The penny-saving, dollar-wasting Monroe City Council majority might pose as saving residents money by forgoing water rate hikes now, but that action likely will end up costing ratepayers even more in the future.
At its last meeting, the Council rejected increasing rates by 2.7 percent, as recommended by the independent Mayor Friday Ellis Administration. Until this year, that hadn’t been an issue, as by ordinance rates were to increase annually by the rate of consumer price inflation in order to satisfy conditions attached to a 2018 water reserve bond issue of more than $35 million. According to that issuance, the city had to have net water revenues building a reserve at least equal to 125 percent of the principal and interest payable on the bonds each fiscal year and on any additional parity bonds hereafter, with the series terminating in 2049.
But last Sept. 24, after as a result of elections Democrat Councilors Rodney McFarland and Verbon Muhammad joined Councilors Democrat Juanita Woods and Republicans Gretchen Ezernack and Doug Harvey, the newcomers joined with Woods to pass Ordinance 12,243 cancelling the automatic increase and setting up an annual vote whether to change rates. The majority Democrats said the Council should have the flexibility to set rates as needed.
Removal of the escalator clause in the main caused one of the three major credit rating agencies, S&P Global, to downgrade that debt two steps from ‘A’ to ‘BBB+’, with the difference conceptually being moving from strong capacity to meet debt obligations to adequate capacity, making the city more susceptible to adverse economic conditions. Revenue bonds of this nature are backed by a dedicated revenue stream, and without the increase the 125 precent target for the future seems unattainable as the reserve reached only 105 percent the previous fiscal year.
In refusing to pass the increase, the Democrats said it was too soon to raise rates, while the Republicans voted to have ratepayers take their medicine starting now. Refusal ignores the fact that inflation continues to boost personnel costs as well as prices for supplies such as chemicals needed to provide clean water. The longer net revenues can’t keep up with the target, the less likely it can be reached and invites even more debt downgrades.
The point of a reserve is to pay off debt, have finds available for emergency expenditures, and to build capacity to issue future debt for large capital expenditures. Best practice has users of the service, not the city from its property, sales, and excise taxes collected, paying for these things.
Underfund a business enterprise and it eventually catches up to a municipality in reduced service to the point, in this instance, that the state or federal government intervene to prevent dangerous consequences to users and probably forces taxpayers to pitch in to fix. It’s paying now or paying more later.
And the cost of doing debt business meanwhile goes up. According to S&P, dropping from A to BBB+ increase interest rates by around 40 basis points, or 0.4 percent. That doesn’t affect the current issue but if the city needed to sell debt for its water provision in the future, an issuer would ask for a higher interest rate of the city which, again, eats into revenues available to pay off debt and to operate the system. Applying that interest rate increase to an issue duplicating the outstanding 2018 issue means ratepayers by 2049 would have to dole out an extra $3.2 million.
Leftist politicians typically find themselves flummoxed by business enterprises in government, because they cannot soak the middle class and above given the transactional-based nature of service provision. Trying to keep rates artificially low as a supposed appeal to lower-income households they imagine to be their base constituents who are allegedly victimized by those wealthier in the free market only hurts everybody by postponing a day of reckoning that inflicts all the pain at once rather than spreading it out over time.
That doesn’t mean that cost-saving measures cannot be researched and if they exist eventually implemented, but there needs to be action now. Monroe’s Council majority by pricing the service closer to its true cost, debt included, will burden the public less in total payments over time than by its current path of grandstanding.
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