Bishop: The Dirty Secret of NBC Cleaning The Bay

Thursday, February 14, 2019

Brian Bishop, GoLocalProv Guest MINDSETTER™

Seth Magaziner

Seth Magaziner has made headlines lately complaining about rate increases at the Narragansett Bay Commission (NBC), but as is typical in the basketcase Providence (Pawtucket/Central Falls) narrative, the upshot of his argument is state taxpayers should pay Providence’s bills. Even my good friend Vin Mesolella is seduced by the argument that the benefits of NBC's massive expenditures on stormwater control benefit the state as a whole.

I’m no skeptic of NBC as an institution. There aren’t hundreds of cousins leaning on shovels or snoozing on desks over there. They have done a decent job, first of improving failing sewage treatment infrastructure in Rhode Island’s urban core and secondly of conceiving a stormwater plan that focused on addressing the least costly problems first. That is not to say it has not been costly. Big holes in the ground might as well be filled with money. But the argument now is whether, having spent $700 million dollars to address better than 2/3 of the water quality impacts of sewers that combine stormwater and sanitary flows in the NBC service area, whether it is prudent to spend another $700 million before paying the first debt off.

Timing is everything

GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST

Of course, the sensible time for Magaziner and crew to have intervened was before the NBC board had decided to do just that (under the gun as usual from their own alphabet soup adversaries at DEM and EPA) and it appeared that the PUC rate setting would be little more than a rubber stamp. And with all this state-funded advocacy, from the treasurer's office (surely where I look for guidance on utility rates), the PUC and DPUC, the Attorney General’s office, not one of these ombudsmen has raised the self evident problem with NBC sewer rates: The fixed costs of the system are now predominated by stormwater control yet they are charged on a per dwelling unit basis. That means that a three-decker in south Providence pays three times as much for the big dig as a home on Blackstone boulevard. Nor did these erstwhile ombudsmen make much of a peep about the additional $700 million in spending other than the typical saw that all the middle-class ratepayers should pay for the poor, as if public utilities are a charity.

So don’t imagine that I am engaging in the same kind of eat the rich strategy as progressive poverty advocates. NBC rates are a wrongheaded policy that unfairly burdens the working class as a matter of conservative principle as well.

How did we get here?

The history of sewer rates reflected a reasonable balance in first assigning fixed rates by dwelling unit. It is not wrong to think at the outset that a flat in south providence might use similar sewer services as a single-family home on the east side. It doesn’t matter how many toilets you have, but how many times they get flushed. Some reflection of possible usage differentials was made with the adoption of an excess consumption charge and now a straight up billing for water consumption for the operating costs.

But even in this case, if operating costs are covered by the consumption charge, the extent of infrastructure, i.e. feet of pipe in the ground, to service the dense neighborhoods of three-deckers is far less per dwelling unit, and yet the ‘dwelling unit’ fixed charge remains the same or 3 times as much for a three-decker. The administrative expense is also less, as multiple such fixed charges are collected from a single payer. Yet this is not reflected in the fixed cost allocations.

This disconnect between the cost of service and rates was then thrown into even more drastic imbalance as the costs of the big dig were parceled out. No one – although it should have been self-evident – spoke up on behalf of dense neighborhoods to question why they should pay three times as much for this stormwater tunnel as single family neighborhoods. And this deafening silence in an era when progressive advocates claim we should all live in dense neighborhoods and observe their smart growth proscriptions; but they do butkis about the unintended consequences of all their other progressive priorities which encourage the very sprawl they claim to dislike. Fixing that of course, is much less to their desire than invading the policy of suburban and exurban communities.

The was the very kind of disconnect the PUC is meant to fix

The need for this stormwater infrastructure is dictated by impermeable area which is unrelated to sanitary sewer use. While surely three-decker neighborhoods with off-street parking often retained less permeable ground than single-family homes, they have less frontage than many single family lots so there is less paved street associated and that paved street serves, on average, 3 dwelling units and not 1. When you do the math, it is conceivable that a three-decker should pay a little more than a single family based on impermeable area, but it is inconceivable that the present allocation of rates can be sustained other than as a political accommodation having nothing to do with the utility economics that the PUC is meant to consider. That pushes the proceedings in these matters from the quasi-judicial to the kangaroo realm.

Why then has not the Attorney General and the Division of Public Utilities and Carriers (the publicly funded skeptics of rate increases) held the PUCs feet to the fire? The reigning concept amongst these ‘watchdogs’ is typical of folks who complain about high rents and think they can fix that without sensitivity to landlords’ expenses. So our astute economists defending our interests look at these matters and say essentially: “the landlord will eat it”. Funny that it is imagined this is the only area of our economy that somehow higher costs will not be associated with higher prices.

Alice in Wonderland Economics

Now back in the day, when the annual fixed charge was like 20 bucks, maybe it was de minimus. But the annual fixed charge is now $225 or $675 for a three-decker! And that is about half of the annual bill, so, with an average per unit consumption, a three-decker pays about $1500 in sewer fees and that is slated to rise toward $1800 with the present course of NBC capital expenditure. I hate to tell everyone, but that alone, forgetting the water bill, the insurance, the outsized taxes Providence has found it convenient to charge on multi-family homes, and paying the mortgage and upkeep, the sewer alone is responsible for $50 per month per apartment. And folks are out there looking how to lower rents by $50 or $100 bucks a month, but they pretend that soaking the landlord to pay for NBC’s stormwater control is suitable policy and won’t impact rents.

And, for those who didn’t study ratios very hard in 4th and 5th grade, that $50 a month per flat represents a noticeably greater proportion of expenses in tenement neighborhoods with rents under $1000 than for apartments on the east side that can approach $2000. And even on the east side, this death by 1000 cuts of virtually unlimited fees and regulations threatens the sustainability of owning high rent apartments. How can these impositions possibly be sustained or compatible with affordable rents in working-class neighborhoods?

Of course, in the microcosm, it is true that landlords will not turn around and write their tenants a check if a fair sewer rate is established. But they will be far less incented to raise rents. Nobody likes to raise rents. If you have good tenants who are paying the rent, you tend to leave it alone unless there are significant cost increases. So NBC and company have kept this constituency at bay (sorry) over time by raising rates a little bit every year, the slowly boiling frog theory. But these are simply a built-in overhang and now someone has had the temerity to show that we are headed up 25% in the short term after already seeing just such an increase in the recent past.

Even if the property owner never increases rent on the current tenants they consider the bottom line in setting new rents when an apartment changes hands. Of course, they also consider the market, and their ability to raise rent is impacted by other forces, especially the extent of vacant housing stock available to rent. Although, as is argued by the TSA recipients and their high priced lawyers whom the council seems constantly swayed by, it is high costs and fees that limit that supply. So, indeed, the costs of ownership are actually also reflected in higher rents related to less available units. To pretend that fees and regulatory costs are not reflected in rents is strictly Alice in Wonderland economics.

Modern amusements

Now the citizens of Providence have no grandfathered license to pollute the bay forever. And this puts the lie to the notion that the state should be on the hook because the state benefits from a cleaner bay. But the state does benefit from highways, arterial roads, parking and institutional facilities of statewide ambit in the NBC service area that facilitate political administration, educational advancement and cultural concert of various unique and concentrated sorts that are not solely or perhaps even principally the providence of Providence citizens. The contributions of this infrastructure to the stormwater mitigated at great expense by the NBC should unequivocally be paid by the state, not because its capitol city needs it, but because the state owes it!

But this will not be the silver bullet by any means. Although there is no explicit statewide contribution to the Combined Sewer Overflow project, infrastructure in the form of structures already pay the high sewer rates, although the state is much more likely to have large buildings and parking lots which should contribute more to stormwater control than the fixed charges and consumption fees suggest. NBC it appears also has a large reserve built into the collections they make for debt service. They point out that this was important when they experienced lower consumption and lower income than anticipated. But those moneys are recoverable to them and thus their lenders do not face fundamental risk although it is not inconceivable they could need bridge financing on occasion. But having the ratepayers fund such a large reserve is not necessarily appropriate at this time

Of course, these realizations lead to a further amusement that policymakers do not find very amusing. If you push down on rates in one place, they pop up in another, just like the arcade version: Whack-A-Mole. Well, maybe some of the vermin we should be clocking over the head with mallets are actually DEM and EPA. This isn’t solely a war for spoils as between certain ratepayers. This can be equally an attempt to beat down the constant Cuyahoga River is burning mentality that informs, or misinforms, our environmental agencies and the Providence hat-in-hand meme that informs political skepticism. Skepticism should truly be: are EPA and DEM asking too much?

A burning problem?

The Cuyahoga River is not burning. Much progress has been made. Why do we just go along with what they say? These agencies were created as advocates for the environment, but no countervailing force was invented to check their bureaucratic ambition and to truly advocate for the cost-benefit interests of the citizenry in issues that are well short of catastrophic or where the cure could be more catastrophic than the disease. While many of the enabling statutes were equally utopian and any attempts to change them are made out as efforts to rekindle the Cuyahoga, there is room to maneuver in this field when the immovable object of one agency meets the irresistible force of another. These paradoxes are the only way to force policy in the right direction.

Dumping raw sewage in the bay, even in much-reduced circumstances, is worthy of address. But the capability of the community to pay at the pace conceived is wrongly presumed in the present proceedings and the state’s share must be provided in the budget and cannot be compelled under utilities regulation. The PUC should deny the rate increase sought by NBC because it is not premised on reasonable cost of service accounting nor useful cost-benefit assumptions in its capital plan and they should reopen earlier dockets that purported to approve massive debt service with equally lacking cost accounting. Only such an outcome can effect the broader political and regulatory accommodations necessary to clean the bay without cleaning out our wallets.

Conflict statement: the author’s family owns a half dozen small apartment buildings in the NBC service area, but when not maintaining these builds, the author can regularly be found in the water in the Conimicut reach, the quality of which is at issue here.

Bishop: The Dirty Secret of NBC Cleaning The Bay

Related Slideshow: 19 to Watch in 2019 - FULL LIST

Related Articles

Enjoy this post? Share it with others.

Sign Up for the Daily Eblast