Council capped collections several years ago, to ramp down the effective rates to 5 percent.

The city used $4.4 million from sewer and water ratepayers in the most recent fiscal year to subsidize payments for low-income people. This year, the subsidies could top $5 million, says Brad Blake, a program coordinator for the Water Bureau who oversees the subsidy program.

Both charges have had little attention, as the media focused on smaller-ticket items that are easy to explain and photograph - and more likely to trigger citizen's outrage - such as the $1.5 million-plus renovation of the Rose Festival building at Tom McCall Waterfront Park.

But as the city debates formation of the Independent Utility Commission, and other proposals that surfaced in response to the controversial use of sewer and water ratepayer funds, the utility license fees and low-income subsidies figure to get more attention.

A cash cow?

There are two ways to pilfer money from sewer and water ratepayers, DiLorenzo says: spend their money on projects unrelated to water and sewer services, or simply levy a tax on sewer and water bills.

'I think it's abused,' DiLorenzo says, of the license fee.

The city reasons that it charges other utilities a fee to use city rights of way, such as telephone, natural gas, electric and cable companies. The license fee for PGE, Pacific Power, Northwest Natural and cable companies is 5 percent of customers' bills, and it's 7 percent for telecommunications utilities. The fee for the city's sewer customers is higher than most of the private utilities, though it's expected to fall to 5 percent by next year, according to Jim Hagerman, Bureau of Environmental Services business services manager. The license fee for water services, because of the cap, has reached the 5 percent level.

A March audit by City Auditor Lavonne Griffin-Valade chastised the city for not even letting customers know they're paying the utility license fee by itemizing it on their sewer and water bills.

The utility license fee provides an incentive for City Council members to raise - rather than lower - sewer and water rates, says Kent Craford, who represents big industrial water users and is a key force behind the lawsuit. Whenever sewer and water rates go up, so does the utility license fee, showering money on other bureaus, Craford says.

Members of the Portland Utility Review Board, a volunteer panel that provides an independent look at city utility programs and rates, have criticized the City Council for levying the utility license fee 'as long as PURB been in existence,' says John Gibbon, a member of the board.

However, Gibbon, an attorney, is convinced by arguments from city finance staff that the city can't levy a tax on private utilities and ignore its own utilities. To do otherwise could invite litigation and jeopardize what is a large source of city revenue, Gibbon says.

City Attorney Linda Meng says there is an 'equitability argument' that could be made if the city didn't tax its own utilities. However, the city isn't obliged legally to do so, she says.

'I don't think there's a legal basis to say the city has to charge the fee on its own utilities,' Meng says.

If there were, it would appear there's nothing that binds the city to charge the same tax rate, because it's clearly not doing that now.

What's clear to critics is that the City Council does have a large sum of money from water and sewer ratepayers to use for pet projects from the utility license fee, yet it still funds additional programs that aren't essential water and sewer services from those ratepayers.

Most poor don't qualify

Subsidies for low-income residents are likely to have more support among sewer and water ratepayers. However, the charter review committee acknowledges that's not 'mission critical' spending. A draft charter reform proposal includes an exemption so it's clear the subsidies could continue if an Independent Utility Commission was authorized by voters. However, the current draft lists a 'floor' for spending of 1 percent of water and sewer rates, Delaney says. That's lower than current spending.

There's no debate that more people are hurting financially and can use help paying their water and sewer bills. But Portland has what could be the nation's most generous low-income subsidies for sewer and water ratepayers.

'It would be hard to find anyone that invests this kind of money in low-income families,' Blake says. 'We've looked around; we can't find anybody.'

Demand for the subsidies is rising, given the state's high unemployment rate and some of the nation's highest sewer and water rates. There are now 9,229 people getting the subsidies, Blake says, up from 4,659 in June 2007, before the Great Recession began.

Blake sees the income statements from people who qualify, and wonders how those folks are making ends meet.

But the subsidies don't get to the poorest of the poor, in contrast to electricity subsidies that help people pay their winter heating bills. That's because subsidies for water and sewer bills don't go to those who live in apartments, mobile home parks or other multifamily projects. It's too costly to install water meters in each unit, because it requires separate underground plumbing, Blake says. Putting an electric meter in an individual apartment, by contrast, is relatively easy.

The city doesn't want to give the water and sewer rebates to landlords, because there's no assurance they will pass on the subsidies to their tenants.

The city relies on social service agencies to check applicants' proof of income to qualify for the sewer and water subsidies. However, that can be as simple as showing a W2 form or Social Security check, and there's no way to assure the applicants don't have other income, Blake says.

People qualifying for subsidies keep them for two years, and then must reapply. It's rare for people to notify the city that they have obtained jobs during the two-year period and no longer need the subsidies, Blake says.

Craford says his group needs to devote more study to the utility license fee and low-income subsidies, and may raise those concerns in the litigation. If the lawsuit is successful, current and future city councilors will be reluctant to keep charging sewer and water customers for non-mission-critical items, he says.

The city charter language that forbids such spending is 'plain as day,' Craford says. 'If there's a judge's ruling that says this is unlawful, that will prevent future officeholders from monkeying around on these things in the future.'


Next week: The Tribune looks at four ideas to address questionable spending by the city water and sewer bureaus.