Water Bills, Fees, and Our Politics

One thing I’ve learned to watch for in candidates for local and national offices is how good they are at doing the math and connecting the dots. When I hear a candidate who knows what the numbers mean and what they don’t mean, and who understands and can explain causes and effects, I know I’ve found one who deserves my careful attention and likely my vote.

It’s not so much a question of native intelligence or college degrees, or of being articulate and clever. All these things can help – or hurt. It’s that I know she’ll do her homework on complex issues, if elected, because she’s already doing it. I know he’ll reason carefully in difficult matters, because he’s already doing it.

Water Bills, Water Bills Everywhere

In my small city, American Fork, Utah, water bills are a sore subject and have been for several election cycles. They’re mentioned in virtually every debate, and over the years we’ve seen the full range of responses, from the shallow and the knee-jerk to the well-reasoned and historically aware.

I expect our incumbent candidates to have mastered the essentials. Most of them have, but it has proven possible to serve an entire four-year term without learning much.

In challengers I’d love to see mastery from the beginning, but evidence of thought and discernible progress over time are sufficiently encouraging. For example, at the beginning of a race a green candidate may simply declare that water bills are too high, and that they place too heavy a burden on young families and on senior citizens with fixed incomes. Anyone can say that; anyone can think that. It’s a matter of paying a bill or two, or of listening just a little and having a primal sense of which voter buttons to push. As the campaign progresses, the able and conscientious candidate will do better, perhaps to the extent of explaining correctly why the bills are so high, what that means for the future, and what we can learn from the past. We may see candidates change their positions on key issues, as they connect more of the dots.

If we have the misfortune to elevate shallower candidates to office, there is still hope. The hard-working ones will learn quickly, as they wrestle with real issues and decisions. They may end up serving admirably. Others may stubbornly resist learning and logic for the full length of their terms.

All of this matters because, if voters and officials don’t know how fees work, we may do exactly the wrong things and make matters worse. The same is true of other complex issues.

We’ll look first at impact fees, because in a sense they’re simpler. Then we’ll come back to my water bill, which is more complex – and really is higher that it might have been.

Impact Fees

Impact fees are the fees a city charges to developers and others who want to build houses, commercial buildings, or other structures in the city. Expanding the city’s infrastructure costs money. It includes extending water and sewer systems, roads, and police and fire protection. So the city charges impact fees to defray these costs.

Two things make impact fees a simpler example for our discussion. First, in Utah it is illegal for them to exceed the actual costs of extending the infrastructure. Second, they regularly receive outside audits to insure that they don’t. There’s some room for interpretation, but not a lot.

Please note that we’re talking about real costs. They’re not arbitrary. If the city extends its infrastructure to a new lot or development, someone must pay the costs. I mention this because some candidates talk as if these fees can be lowered or even removed purely on the whim of city officials, without consequence. (Perhaps you can see this coming: such candidates are not connecting the dots.)

If impact fees are as high as they are legally allowed to be, they cover the full cost of extending the infrastructure. If they are lower than that, which is perfectly legal, then the city eats the difference. Here’s another way of saying that: if impact fees are lower than the costs they’re meant to defray, taxpayers pay the difference.

So here’s a key dot which the best candidates will connect: To say that impact fees should be lower is to say that the city’s taxpayers should subsidize development. You can see how someone who understands this might have a position opposite from someone who doesn’t.

All else being equal, it is desirable that fees should meet costs. In theory, economies run more efficiently when artificially low prices (costs) don’t distort supply and demand, and when the one paying the costs, and deciding to, is the one receiving the benefit. Our labyrinthine health care system is a cautionary tale on this theme.

But economics is not that simple. Among other things, there are externalities. A city could rationally choose to keep impact fees below actual costs, to attract development, for the sake of the benefits growth brings to people and entities beyond the developer.

There is a world of difference between these two questions:

• Should we subsidize development by lowering impact fees – or keeping them low – and making up the difference in costs from tax revenues?
• I’ve heard that our impact fees are unnecessarily high. Won’t you please vote for me, so we can cut them down to size?

The former is what conscientious, well-informed candidates and voters debate and discuss. The latter is for shallow, inferior candidates who don’t know better, and for the cynical ones who know better but hope to appeal to voters who don’t.

Other Fees (But Especially Water)

A city has lots of fees. American Fork has two municipal water systems (culinary and irrigation) and a a stake in a multi-city sewer system. It contracts with a private company for garbage collection and recycling. So the most conspicuous fees are for water, more water, sewer, garbage, and (optionally) recycling. They’re all rolled up into one monthly, itemized bill. Outside the monthly bill there are also recreation fees, licensing fees, inspection fees, ambulance fees, library fines, and more, seemingly ad infinitum. But let’s focus on those water bills. For most in the city, there are two parts, one for each system – culinary for household use and irrigation for watering lawns.

Once again, all else being equal, it is desirable that fees should meet costs. In the case of water, there are costs for administration (such as billing and reading meters) and for operating and maintaining the systems which deliver the water. Early in the last decade in American Fork, water bills weren’t even meeting these costs. You might say they were artificially low – arguably because it was politically difficult to increase them, when costs increased or the dollar shrank. This meant that taxpayers were paying the additional costs, or in other words subsidizing everyone’s water bill.

You may have noted that I left a major cost off my list. From time to time, we hope no more often than every few decades, the whole system wears out and needs to be replaced, either all at once or piecemeal. This is an enormous cost, and if water bills weren’t covering the other costs back then, they certainly weren’t covering this one. But either we keep bills high enough to allow us to save for large infrastructure costs, or we’ll be forced to borrow eventually.

In American Fork’s case, the culinary water supply was no longer adequate for household and other uses, plus watering lawns, but we only had that one system. We had plenty of irrigation water (which is difficult and expensive to convert for culinary use), but no system to deliver it. So we had a choice: build a water treatment plant, which would allow us to reuse scarce culinary water, or build a pressurized irrigation system, so we could water our lawns with irrigation water instead of culinary water. The City had plenty of both to support future growth – as long as we used both. City staff and elected officials studied this at great length and chose the latter option, then put it to the voters, who approved pressurized irrigation by a wide margin.

Had this been done 10-15 years earlier, when it was seriously considered but rejected, its price would have been around $9 million instead of nearly $50 million. That is a separate story, but we’re starting to see why that water bill is so high.

At the same time, the City raised culinary water rates approximately to the level of costs, so water bills would no longer be subsidized by tax revenues. This left me with a higher culinary water bill and a new irrigation water bill, and my total city utility bill went from less than $50 to about $110.

I’m still simplifying things a little bit, but in any case . . . ouch. This change alone has prompted some candidates to file for office in recent elections, including, by his own account, one city council candidate in the present race.

But here too, there is a world of difference between two statements:

• Our water bills are much too high. I blame the current city officials for raising them and for keeping them that way, and if I’m elected, I’ll insist that we lower them dramatically.
• Our water bills are painfully high. Let’s talk about how they got that way, make sure they don’t exceed the costs, and discuss how we can have the good sense and foresight not to back ourselves into such expensive corners in the future.

There’s a similar story to be told about roads in American Fork, as I have written elsewhere. But the water example is sufficient for this discussion.

By now this won’t surprise you: to say that the City should lower water bills below costs is to say that taxpayers should subsidize everyone’s water bills. Cities and voters could find good reasons for wanting to do this – but they should debate and decide with their eyes open, knowing that this is what they’re doing, so they can decide the question on its actual merits, not just on a gut feeling.

Some candidates and voters will assume that there is enough waste, fraud, and abuse built into the system that bills could be far lower and still meet costs. But American Fork is not Washington, DC. Conscientious candidates who have thought this and have then been elected have learned otherwise, as they have struggled with budgets and revenues, particularly in the Great Recession and the subsequent Worst Recovery Since the Depression. Less energetic candidates who managed to get elected may not have learned this – but they haven’t been effective in lowering taxes or fees, either.

One More Complication

Here’s why other fees are more complicated than impact fees, at least in one key sense.

State law requires that impact fees not exceed actual costs, but there is no similar state law governing other municipal fees. (One such proposal died an inglorious death in the most recent legislative session.) The law permits other fees to be higher than actual costs.

This can be exploited by officials to raise revenue without raising taxes; fee increases tend to attract less negative publicity than tax increases. But there’s a better reason to do this in some cases.

When I talked about taxpayers subsidizing everyone’s water bill, you may have thought – as I used to – that it’s just a technicality, because everyone pays taxes anyway, at least everyone with a water bill. But this is not the case, and in American Fork the disparity is glaring.

There seems to be a church – usually a large building with more or less ample parking – on every other block on the Wasatch Front. Or it might be only every third block. None of them pays property tax, and they’re exempt from sales tax too.

There are also elementary, middle (junior high), and high schools. Most of them are large and sit on generous plots of land. They’re also exempt from property and sales taxes. Likewise, state and federal facilities, notably the Developmental Center and even I-15.

All of these expand our collective need for fire and police protection, among other services. Yet for the most part, they get a free ride.

We resident voters may decide that we’re content to bear their infrastructure costs as well as our own, because of the great benefits these institutions bring to our city. Generally speaking, that’s a defensible position.

But what if we think they should pay part of the ongoing costs they impose on our local government? We can’t increase their taxes; they’re tax-exempt, and changing that can’t happen at the local level. What we can do is raise water, sewer, and garbage rates for everyone, above the actual costs, because even tax-exempt institutions pay those. The excess fees can subsidize other parts of the City budget – which keeps taxpayers’ property taxes lower. The net effect is to shift some of the costs of having these institutions in our city away from residents and businesses and onto the tax-exempt institutions.

Ah, but you’ve already noticed the problem: the money has to come from somewhere. If we shift some of the burden away from the property taxes I pay to the City, part of it will reappear in higher property taxes I must pay to the school district. And my offerings at church either will need to increase or won’t go as far.

Still, it may sometimes make sense for fees to exceed costs. Again, voters, candidates, and leaders should consider such matters with their eyes open. And I still think the wisest default position is to require that fees meet actual costs, no more, no less — and to consider carefully any proposed departure from this.

Candidates with the capacity and determination to understand and evaluate such things, and to articulate them clearly to voters, are a great blessing. Nine times out of ten, if not more, I will vote for such a candidate, even though I disagree with her on specific issues, instead of voting for a candidate who pushes more of my ideological buttons but either cannot or will not set the plow this deep.

Incumbents and Challengers

It’s easier for incumbents than for challengers to know and discuss such issues in the depth and detail I want, because incumbents have been on the inside for years already. But I don’t necessarily favor incumbents. As I noted above, I set the bars differently.

For example, in my city’s general election next month, there are four candidates for city council. One is a credible incumbent who has served capably and would continue to do so. Two of the challengers already do well in these matters and exhibit the potential for greater excellence in office. The third challenger seems intelligent and might learn quickly and do well enough in office. But for now he keeps talking about how his water bill is too high, and his limited explanation of that runs away from the facts, not toward them. He’s not connecting all the dots.

In my city’s mayoral race, both candidates are incumbent city councilors. Neither had mastered these things when he first filed for office, but both were elected. One has learned, and the other hasn’t — and these tendencies were obvious during their initial campaigns years ago.

In the final analysis, why belabor so dull a topic as fees? Because they get a lot less boring when you have to pay them. And because they’re a useful indicator. Just as a doctor can learn much about a patient’s health from lab tests run on a single blood sample, so a voter can tell a lot about the knowledge and thinking of candidates by listening to them discuss a single complex issue, such as water bills and other fees.

For examples of several ways to misuse numbers — some drawn from contemporary politics, some not — see “Good Numbers, Bad Numbers.”