The Finance and Budget committee voted six to one in favor of sending the bill to the full council for discussion and a possible vote next Tuesday.
What the council is trying to do is find nearly $23 million to repay Seattle Public Utility customers, and to cover the lawyer fees of about $4 million, resulting from the Washington Supreme Court ruling last year that S.P.U. customers were improperly charged for fire hydrant service.
It's an accounting problem that no matter how it plays out in the council and the mayor's office, will cost Seattle residents millions. The only people getting paid, said Council President Richard Conlin, are the lawyers who worked on the case.
According to the court ruling, the utility should not have been charging people for fire hydrant service from March 1, 2002 through December 2004. The court said that fire hydrants are the city's responsibility, therefore, the money should have been coming out of the general fund, and not from the water utility.
To remedy the problem and comply with the court order, several proposals are on the table.
The mayor has proposed a 143 percent water rate increase for two months and be done with it. The council wants to spread the rate increase out over about 20 months. But either way the mayor and the council decide to go, the city's general fund needs to pay the water fund $14.4 million, and the water fund needs to come up with nearly $7 million to cover the legal fees and other costs related to the court case.
What that means to S.P.U. customers, if the current council bill passes, is a slight rate increase from March 31, 2009 to Dec. 31, 2010. Residential customers will see a monthly increase of about 60 cents, and the average large commercial customer about $358 a month.
That's the real rate increase, including the "rebate" to customers who were improperly charged for the fire hydrants. So on one hand a water customer will see a rate increase, but at the same time - if they were incorrectly charged the for fire hydrant service - they'll get a refund as well. People who have since moved, but were charged for the fire hydrants, will receive the rebate, estimated at $45 for a residential customer.
The mayor's plan, which the council is not in favor of, would deal with the issue in less time but will cost water customers more money, said Director of City Council Central Staff Ben Noble.
It's still too early to predict how this bill will look when it finally passes the council, or how the mayor will choose to implement it, but what appears certain is that cuts will be necessary. Even without the fire hydrant problem, the city faces a budget deficit.
According to a report by S.P.U., the utility is considering several budget cuts. They propose delaying the hiring of 12 water operations apprentices for a year, and to wait four months to hire two additional water pipe workers. They also recommend cutting money for water conservation and to reduce the budget for the outreach program to educate under-represented people about S.P.U. services and the emergency water distribution program. These are just a few of the 16 recommendations presented today.
Councilman Richard McIver expressed concern over the cuts to the program for under-represented minorities. "Why pick on these people?," he asked.
Committee Chair Jean Godden, seemingly annoyed with McIver, said that the committee invited the S.P.U. staff to make their recommendations on what to cut.
Councilman Conlin said that it's important that we inform ourselves of the types of cuts that need to be made, but ultimately it's the mayor's decision.
Councilwoman Sally Clark reminded the committee that in a few weeks "we're going to be talking about a lot of cuts," so they should not dig themselves deeper in the hole.
Another concern expressed today, resulting from the court order, was S.P.U.'s ability to borrow money. Right now the utility carries about $700 million in debt. Dwight Dively from the Department of Finance said that he's worried about the city's bond rating if the council doesn't effectively deal with this issue quickly.
Last year both Standard and Poor's and Moody's Investors upgraded the bond ratings for S.P.U. as well as Seattle City Light. But Dively warned that while the rating agencies gave the city a pass on this particular issue last year, he said they're looking for action from the council and the mayor. Dively said inaction can have real long term impact because a lower bond rating means the city would have to pay more interest on money it has to borrow.
If the council and the mayor don't clean up this mess, the bond agencies may view this as a pattern of poor performance by Seattle government as a whole. And if that happens, Dively said, "It's very difficult to get that good will back."
"I don't buy that," McIver fired back. "One decision sets a pattern?"
Rob Shelley, the senior vice president at Northwest Securities, said that if the rating agencies feel the city let this issue slide, they will be more difficult to deal with in the future.