The City Council is starting to consider rate increases for water and sewer and solid waste services.  The Water and Light Advisory Board has already recommended a 10% increase in water rates for fiscal year 2027.  How do we know that those increases are actually needed? Or if they are fair?

Transparency, equity, and accountability have been key themes on this blog since the development of the 2016 “Are We An Us?” dialogue guide in 2016. Ensuring these values are reflected in CIty governance requires citizens to be vigilant and to ask hard questions as the City Council makes decisions that affect us all.

We talked with Jim Windsor, the retired Assistant Director for Utilities for the City of Columbia, about what questions citizens should be asking to ensure that rate increases are actually needed, and that rates are fairly set.

CC: Welcome Jim. I know people are concerned about rate increases, especially as costs continue to rise in many areas. What should we be asking to ensure that any rate increases are actually necessary and that rates are set fairly?

JW:  There are two issues that I have raised with the Council that utility customers could be asking questions about. These relate to intragovernmental fees and transfers that are not being adequately reviewed, and the costs of annexing the water plant which, it turns out, are much higher than represented at the time the decision to annex was made.

CC: Let’s take those separately. Tell us more about the intragovernmental transfers. 

Intragovernmental Transfers

JW: Utility customers are paying for millions of general fund expenses through intragovernmental fees and transfers.  These costs get little scrutiny, yet they lead to  increased utility rates.  

These intragovernmental charges for general fund expenses are in addition to the  “PILOT” (payment in lieu of taxes) charge that the water and electric utilities already pay to the general fund.  Several of these charges are questionable. 

For example, portions of the Deputy City Manager salary is assigned to the utilities even though that position does not supervise or manage utilities. Utilities also heavily fund charges like Building Utility Charges, Building Maintenance, Public Communications and Janitorial Services. Water & Light currently pays about 30% of the General Administrative Fee and the Public Communication Fee. In total, utilities pay 70% of those fees.  Some departments, like the fire and police departments, pay nothing.

When setting rates, these charges are then counted as “administrative costs” of the utilities and then are loaded onto base rates.  The base rate is the minimum amount a customer pays before even using any service like water, electricity, or sewer. I calculated the minimum base charges paid by  a residential customer for the five city utilities.  The range is $67.65 to $112.41 with the difference being the size of water meters and size of roll-carts. Because of these additional intragovernmental charges, our rates are higher than they need to be.

It is very hard to review these costs. The amount and type of such transfers are not broken down for the City Council when it is asked to raise rates and so there is little review. Nor do citizens have much of an opportunity to question these costs. That lack of transparency invites a practice of using the utilities as a “cash cow” to fund government activities without transparency or accountability for the growth of costs. 

CC: What changes would you propose?

JW: First, we need real transparency on these charges and then a fair methodology for assessing charges to all departments, not just loading them on the utilities.

Second, I would suggest that these government administrative costs should be recovered through taxes which would more fairly distribute costs among the city residents that benefit from city services. This alone would result in lower utility rates. 

Of course it is easier just to fold these costs into utility rates rather than to pass a tax increase. Yet when we load them onto rates we create an inequity in that a significant amount of the “city growth” is in areas served by Boone Electric and water district services, rather than city utilities.  The utilities that serve those areas do not pay these fees. Yet their customers are benefiting from city services and not paying their fair share of administrative costs for the services they receive. And customers, particularly low income customers within the city are paying more than their fair share.  So from an equity perspective we really need to discuss the difference between what “taxpayers” fund and what “ratepayers” fund. 

The City Council is currently considering a sales tax increase and can address these issues, and correct needed allocations both among funds and between taxes and rates as it does so. 

Annexation

CC: Can you summarize for us the issue of annexation of the water plant?

JW: When the City Council was persuaded to annex the water plant in 2019,  it was assured there would be “no fiscal impact.”  There has in fact been a significant fiscal impact. I have explained elsewhere that annexation was unnecessary, and that Council can and should mitigate the impact of the annexation on water rates.

CC: How can Council mitigate this impact?

JW: This gets a bit technical so stay with me.  As I noted earlier, the water and electric utilities pay a “PILOT” charge to the general fund. This charge is a combination of a gross receipts tax (that appears on your bill) and a property tax (that is paid from utility rates). The water utility is being charged the combined property tax rates for all Boone County taxing entities (not just the city rate). Since water utilities have a significant amount of infrastructure compared to the revenues they bring in, this way of charging the PILOT represents a significant drain on the water utility’s financial resources. The annexation has increased the property tax for the water utility by over $300,000 per year

This way of charging the PILOT is also inequitable in the way costs are distributed among the utility companies. The water utility currently is paying more property tax PILOT than the electric utility and is five times smaller. Sewer and solid waste don’t pay a PILOT.  With the completion of the almost $40 million improvements to the water plant, the water utility will in the future be charged an additional $800,000 to $900,000 per year if no change is made.  That cost will then be passed on to water utility customers through their rates if the Council does not act.

Although the annexation was presented as having “no fiscal impact”, it appears to have been designed to increase city revenues without the scrutiny that either a rate or tax increase would require.  While the annexation cannot be undone, the Council could, and should, mitigate the effects of this error. It can do so by setting the property tax rate for the water plant at only the Columbia rate. Since the revenues raised by the water PILOT are not shared with other taxing entities, it makes no sense for the taxes of those entities to be included in the calculation (other than to artificially extract more revenue). Both Ameren and Boone Electric pay a PILOT based only on the city rate.  Limiting the PILOT to the city tax rate would eliminate most of that $800,000 to $900,000 increase, which would otherwise occur later this year.  

CC:  So what might a concerned citizen do?

JW:   If we are serious about the affordability of utility rates, fair rates, and governmental accountability, we will ask for full transparency on this issue. Contact your Council member, share this post, and ask that these charges be reported and reviewed before any changes in rates are made. You can also share this information with your neighbors and ask that they do the same.

CC:  Thank you Jim for sharing your knowledge and helping us unpack this.