|Bruce's famous rusty pipe|
With interest payments now at nearly $1 million a year, how could our water rates not be going up? We hear so much about aged infrastructure and decaying water mains, but should we really be surprised that this is the case? With most of the Water Division's available revenue going for servicing this massive debt load, obviously just about everything else had to be neglected. And the dismal results show that. Debt and neglect being the two operative watchwords for Bruce Inman's failing water empire.
The actual bond documents are available on the internet. The 1998 Water Bonds can be founding by clicking here. The 2003 Water Bonds are here. Note that Bart Doyle was in office both times. As was Bruce Inman, who is still there today.
What I personally find offensive about this is that City Hall has once again set out to convince the residents of Sierra Madre that this massive bond debt is not the driving force behind the need to raise water rates again. Here is how the Water Division's financial woes were described on April 26 in the City's RFP for a consultant to conduct a water rate study later this year. A study that will eventually be used to help justify raising our water rates.
A water rate study was completed in May of 2010, and the proposed rates passed the Prop 218 requirements in July of that year. Following a community discussion of the proposed rates, a revised rate structure was adopted by the City Council in January 2011. The rates went into effect July 1, 2011.
Water revenue has not met the projections of the 2010 rate study. As a result water revenue is not adequate to cover operations, capital improvements, or debt coverage requirements. Therefore, the City Council has directed staff to seek proposals from qualified professional firms for the preparation of a new water rate study.
Notice the order in which the Water Division's troubles are listed? First is inadequate water revenue, second is the cost of "capital improvements." Only after those two are listed does "debt coverage requirements" get acknowledged. But is that really how City Hall should be referring to $23 million dollars in water bond debt? "Debt coverage requirements?"
It is as if even speaking the words "water bond debt" is to be feared, and no one should ever dare to even utter them. It is Sierra Madre's version of forbidden knowledge.
A new water rate increase would be a second big hit to your pocketbook in a little more than two years. It is also likely to be far larger this time. And in my opinion we need to start gearing up to fight it very soon. The Prop 218 fight of 2010 was a rushed affair, and frankly some mistakes were made. We were new at that sort of thing and basically making it all up as we went along. But the necessary lessons were learned, and now we know how to do it right. This time we will be a stone cold water rate increase killing machine. I alone pulled in over 300 signatures last time. I will do even better this time.
However, I don't mean to be completely hard nosed about this. After all, the $23 million dollars in water bond debt that is driving the need to raise rates is a fact, and short of bankruptcy or selling off the entire Water Division, it will not magically go away.
So here is one way that the City could possibly blunt the anger of residents who not only don't want to pay even more for water, but also are upset at being told rather stupid fairy tales by people who arrogantly believe that the people don't really need to know. And that is to tell the truth. City Hall hasn't tried this tactic yet, but given the very real potential for losing the next Prop 218 fight, perhaps they might want to give it a try.
My proposal here is that the City agendize the water bond debt question as an item for a future City Council meeting discussion, and have the one man who was in the saddle for both of these ill-fated financial disasters, Bruce Inman, explain to the people of Sierra Madre exactly how it all came about. Who was responsible, what it is these individuals thought they were doing, and why this massive debt load is destroying the Water Division and thereby causing considerable harm to our community. Bruce bears a lot of the responsibility here, and by enabling him to present the facts in a public hearing it will give him an opportunity to finally come clean.
What does the City have to lose?
One more thing. Here is an article that ran in the Pasadena Star News on October 6 of 2011 (click here). It discusses a few things, including this City's embarrassing failure to level with the public about the true cause of our previous water rate increase. A mistake they seem to be well on the way to repeating now.
Moody's drops Sierra Madre water bond rating
By Brian Charles, Staff Writer
Posted: 10/06/2011 10:34:26 PM PDT
Updated: 10/06/2011 10:35:37 PM PDT
SIERRA MADRE - Credit rating agency Moody's downgraded the city of Sierra Madre's Water Enterprise bonds from AAA to an A bond rating due to insufficient water rate revenues, according to a report by the credit agency.
The downgrade does not affect current indebtedness or bond payments and Sierra Madre officials said Thursday the second year of an incremental rate hike approved in early 2011 will serve as the remedy.
"The bonds will be re-evaluated in another year, and assuming the revenue estimates and the revenues that rate payers are paying, we will regain our triple A rating," said Elaine Aguilar, Sierra Madre city manager.
Last year, rusty water pipes were paraded through Sierra Madre City Council meetings in an attempt to rally support for rate hikes. City officials said the hikes were needed to upgrade 2.95-square-mile city's water system that supplies water to less than 11,000 people.
City officials pitched the rate hike as necessary to keep the water system from falling apart and said nothing about a bond rating or bond indebtedness, according to John Crawford, resident and blogger for the Sierra Madre Tattler, who broke the story on his website early Thursday morning.
"When they first packaged raising the water rates, they pitched as the pipes were broken and the pipes needed to be fixed," Crawford said. "They didn't say it had anything to do with bonds."
It didn't take much detective work to discover the real issue was pulling in enough revenue to keep credit rating agency from dinging Sierra Madre's bond rating and making moves such as refinancing bonds next to impossible, he said.
"Later on Sierra Madre residents discovered that this was about the bond covenants," Crawford said.
Sierra Madre city officials switched tactics and repositioned the rate hike as necessary to satisfy credit agencies, but the public outcry had grown intense - there was massive opposition to the rate hike and the increase was challenged legally with the city eventually emerging victorious, he said.
The political scuttlebutt forced the City Council to hedge on a full-scale rate hike.
Instead of spiking rates high enough to meet the bond covenants requirement of 120 percent of funding for this year, the city slowly rolled out the rate increase and won't meet the revenue levels needed to satisfy credit agencies such as Moody's until 2012, Sierra Madre Mayor John Buchanan said.
"You trade-off coming fully up to speed on your bond covenants right away, against the need to bring your people along slowly ... and not hitting people with the increase right away," Buchanan said. "Of course the first proposal in front of us was for a steeper increase, but there was a second issue, the residents were opposed to a steep increase and we have a fair number of senior citizens on a fixed income."
Crawford blasted city officials Thursday for the quagmire left by not being forthcoming on the bonding issue from the beginning and a failed plan to keep the city from being downgraded.
"We pay more money and we still don't have a triple A rating."
Hopefully those running this town have learned their lesson and this time they will tell us the truth. Otherwise City Hall could find itself in a Prop 218 fight over water rates that this time it may very well lose.