Reform Rapid City

RAPID CITY WATER RATE INCREASE SPECIAL ELECTION will be held on February 20, 2018. Absentee voting starts February 5, 2018 at the Pennington County Auditor’s office. Please vote!!
2018 Rapid City Water Rate Increase Special Election Ballot Language

*** THE TRUTH HURTS - REBUTTAL TO THE RAPID CITY JOURNAL 2-11-2018 HIT PIECE ***

FACTS THAT ALL REGISTERED RAPID CITY VOTERS/TAXPAYERS SHOULD KNOW AND QUESTIONS THEY SHOULD ASK BEFORE CASTING THEIR VOTE:

(1) On 6 November 2017, the Rapid City Council approved Ordinance 6201, which resulted in a very significant increase in the Water Rates for all metered users of water on the Rapid City Water System beginning 1 January 2018. In addition, Ordinance 6201 changed future Water Rate increases to be set by Resolution (which requires one reading at Council) rather than by Ordinance (which requires a public hearing and two readings at Council). The Rapid City Council Policies and Procedures (Sections 9-19-1 to 9-19-13) defines a Resolution as, “…any determination, decision, or direction of the governing body of a municipality of a special or temporary nature for the purpose of initiating, effecting, or carrying out its administrative duties and function under the laws and ordinances governing the municipality.” As an essential utility system, Municipal Water Rates are not of a special or temporary nature and hence should always be set by Ordinance as has been done since the foundation of the Rapid City Water System. Rapid City voters should reject essentially giving the Rapid City Council a “blank check” to increase the amount and frequency of Water Rate increases in the future with minimal scrutiny and input from the voters/ratepayers.


2018 City of Rapid City Fee Schedule - see Pages 21-23

(2) According to the chart above, Ordinance 6201 raised Water Rates in the range of 52% to 74% (for single family homes). The exact water rate increase percentage for a particular family depends upon the specific units used in a month. In addition, also note that the City “compressed” the rate categories (higher rate category for lower levels of usage than under the 2017 system) for single-family homes. Further note that the Monthly Water Meter charge also increased in the range of 51% to 52% for the five year period. The Monthly Water Meter charge is a flat fee based upon meter size and is charged every month even if water usage is zero.

FINANCIAL IMPACT ON THE "AVERAGE" SINGLE FAMILY RESIDENTIAL HOUSEHOLD:
There is no such thing as an "Average" household as everyone's house and family situation is unique. However, it is generally assumed that that the approximate base water usage is 2 units/person per month or 8 units/household per month. This water usage pattern assumes ZERO water usage for landscaping/irrigation in the summer months. We are further assuming a 5/8” water meter (smallest size possible and hence lowest fee) to the house. Using this set of assumptions, below is the Ordinance 6201 financial impacts on an "Average" Rapid City household:

Monthly water bill in 2017, $3.11/unit * 8 units + $7.39 water meter charge = $32.27 per month.
Monthly water bill in 2022, $4.73/unit * 8 units + $11.18 water meter charge = $49.02 per month.
This is an increase of $16.75 per month or a 52% increase.

QUESTIONS:
(2a) Why did local news media outlets report the Water Rate increase as “the average Rapid City household’s water bill would rise by 43% over the next five years” when the true Water Rate increase is in the 52% to 74% range over five years for single family homes (as seen in the table above)?
References: RCJ BHFOX NC1 KOTA

(2b) In a local news media report, “Water Rates around the Region” compared City of Rapid City Water Rates for 2018 (0-10 units) to Water Rates from other cities in our region. Note: 1 unit = 1CCF = 748 gallons of water. Below is the Water Rate data from South Dakota cities:
Aberdeen $2.32 per unit
Pierre $2.60 per unit
Sioux Falls $3.60 per unit
Current Water Rate average of three SD cities = $2.84 per unit
2018 Rapid City (0-10 units) $3.42 per unit
2022 Rapid City (0-10 units) $4.73 per unit

Take note that the 2022 Rapid City Water Rates (much less 2019, 2020, or 2021 rates) were not even mentioned in the report and the Rapid City Council has ALREADY PASSED the rate increases for the next five years, 23 days BEFORE the date of the report. The bottom line is the 2018 Rapid City Water Rate is 20.4% above the three SD city average and the 2022 Rapid City Water Rate is 66.5% above. With this fact set, this report makes a good case for a Water Rate DECREASE in Rapid City not an increase. Looked at another way, is the report telling the Rapid City voters that the Rapid City Water System is somewhere between 20.4% to 66.5% less efficient than the average of the other three SD cities?

(3) Citizen’s Petition Circulation Effort. Knowing the long-term negative financial and quality of life ramifications of Ordinance 6201’s 52% to 74% Water Rate increase on individuals and families, your fellow Rapid City Voters/Taxpayers made the decision to collect Petitions to override the Rapid City Council and hence force Ordinance 6201 to a Public Vote. In an all VOLUNTEER effort conducted in the short three week timeframe allowed, several dozen of your fellow Rapid City Voters/Taxpayers collected 2,884 signatures. The petition effort ultimately resulted in 2,387 signatures verified by the City of Rapid City Finance Office against the 2,249 signatures required. The Rapid City Council approved a Water Rate Increase Special Election set for 2-20-18 at their 12-18-17 meeting. In the interim, the increase in Water Rates scheduled to take effect January 1, 2018 is now Suspended (at the 2017 Water Rates) pending the outcome of the Special Election.
References: BHFOX1 BHFOX2 NC1 RCJ

(4) Water Enterprise Fund. The Income Statement of the Water Enterprise Fund is an excerpt from the City’s Comprehensive Annual Financial Report. The Water Enterprise Fund, under the 2013 and prior water rate structure, had Average Operating Income of $4,473,529 per year from 2004-2015 (11 year timeframe) which resulted in Cumulative Operating Income of $49,208,822 over the same timeframe. The full 2014 and 2015 City of Rapid City Comprehensive Annual Financial Reports are linked below. Neither the 2016 nor the 2017 City of Rapid City Comprehensive Annual Financial Reports are available at rcgov.org and hence 2015 is the latest publically available financial data on the Water Enterprise Fund. This is a very healthy profit margin, and in fact the Water Enterprise Fund is consistently the most profitable business-type activity in the entire municipal government.
References:
2014 City of Rapid City Comprehensive Annual Financial Report
2015 City of Rapid City Comprehensive Annual Financial Report
Summary of 2015 Audit Results

QUESTIONS:
(4a) There appears to be significant transfers of money over time between the Water Enterprise fund and other Enterprise funds, and between the Water Enterprise fund and the Governmental funds. This makes analysis of the true financial condition of the Water Enterprise fund much more difficult. Are Promissory Notes issued when an Enterprise or Governmental fund borrows money from the Water Enterprise fund? If not, what assurance is there that the borrowing Enterprise or Governmental fund will repay the funds in full, in a timely manner, to the lending Water Enterprise fund? What interest rate is charged to borrowing Enterprise or Governmental funds to be paid to the Water Enterprise fund? For clarity in accounting and transparency of financial disclosures, transfers from the Water Enterprise fund to other Enterprise or Governmental funds should immediately cease. We recommend an independent forensic accounting audit for the last ten years be conducted immediately on the Water Enterprise fund to get to the root of the problem.

(4b) Reserve fund of the Water Enterprise fund. Why was the emergency rainy day funds – namely the Reserve fund of the Water Enterprise fund depleted down to $2.2 million versus the minimum reserve target of $6.6 million as of 10/17/2017? The intent of financial reserves is for emergency purposes only. In a 10/17/2017 RCJ article, titled Water rate hike going to public vote, the article stated in part, "City Operations Management Engineer Dan Coon has also stated that the rate hikes are meant to cover the increased operating and maintenance costs associated with the city services and to raise the city’s water reserve and wastewater reserve funds. The city hopes to raise the water fund to $6.6 million and the wastewater fund to $4.5 million by 2022. Currently, they are at about $2 million and $159,000."

Ordinance 6209 passed by City Council on 11/20/2017 which resulted in the transfer of $1,250,000 out of the Water Enterprise fund to the Utility Facilities Governmental fund. It is almost a certainty that this money came out of the Reserve fund of the Water Enterprise fund which would then further deplete the Reserve fund down to $.95 million or 85.6% depleted.

Finally in a 12/20/2017 RCJ article, titled Water rate hike going to public vote, the article stated in part, "City Operations Management Engineer Dan Coon has also stated that the rate hikes are meant to cover the increased operating and maintenance costs associated with the city services and to raise the city’s water reserve and wastewater reserve funds. The city hopes to raise the water fund to $6.6 million and the wastewater fund to $4.5 million by 2022. Currently, they are at about $2 million and $159,000." Apparently, the $1.25 million withdrawal under Ordinance 6209 passed by City Council on 11/20/2017 which resulted in the transfer of $1,250,000 out of the Water Enterprise fund to the Utility Facilities Governmental fund wasn't taken into account in the UPDATED Reserve fund calculation?!?

The bottom line is with the Water Enterprise fund's significantly positive average annual cash flow of $4,473,529 per year from 2004-2015 noted in (4) combined with the substantial Water Revenue Bond Issuance of $97.13 million (from 2009 and 2015 issues combined) noted in (4c) it is technically impossible to deplete the Reserve fund of the Water Enterprise fund fund down to $.95 million or 85.6% depleted . Keep in mind that the only large construction project (defined at >$6.0 million) during this same timeframe was the Jackson Springs Water Treatment Plant completed in 2003 for a construction cost of approximately $22.3 million. Further, due to the 5 year Interest Only structure of the Water Revenue Bond of 2009 and the Water Revenue Bond of 2015, not a dime of Interest or Principal was paid on either bond as of 12/31/2015 and hence this eliminates Bond Interest or Principal repayments as the source of the Reserve fund's finanical woes. Again, we recommend an independent forensic accounting audit for the last ten years be conducted immediately on the Water Enterprise fund to get to the root of the problem.

(4c) The $15.2 million dollar fiasco - Analysis of Water Enterprise Fund Issued Bonds. In researching the planning of the prior Water Advocacy Task Force, particularly the work completed in the 2006-2008 era, it is clear that replacement of the City of Rapid City Water Treatment Plants (WTP) is a two-phase project. WTP Project Phase I was the design/construction of the new Jackson Springs Water Treatment Plant completed in 2003 for a construction cost of approximately $22.3 million. WTP Phase II is the future design/construction of a replacement Mountain View WTP. In 2009, it was determined by the hired Civil Engineering firm that replacement made more economic and operational sense than reconstruction. We concur with this analysis. Sometime in the future, the replacement Mountain View WTP will need to be designed (approximately a 1 year process), bid (6 weeks), and subsequently constructed (approximately a 2 year process). So if design were to start immediately, we are talking March 2021 being the absolute earliest date that construction of the replacement Mountain View WTP would be completed.

Page 48, 49, and 52 of the 2015 City of Rapid City Comprehensive Annual Financial Report lists the following Bonds Issued by the Water Enterprise fund. To our knowledge, these are the only three debts owed by the Water Enterprise fund:
BOND A: $6.0 million Drinking Water Loan SRF2 of 2009, Interest Rate 3.0%, 2031 Maturity Date
BOND B: $45.1 million Water Revenue Bonds of 2009, Interest Rate 4% to 5%, 5 Year Interest Only Bond (NOV 2009 to NOV 2014), NOV 2039 Maturity Date
BOND C: $46.03 million Water Revenue Bonds of 2015, Interest Rate 3.625% to 5%, 5 Year Interest Only Bond (MAY 2015 to MAY 2020), MAY 2045 Maturity Date

BOND A and BOND B were obviously issued and intended to be utilized to pay for WTP Phase I. However, according to the 2014 City of Rapid City Comprehensive Annual Financial Report and 2015 City of Rapid City Comprehensive Annual Financial Report, the total construction cost of the new Jackson Springs Water Treatment Plant completed in 2003 was approximately $22.3 million versus $51.1 million of Bond Principal issued and received (BOND A+ BOND B) by the City of Rapid City Water Enterprise fund. Hence, the City of Rapid City Water Enterprise fund OVERBORROWED by approximately $28.8 million or 63.8% for WTP Project Phase I. This overborrowing resulted in unnecessary bond interest charged to the Water Enterprise fund of $13,442,579 from November 2009 to March 2019 (earliest possible start date of construction for the replacement Mountain View WTP). Put in other terms, theoretically the excess $28.8 million borrowed under BOND B in November 2009 will not be utilized for any construction project until March 2019, and for 9 years 2 months all it did was sit around accruing $13,442,579 in bond interest now to be paid by the Ratepayers of the Rapid City Water System. Further note that Page 52 of the 2015 City of Rapid City Comprehensive Annual Financial Report mentions “Crossover refunding” of BOND B resulting in the early retirement of the debt on November 1, 2019 and a savings (economic gain) of approximately $2,791,361. However, this “savings” only reduced the unnecessary bond interest paid from $13,442,579 to $10,651,218 which can only be termed a small baby step in the right direction and certainly not something that is going to celebrated by Ratepayers of the Rapid City Water System.

Then, with the issuance of BOND C in May 2015, the City of Rapid City compounded the WTP Project Phase I OVERBORROWING problem by PREMATURELY borrowing $46.03 million for WTP Project Phase II. Keep in mind that the EARLIEST start of construction date of WTP Phase II is March 2019 and the EARLIEST completion of construction date is March 2021. Per industry standard practice, payments to the construction contractor are based on Percentage of Completion or Milestones during construction. So why would the City of Rapid City borrow an additional $46.03 million in May 2015 when the EARLIEST that construction would start for WTP Project Phase II is March 2019 (3 years 10 months later)? We are going to make the further assumption that BOND C was really only necessary at approximately the midpoint of construction or May 2020 which also marks the end of the 5 Year Interest Only period of the bond. Hence, issuing BOND C in May 2015 versus in May 2020 when it is needed for the replacement Mountain View WTP resulted in unnecessary interest charged to the Water Enterprise fund of $4,508,015 from May 2015 to May 2020.

Does anyone in the real world borrow money to purchase an automobile or a house many years before it is needed? The answer is -- of course not, since individuals know that the minute they borrow money Interest starts accruing on the amount borrowed. This is the fundamentals of Economics 101 and Finance 101.

To conclude, if we sum up the unnecessary interest charged to the Water Enterprise fund of $10,651,218 from BOND B to the unnecessary bond interest of BOND C of $4,508,015, the grand total is $15,129,233. By any measure, this is unacceptably poor capital allocation and management skills of the Water Enterprise fund’s financial resources. Multiple compounded mistakes cost the ratepayers of the Rapid City Water System dearly. The Rapid City voters/ratepayers demand to know -- what is the Rapid City Council/Mayor going to do to rectify this $15,159,233 fiasco?

(4d) Freddy the Freeloader. Why are there users of the Rapid City Water System that do NOT have water meters and hence receive “Free water” from the paying users of the Rapid City Water System? Our understanding is that many City of Rapid City owned buildings and irrigation systems (i.e. properties) do NOT have a water meter. How many millions of gallons of water a year are not metered and what is the annual financial cost of that “free water” to the Water Enterprise Fund? The voters/ratepayers should demand that water meters be installed for ALL USERS of the Rapid City Water System so that the true financial costs can be quantified and appropriately charged. Even with the City of Rapid City freeloading off of the ratepayers of the Water Enterprise fund, it retains very healthy profit margins as noted in (4) above. Wouldn’t it be unacceptable if the 52% to 74% Water Rate increase goes into effect and only City of Rapid City’s freeloading properties are able to afford to water their landscaping while the Ratepayer’s landscaping and lawns wither away?

(5) Outside the Rapid City Limits. Going back in time, Rapid City has a history of limited water supply so it simply doesn’t make sense to extend the Rapid City Water System outside the city limits. Please explain why in the past ten years, Water and Wastewater infrastructure have been extended to property/buildings OUTSIDE the city limits of the City of Rapid City? We request that the City of Rapid City provide to the voters/taxpayers an itemized list of ALL Property Owners that receive City of Rapid City water and wastewater that live outside the city limits of the City of Rapid City and immediately cease and desist from any future extensions of the Rapid City Water System outside the City Limits. Further, in many of these cases these properties were NOT subsequently annexed into the City of Rapid City, so they have never paid a dime in City of Rapid City property taxes. As an example, we distinctly recall the Rushmore Hockey Association building at 5611 Old Folsom Rd (outside the City Limits) receiving approximately $200,000 in funding from the City of Rapid City Taxpayers (through the 2015 Vision Fund) to pay for Water and Wastewater infrastructure extension to the property. To conclude, the Rushmore Hockey Association building receives City of Rapid City water and wastewater (since 11-2015) even though the property remains outside the city limits of the City of Rapid City.

For all the reasons noted above, on February 20, 2018, please join us in voting NO on the 52% to 74% Water Rate increase and setting water rates by Resolution. Please join us in voting NO on Rapid City having the HIGHEST residential Water Rates in the State of South Dakota. Please join us in voting NO on the Rapid City Council/Mayor continuing to transfer cash out of the Water Enterprise fund to support nonessential parts of the municipal government. Please join us in voting NO on the Rapid City Council/Mayor Issuing BOND B and BOND C Water Revenue Bonds resulting in unnecessary Bond Interest of $15,159,233 which is in an utter waste of voters/ratepayers hard earned money. Vote NO so that the Rapid City Council/Mayor can start listening to and representing WE THE PEOPLE!
2018 Rapid City Water Rate Increase Special Election Ballot Language

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