Monday, May 24, 2010

Brian Williams Is The Only Politician Who Gets It On Utility Transfer

Democratic mayoral candidate Brian Williams is one of the last politicians I thought I would find myself applauding, but when it comes to the proposed transfer of the utilities to Citizens Energy, he is far and away the only politician in Indianapolis who gets it. He was the first to point up the inflated numbers Mayor Ballard repeatedly stated when selling the deal to the public. He was the first to point up that cash payments being made to the City of Indianapolis would result in higher water rates because Citizens Energy planned to borrow all of the money. He was the first to raise questions about additional borrowing by the City associated with the plan to pay for infrastructure improvements using PILOT revenues paid by the utility. He was the first to raise questions about the unspecified liabilities the City is agreeing to assume, which could reach into the billions in a worst case scenario. He was the first to disclose the exorbitant professional fees the City is shelling out to make this deal go through, which includes a $10,000 a month fee to the public relations firm that recently hired Mayor Greg Ballard's son. And he now has even more to say about the insanity of a deal that will have potentially longer-term negative consequences than any act a mayor of this city has taken in modern history.

Unlike the Mayor, City-County Councilors, the usual suspects from the civic community and the editors of the Star and IBJ, Williams made exhaustive public records request to the City seeking more information on the deal before publicly endorsing any particular plan. Those documents reveal some extremely troubling issues that have not been discussed in the plethora of staged dog-and-pony shows put on by Mayor Ballard's administration. In particular, the proposed transfer of the utilities relies on a study prepared by Citigroup, which is being paid $6.75 million to conduct this transaction, makes some highly questionable assumptions. A press release from Williams' campaign details the following, obviously-flawed assumptions being made by the Ballard administration and Citizens Energy:

  • An immediate and sustained 15% decrease in operating costs
  • An immediate and sustained 5% decrease in capital costs
  • A household growth rate from 2010 to 2020 double that of from 2000 to 2010
  • Residential water use as a proportion of total use 20% higher than the City's estimates
As I've previously discussed, I don't see how Citizens Energy will be able to achieve the cost savings it says it can achieve from the combined operation of the gas, water and sewer utilities. Mayor Ballard has proposed saddling the newly-combined utility with the inefficient and one-sided agreements with Veolia and United Water. This extra layer of management will pose the same problems the City struggled with over the last several years. Under this management team, water rates have increased 100% and sewer rates are climbing at even higher rates to comply with a federal consent decree for the CSO. The IURC has been highly critical of the Veolia agreement and admonished the Ballard administration to renegotiate it. Instead of doing that, the Ballard administration wants to pass the problem on to Citizens in hopes of gaining access to hundreds of millions of dollars to fund pork barrel projects ahead of next year's election.

"Citizens CEO Carey Lykins has suggested that any loss in work force would come through attrition, but an immediate 15% drop in operating costs cannot be achieved in such a manner. Lykins has suggested by combining the gas and water utilities capital costs can be lowered by increased bargaining power," Williams said. "However, because gas utilities require far fewer capital expenditures it is unclear how this modest increase in capital projects will create the substantial discount assumed," he continued. 

One of the questions I wanted to pose to Citizens Energy during their recent meeting with area bloggers was what growth assumptions were assumed between now and 2025. Unfortunately, we ran out of time before I could pose that question. Williams got some answers and they are dubious to say the least. The City and Citizens base this deal on the assumption that the number of households will grow at double the rate over the next 10 years that the number grew over the past decade. It also assumes 20% higher residential use as a proportion of total water consumption than the City's current estimates.

While Indianapolis experienced some population growth during the past decade after years of declining population, the prospect for sustaining that level of growth, let alone double that growth rate, is simply wishful thinking. People continue to move into the fast-growing suburban counties that ring Marion County, and large industrial customers continue to go out of business at an alarming rate. The fewer people and businesses that consume water and produce sewage, the larger the customers' bills must increase to meet the costs of operating these utilities. Water rates are already projected to climb another 100% and sewer rates are expected to increase another 300% during the coming years. Commenting on the residential use assumptions, Williams said, "This is an important figure as residential water rate are substantially higher than commercial and industrial rates." "If residential usage rises relative to commercial and industrial, the income per unit for the water provided increases thus lowering the need for increased rates."
Williams returns to the earlier point he made that the Ballard administration is relying on revenues from 30-year bonds funded by revenues generated from the transfer of the utilities to fund improvements with a relatively short life span. Citizens will issue 30-year bonds to fund the $263 million it will pay the City to pay for these infrastructure improvements. The City will issue another $140 million in 30-year bonds. Essentially, it's the equivalent of taking out a 30-year loan to purchase a new car. No banker in his right mind would make such a loan, and only a fool of a customer would obligate himself to repay a 30-year loan on a car that he won't even be driving in 10 years.
I think the Indianapolis community owes a great deal of gratitude to Williams for bringing these issues to light. At the end of the day, however, I don't think it will make any difference. There are no people sitting at the table deciding these matters who have the common sense or the will to do what's in the public interest. Williams likely won't win the Democratic nomination for mayor. Democratic leaders have already decided they want Melina Kennedy, who stumbled badly on the experience issue in her run for prosecutor four years ago, despite their public misgivings about this proposed transfer of the utilities. She can't even say anything publicly about this proposal because her law firm helped put the deal together for the Ballard administration and is being paid by taxpayers as much as $540 an hour to do the work. It really is sad that we simply don't have any honest and intelligent elected officials in this city to save us from jumping off this bridge. The City may survive this deal, but it might look a whole lot more like Detroit in a few years than the shining city on the hill our current elected officials blindly envision.


Citizen Kane said...

Well, we at least all owe Brian Williams a thank you for continuing to dig to shed light on this outrageous scheme.

Paul K. Ogden said...

One of the best things you've ever written, Gary.

Marycatherine Barton said...

The continuing silence of the Marion County Libertarian organization about this Ballard deal and the acquiesence of their one member on the Council, is very telling, even chilling. Brian is proving just how much dedication and fortitude, not to mention intelligence, he offers as a city leader.

Gary R. Welsh said...

Ed Coleman is/was an ineffective councilor. He has been playing the go along game ever since I pointed out to him that the nursing home at which he is employed is technically owned by HHC and not ASC as he originally thought. He is probably worried that he will be fired if he makes waves. The utility transfer deal as proposed is just more credit card financing. Check out all of the bond issues over the past 30 years and try to figure out if any of that debt ever got paid off. You'll find it is continually refinanced and rolled into new debt. We're still paying debt on buildings and improvements as far back as the Hudnut administration that no longer exist. It's only a matter of time before the City's finances bring it to a complete financial collapse. We are actually bankrupt right now; it's only through smoke and mirrors budgeting that we have fooled the public and bondholders into thinking otherwisse.

M Theory said...

I was thinking as I read WIlliams' critique yesterday that I wish the Libertarians had come out with that analysis.

Marycatherine Barton said...

Yes, the corrupt banksters have owned Indianapolis, ever since Mayor John Barton, the humble son of a poor immigrant, left office. Thanks for cutting to the chase, AI.

dcrutch said...

If what you've posted is straight ahead, this is truly outrageous. It makes Peterson look like Mother Theresa, and me a jackass in voting for Ballard.

The water company transfer proposed by Mayor Ballard is supposed to work based on IMMEDIATE and SUSTAINED:
5% decrease in captial costs, 15% decrease in operating costs, and
DOUBLE the growth in water usage over the next ten years(?!).

How? Magic fairy dust? We need to explain to those departing Marion county the error of their ways? They must be delusional to think that our collective education, infrastructure, crime and fiscal problems might be approaching unsolvable? May I watch your pep talk to convince them otherwise?

All this, based in part, on a study by Citigroup, who (coincidentally), is to make $7M on the deal. AND, the mayor's son's PR firm gets a ten-year contract. AND, we don't get to throw out Veolia and United Water, or even consider a state recommendation to renegotiate with them?

If Citizens is suppossedly a good steward, fine, let's transfer. But, let's see what it takes to keep Veolia, United Water, the mayor's son, and disassociated infrastructure funding out of it. Give us separate taxes, referendums, bake sales, whatever, for the infrastructure improvements.

Better yet, instead of kicking the can down the road, how about tackling bigger issues associated with unaffordable goverment: entitlements, foreign policy, and immigration? Or, we're determined to go the way of Greece and riot in the streets?

Regardless of party, if it's not simple, it just guarantees somebody's getting over.

Citizen Kane said...

Oh, it is only a matter of time before civil unrest comes to these shores, after the slaves to debt lose all hope and the slaves to entitlements realize the check's not in the mail.

Carlos F. Lam said...

Gary, we @ the Washington Twp GOP Club had a presentation from Chris Cotterill from the Mayor's office yesterday, along with a rep from Citizens. I was duly impressed with the presentation & the answers to our questions.

1. From my understanding, one of your big problems with the transfer is the continued presence of Veolia & the millions it will continue to reap from ratepayers. Chris indicated that there is a liquidated damages clause in the contract with Veolia and -- even if litigation were to prove successful -- the time frame for such litigation would be such that Citizens has stated that it will decline the offer to purchase the water utility if the issue is dragged out in court.

Given that I've had nothing but good service from Citizens and given it's charitable trust structure, I'm all for Citizens getting the utility because I think it will benefit me (in terms of good service) in the long run. I understand that this is an argument from bias (I've had good service from Citizens so I want them to own the water utility), but it's based on my observations of my nat gas service. I also understand that it may be to the detriment of ratepayers as a whole because of the money paid to Veolia, but I am willing to shove those costs onto the ratepayers because I perceive Citizens's ownership to be in my own best interest.

2. Another issue you've brought up -- correctly, if I might add -- is that the cash that Citizens is paying will go toward streets, bridges, and sidewalks instead of allowing Citizens to conserve cash and, as a result, lower rates for ratepayers. This is somewhat akin to a germaneness argument when it comes to bills in the General Assembly, and you make a good point.

My counterpoint is that if all the savings were passed on to ratepayers, then ratepayers outside of Marion County would benefit as well (a buddy of mine in Zionsville gets water from Indianapolis Water). Out-of-county ratepayers would reap a benefit in the form of lower rates without giving up anything. We Marion County residents would be giving a utility company to Citizens. Now, perhaps the IURC would allow Citizens to discriminate based on location (i.e. Zionsville residents would pay more than Marion County residents for water), but I doubt it. Not only would there be legal challenges from non-Marion County ratepayers, but I can already see state reps & state senators grilling Carolene Mays & Jim Atterholt (both from the IURC) about the "unfairness" of such a move.

All this is not to say that you haven't brought up good points against the transfer; you have! It's just that--viewing the transfer through the lens of my own self-interest--I do support it.

Gary R. Welsh said...

Carlos, Thanks for sharing. I've heard the Washington Township GOP Club has been turned into a big advocate for the tax, borrow and spend policies of the Ballard administration since Liz Karlson stepped down. Again, another reason I will do everything I can to defeat every Republican candidate in the next municipal election.

Chris is feeding you a lot of bullshit that you believed. Veolia is never taken to task for violating the agreement. It's been paid millions annually in bonuses that the IURC said had nothing to do with performance. What Chris is saying is that until the feds file corruption charges against all of the players to recover taxpayers money, we're going to continue to pay out tens of millions of dollars for their substandard services. As for the funding of the pork barrel projects, it's this simple, Carlos, We're issuing 30-year bonds to pay for improvements with a life span of 8-10 years. Would you take out a 30-year loan to buy a car? Chris and his corrupt buddies in the administration count on a very stupid public. That's how this bullshit continues to go on year after year.

M Theory said...

There is nothing trustworthy or charitable about Citizens Gas.

Has anyone ever really looked at the service and delivery fees they charge? On my latest bill they charged me more for delivery than the gas!

I complained to the IURC. They are little more than cronies of the insiders at the gas company.

And speaking of charity. Does anyone know about the weekly parties (every Friday) thrown by gas company CEO Carey Lykins? THe parties were catered for 200 formal attired guests every Friday night by Crystal Catering at Lykins swanky home.

The CEO'S party was a weekly gig for Crystal when Lykins and cronies were attempting to get IURC permission to extort the new massive service and delivery fees from the citizens.

The IURC is the fox guarding the hen house of our money.
I want separate funds raised for sidewalks and I don't want them being paid through water which is a basic necessity of life.

Even the gas company employees I've talked with think this deal stinks.

This new Washington Township GOP club president sounds like he wants to get ahead with the county party regardless of the citizens who get hurt along the way by their policies. He'll do just fine with the likes of Brizzi and Tom John. None of them have a conscience.

dcrutch said...

30 yr bonds for improvements lasting 8-10 yrs.....

That's making six-year new car loans look a lot more sensible, five years to pay off a satellite dish for a trailer look legitimate, and the student loan industry a whole lot better.