Stormwater, Sewer, and Sanitation Fees Going Up

Decisions of the past, increased costs, and the cost of Miami Beach's resiliency efforts are all coming together at the same time. Now, the Commission’s Finance Committee is grappling with what could potentially be large increases in monthly bills in the near future.  At the most recent meeting of the Commission’s Finance Committee, members grappled with what could potentially be large increases on a percentage basis in monthly bills in the near future.
 
The meeting started with the good news: The typical water bill will go down 14 cents following a reduction in what the City pays to Miami-Dade County for service. 
 
Sewer bills will go up 3.5%, the amount of the CPI increase that gets added to the base charge. That translates to about $1.21 per month for a typical customer.
 
Stormwater fees
Then the conversation turned to the Stormwater rate and how much the City needs to fund its planned projects to upgrade the City’s system and prepare for sea level rise. The program that is in place called for $400m funded through bonds and an Interlocal Agreement with Miami-Dade County. Two bonds of $100m have already been issued with a third proposed for 2022. The other $100m comes in through the agreement with the County over time and in variable amounts.
 
Public Works Director Roy Coley told Finance Committee members that the City accepted a financial feasibility report from its rate consultant “that calls for an increase in stormwater rates this year.” Including the CPI, Coley said the rate increase called for in the report is $5.57 per month for a typical customer.
 
Commissioner Mark Samuelian said, “I’m not comfortable with this. I don’t feel like this is the best timing… it’s a very big increase, 23%.”
 
“We just decided [two days ago] to ask the voters if they wanted to spend $430m in taxes” through a General Obligation (GO) Bond, Samuelian said. “I’m not sure the timing is right then to say, in addition, we’re going to raise your stormwater fees by 23%.”
 
“I believe that the GO Bond is us making the case for a lot of funds for stormwater, a lot of funds that help resiliency, and the voters are going to decide,” he continued. “This is different. They’re not getting a seat at the table on this one.” With potential proposed changes coming to the program to include new options such as blue and green infrastructure, Samuelian said, “I understand that we will need new funding. I’m not disagreeing with that but the changes in the program, to me, I think we could push this out a year or two and I would recommend we do that until we have much firmer footing on the funding.”
 
Committee Chair, Ricky Arriola said, “I know it’s not a popular decision but I’m comfortable moving forward with this. I hear the concerns… but we need to start dedicating the revenue streams so we can go to the bond market so that we have the financing.” Noting the efforts at improving the program, he said, “All of the things that concern you and I think some of our other colleagues about perfecting our resiliency program, those efforts will continue. We know we have to spend money to build our resiliency program here on Miami Beach. We’ve got to lock down the financing for sure because we need to do it. We need to invest one way or another. This is the mechanism for doing that. Your concerns about perfecting the program are ongoing, and we’re not losing control of that in any way by locking down this financing mechanism.”
 
Commissioner John Alemán said, “Arguably, if the GO Bond does not get passed by the voters we have a whole ‘nother thing that we have to think about.” She noted the stormwater fees fund below ground work while one of the General Obligation Bond proposed projects is funding for above ground work including landscaping and other aesthetic improvements. Given the timing of the vote in November, Alemán asked if the Committee could wait until December to discuss the rate increase when the outcome of the GO Bond is known. 
 
Coley said the rate increase needs to be in place at least one year before the City goes back to the bond market. When Samuelian questioned the timing given that the bond offering is not planned until 2022, Assistant City Manager Eric Carpenter said, “Our rate consultant that put together the rate model when we were going to the bond market in 2017 was relying on a Fiscal Year 19 rate increase to make sure that we were meeting all of our cash flow requirements and our covenants for those bonds so we would obviously want to go back into that ratings consultant and ask them that question.”
 
When asked how he felt about a delay, Carpenter said, “I’m not feeling pressured into a corner. I will tell you that I’m conflicted on this because I do think that we’re going to need the money and my fear is that if we don’t put the funding mechanisms in place, at some point, we’re going to get to a point that we need to award contracts for significant dollars and we might not have those dollars available.”
 
Samuelian said, “There’s one approach that says, ‘How much do you need and can you keep increasing’ and another that says, sort of fixed budgeting, ‘If you only had this much, how would you spend it?’ And I am, to some extent, advocating we think a little more like that because I fear that even after 23% then we’re gonna come back and say we need even more. That’s really what my concern is.”
 
To which Alemán responded, “Well, if the GO Bond fails, we will need more because this is the other place that we’ll have to get the money for any above the ground things with these projects.” She noted the difference to residents of using GO Bond money versus stormwater fees to pay for projects.  “The basis for the GO Bond payment by each resident is tied to their property taxes so to the extent that you’re a homesteaded resident and to the extent that you’ve maybe been a homesteaded resident for a long time, you’re going to pay less than someone who’s not homesteaded such as a commercial property or a second or third vacation type of a home… the higher payments are on non-homesteaded properties for the GO Bond.”

“For stormwater, that’s not true. Everybody pays the same pretty much so it’s definitely, I think, from a resident’s perspective, the general obligation money is much more desirable overall to most people than this kind of money,” Alemán said.
 
Samuelian said he had not yet heard that messaging and thought it was an interesting point for residents to hear. “We all support the GO bond because it’s right. It’s investing in the community. We know stormwater fees are going to have to go up. We don’t know how much yet but we’re talking about that. What you’re highlighting is that the GO Bond’s an alternative source of funding. If that’s a no, then the pace of the stormwater fees are likely to accelerate.” 
 
“We have leaders in the community who are starting to come out and say they’re against the GO Bond for one reason or another,” Alemán said. “That is so damaging to residents for the reason that I just described.”
 
Arriola added, “It affects more negatively, many more homeowners, particularly less well to do homeowners” if the GO Bond fails and stormwater fees have to increase further to fund projects.
 
The Committee asked Carpenter to check with the rating consultant on the timing of the larger rate increase and if it could wait until a December discussion. Meanwhile there was agreement on a 3.5% CPI adjustment beginning October 1.
 
Sanitation fee adjustment
The biggest increase coming down the pike could be in the Sanitation fees.
 
Jay Fink, Assistant Director of Public Works, said the last time fees were increased was in 2015. Meanwhile, the City has been absorbing the recycling costs charged by the County since 2008. Now that the County has proposed an increase of 2.7% to $3.62, the City Administration is proposing passing that cost along to residents. 
 
“We are running a deficit in the Sanitation Fund,” Fink said. “We’ve absorbed the recycling costs and all of the other increases that we’ve had to deal with.”
 
Passing the recycling fee onto residential customers would increase the typical single-family home bill from $41.56 per month to $45.18. A typical multi-family residential bill would increase from $37.13 per month to $40.75 per month.
 
When Samuelian asked why the City hadn’t raised rates since 2015 and why there is no CPI adjustment, Fink said, “For whatever reason, the City has not passed the increases on.”
 
Alemán said, “As with the other fees, it makes me uncomfortable. We have so much of importance to the City riding on the General Obligation bond, I don’t want to do anything else that’s going to exacerbate the thinking in a negative way of the resident voter who’s going to be making a decision and saying ‘Gosh guys, you’re hitting me on all sides of my wallet right now.’ I just raise that for discussion.”
 
Fink said in FY 18, Sanitation required a subsidy of $3.4m out of the Enterprise Fund. “We have been subsidizing this account over and over.”
 
CFO John Woodruff said, “The resort taxes haven’t been able to help fill up that bucket so we’re feeling a lot of fiscal pressure on top of the hurricane sucking out a bunch of their fund balance also… our recommendation would be to at least do these fund increases and we’ll still be in tough shape.”
 
Samuelian asked if it was possible to put more of the cost increase on commercial customers and less on the residential? Fink noted that via a 2003 ordinance, the maximum that fees could be increased on the waste haulers annually is 2%.  
 
Samuelian proposed an ordinance lifting the cap and incorporating the CPI increase of 3.5%. He also suggested a CPI increase on residential customers this year.
 
When Arriola suggested a slightly higher fee increase of 4.2%, half of the 8.4% increase suggested by the department, Woodruff said, “It’s better than nothing but the problem is bigger than that. In other words, that’s not going to solve the problem.”
 
“What we really need is to get the resort tax back to be able to fill up that bucket and at least that will get them to a fairly good place,” Woodruff said. “We need probably a multi-year plan here for the fee to get to a better place.”
 
Arriola replied, “The problem is it’s sticker shock to the consumer.”
 
“The reason you haven’t seen some of the increases that you should have is that as we’re raising stormwater and water to pay for these bonds, it’s all on the same bill,” Woodruff said.
 
And then things got stickier… the City has gone out to bid to renew its waste hauling contracts. The current hauler proposes an increase from the current $41.46 per month for a single-family home to $52.06.
 
Arriola exclaimed, “That’s like 25%!”
 
Sanitation Director Al Zamora explained the cost. “The bid price is $32, $3.62 [recycling cost] as a pass through. The third component $16.44 to do the things we do for the community.”
 
Since 2008, Zamora said the City has absorbed the recycling cost within the $16.44 fee and there have been no CPI increases either. 
 
“So the City’s been subsidizing the true cost for a long time,” Arriola said.
 
Woodruff underscored the challenges of the Sanitation Department. “The fund balance, unfortunately, a bunch of money went out the door with the hurricane. A bunch of money. And when the resort tax isn’t making the transfer that it needs to make [to the Sanitation Fund] then there’s a ton of pressure on that fund balance.”
 
Zamora said, “We can no longer subsidize the recycling piece.”
 
“I understand what you’re saying,” Samuelian said, “but what I’m hearing is we’re sort of being held hostage a little for policy decisions from years ago. Now we’re staring at a big number and now we have to catch up so the question is, how fast is that catch up? Where I think we were at, in the current environment, some more modest increase this year hoping on or counting on [revenue] alternatives, the resort tax, etc. to fill the gap. And then looking into whole planning. We have to fix the problem. The question is how much of it do you want to fix in year one? We do need to fix the problem.”
 
Alemán asked about the new revenue options suggested at a recent Commission meeting and suggested the City pursue the “not so contentious” ideas such as the Convention Center naming rights and advertising along the Government Cut that would be visible from cruise ships.
 
“Maybe we solve the problem that way or maybe use that during the 'wean off strategy' of the subsidy,” she said.
 
Samuelian came back to the GO Bond discussion and said he was sensitive to trying to do a recycling pass through and a CPI adjustment at the same time. Alemán agreed. “I don’t think the timing’s right to do both of these things,” she said.
 
Carpenter suggested passing through the recycling fee of $3.62 per month this year and adding a CPI adjustment to begin in Fiscal Year 2020. The Committee also asked for an ordinance to lift the 2% cap on commercial customers and institute a CPI adjustment.
 
Carpenter reminded the Committee, “But we’ll also be passing through the negotiated increase of the contract which could be a big number.”
 
“I don’t feel good about the timing of doing those two things,” Alemán said.
 
Zamora said he still had some negotiating to do and that the fee increases wouldn’t hit until January or February “so we have some time,” he said.
 
Woodruff cautioned, “As you know when you’re not in a good place and you’re putting this off, it just makes it that much harder to dig out later.”
 
Budget Director Tameka Otto Stewart said,  “Even with this increase, we’re still going to have to use $3m of their fund balance” this year.
 
“All the more reason to look for new revenue opportunities,” Arriola said. “This is a big issue and it’s only going to get worse. These new rate increases on a percent basis are pretty dramatic.”
 
Arriola said he agreed with the recycling pass through starting October 1 but asked the Administration to come back after finalizing the new contract with the waste haulers. At that point, he said, “We’ll decide what we want to do, if we want to subsidize it or partly subsidize it.”
 
 
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