Mesa Water District Hiking Rates Again – Time to Cut the Fat!

On the evening of August 30, Costa Mesa Street near Orange Avenue flooded when a water main burst, creating a sink hole. Over the next 24 hours, eight more water main breaks and leaks in the Mesa Water District interrupted water service to Mesa customers.

As if that wasn’t enough bad news for Mesa Water customers, this jaw-dropping flurry of infrastructure collapses came on the heels the Mesa Water District Board of Directors announcing plans just a few days earlier to raise water rates by 25% over the next five years.

So Much for Transparency

To be sure, “announcing” is an overstatement: it’s doubtful many Mesa Water customers are even aware of what their water district has in store for them, since the rate increase plan was approved at a special meeting with little public notice.

Why would they vote to raise rates at a special meeting at the end of August, instead of at the next regularly scheduled Board of Directors meeting in early September?

State law says special meetings require posting of the agenda just 24 hours prior to the meeting, as opposed to the 72 hours advance notice for regularly scheduled meetings. Obviously, the shorter the notice, the less chance members of the public will show up.

A cynic might say the Board used a special meeting to launch this huge rate increase in order to avoid negative, unpleasant input from their constituents. And the cynic would almost certainly be correct.

Transparency, where is thy sting?

The Upshot: 64% Water Rate Increases Over 15 Years

Proposition 2018 requires that the rate increase be approved by private property owners within the Mesa Water service area. Combined with previous rate increases, if approved it would mean that Mesa Water customers will experience over 15 consecutive years of water rate increases between 2009 and 2023, for a total rate increase of a whopping 64%.

The district blames the impending increases on the cost of recycled water and ground water. Mesa Water District Director Jim Fisler deadpanned, “We’re simply passing on our cost.” Cold comfort to the residents and business owners who have a variety of monthly bills and cannot shop for a better rate or an alternative provider.

As part of his remarks to the Board, Mesa Water General Manager Paul Shoenberger said (as quoted in the Daily Pilot), “If you say, ‘Run this place like a business,’ that’s not good.”  When businesses find expenditures exceed revenues, they don’t have the luxury of just jacking up prices. They cut costs, which can mean trimming salaries and benefits or laying off employees.

Mesa Water has an obligation to review all options, including cutting expenses, before raising water rates another 25%. In the spirit of lighting a candle rather than cursing the darkness, as well as the ever-popular “Top Ten List” routine, here are 10 suggestions the Mesa Water District Board should consider for reducing spending in order to avoid a rate increase

1. Tap The Reserves. Mesa Water District asserts its $40 million in cash reserves (see comments by Stacy Taylor, Mesa Water’s External Affairs Manager, on my post of July 26, “Mesa Water District: Borrowing From Peter To Pay Paul [Shoenberger]”) gives them a AAA rating from both Fitch and Standard & Poor’s.

However, Mesa Water can maintain its AAA rating by taking out an insurance policy for its debt, thereby freeing that $40 million cash pile to offset expenses and avoid raising rates for the foreseeable future. For example, when the Costa Mesa Sanitary District approved its organics recycling program, which increased operational costs for the District, they used solid waste reserves to offset those costs.  As a result, CMSD has not only avoided a solid waste rate increase for more than eleven years, it has been able to reduce solid waste rates.

2End The Bonuses. Mesa Water’s pipes are literally bursting all over town, so shouldn’t the Board stop giving $20,000 annual bonuses to General Manager Paul Shoenberger, who is already the highest-paid government CEO in Orange County? Then adjust his salary so that it is comparable to managing a small organization like Mesa Water District. Shoenberger manages fewer than 60 employees, yet makes substantially more than County of Orange CEO Frank Kim, who manages more than 16,000 employees and a budget of $1.5 billion.

  1. Reduce Payroll by 5%. Mesa Water employees are among the highest paid public employees in Orange County.  Total payroll and benefits for its 57.75 employees is $5,969,750, for an average salary of $103,372.  A 5% reduction would save ratepayers $300,000 annually.
  1. Eliminate Board of Directors Healthcare Benefits. Mesa Water provides a single lump sum of flex credits directors can use to purchase any benefits covered, including medical, dental and specified disability plans. Eliminating this benefit will save taxpayers $84,000 a year. Directors should be responsible for their own healthcare coverage. Many local elected officials, including those at the Costa Mesa Sanitary District, do not receive health benefits.
  1. Reduce the Mesa Water Public/External Affairs Budget. Mesa Water spends almost $1.5 million annually on public and external affairs. External Affairs Manager Stacy Taylor spends approximately $25,000 annually attending conferences and travelling to the state capital several times a year. The drought is over. The Governor has lifted the mandatory 20% water reduction. Encouraging water conservation is still meritorious, but could be throttled back. Mesa could easily cut this budget by several hundred thousands of dollars and operate more efficiently.
  1. Stop Flying First Class. As I reported in my last post, Mesa Water officials prefer to fly Business Select on Southwest Airlines, thus guaranteeing a seat in the first fifteen rows, bypassing long wait lines and enjoying a complementary premium drink. This is at least twice as expensive as a regular ticket.
  1. Stop Taking Chauffeured Limousines To Professional Conferences. Enough said.
  1. Stop Dining Lavishly and Taking Consultants Out to Dinner. As was reported in my post of August 24, Mesa Water officials racked up dinner bills of $384.64, $176.60 and $250.84 while schmoozing with lawyers, consultants, elected officials and business executives at various conferences. Ratepayers picked up the tab.
  1. Reduce Consultant Costs. Mesa Water spends millions of dollars a year on consultants, including Fieldman, Rolapp & Associates, a financial advisory firm; California Advocates, a legislative advocacy firm; Fraser Communications, a public outreach firm; Moran Consulting Services, a customer service training firm; Gladstone International, a crisis communication firm; Arcadis U.S., an asset design firm; and Townsend Public Affairs, another legislative advocacy firm. Excluding water operations, Mesa Water budgets $2.1 million for support services for the General Manager’s Office, engineering, customer service, financial services, public affairs, administrative services, and external affairs. From a ratepayer’s perspective, this would certainly strike someone as a place where fat can be trimmed. Did this occur to the Directors before they voted for a 25% rate increase?
  1. Cut Down On Conferences. In 2016, Stacy Taylor attended the California Special Districts Association (CSDA) Legislative Days and the Association of California Water Agencies (ACWA) Legislative Symposium. Since both provide members with access to legislators in Sacramento, why attend both? Is it necessary to send half a dozen Mesa Water staff and directors to ACWA’s Spring and Fall conferences? One director attended three separate conferences in February 2017 alone. The district has allocated nearly $200,000 for professional development and conferences. There is a value to this, but certainly it can be realized for half that amount, especially when the district is pushing a large, multi-year rate hike.

The Mesa Water District Board of Directors is next scheduled to discuss the 25% rate increase at its meeting of September 14; a final draft rate study is supposed to be completed on September 18. The mandatory public hearing and Board vote is set for November 9, 2017. Under Proposition 218, the latest proposed rate increase is nullified if 50% of property owners officially protest.

In the meantime, Mesa Water residents and business owners should attend these meetings, submit written comments and otherwise voice their concerns about what will amount to a 64% rate increase since 2009. They should feel free to use any of the above cost-saving suggestions in their comments to the Board.

Finally, when contemplating the management of Mesa Water and the planned 25% rate increase, consider this: at the same time that Mesa Water’s pipes were bursting and causing flooding all over Costa Mesa, the Costa Mesa Sanitary District announced it was spending $673,530 to replace a 2,500 foot-long, 64-year-old cast-iron pipe in Westside Costa Mesa.

CMSD General Manager Scott Carroll told the Daily Pilot, “We want to replace this before it fails.”

“If those pipes burst, you’ll have a geyser of wastewater. Obviously, we don’t want that,” Carroll added.

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