This post originally appeared on the Meyer Law Office blog on June 27, 2019.
After 68 years in existence, the Shakopee Public Utilities (SPU) Commission has been under attack by the City Council since its December 2018 meeting. Partly about policy, these attacks have degenerated into ad hominem attacks against the Commissioners by suggestions of incompetence, unprofessionalism, and, just recently, self-dealing or corruption. Indeed, the City staff has resorted to suggestive language in their recent public relations assault against the Commission through their unprofessional and offensive reference to our customers being “SPUC’d.” I now believe I understand why SPU is in their sights.
Who will decide what you pay for utilities?
On Tuesday, June 18, the Shakopee City Council voted to retain counsel for a legal opinion on how to reverse the 1951 decision initially establishing an independent SPU – essentially seeking to dissolve the Commission and bring utilities solely under the City Council’s power. This would not move the utilities operations to private control. It means that City staff and Council would be responsible for providing our water and electric services. Most importantly, it means they would set the costs we have to pay to enjoy those services.
While I’ve only been on the Commission a year, I have learned the real economic issues involved in providing safe and reliable electric and water services. While City staff have made disingenuous statements that SPU’s fees are merely to “connect” a newly developed property to the water system (like connecting a “water hose” for your lawn), there are substantial costs associated with expanding the system to accommodate new or increased usage. There are new wells to be drilled, booster stations to be built, storage/holding tanks to be constructed – not to mention the extensive pipe system to be purchased and installed. Plus, there are looping requirements that ensure there’s enough water pressure for fire protection for EVERYONE. It costs money to provide those services — and the issue in this matter essentially comes down to who pays for it.
What does “connecting” a new user really mean?
We all understand that when you run water through too many hoses from a single faucet, it reduces pressure throughout the system, and the increased connections to your faucet do not magically increase the volume of water from the faucet. Neither do they increase the volume of water from the original source — the city wells. For every new user pulling water from the Shakopee water system, infrastructure must be built and paid for by someone. Again, who pays for it?
I suspect City staff fully understands how ridiculous it is to suggest a new user just needs to be “connected,” i.e., the “water hose” metaphor. They are merely using these arguments to delegitimize SPU and aggrandize their own power by bringing the utility functions within city government. But I am certain that Mayor Mars understands these true economic costs. He parlayed his 12 years of Commission experience — from 2004-2016 (four years as president) — into the mayor’s office.
Indeed, during the Council’s campaign against the Commission’s independence, they challenged the underlying reasoning of policy and fee decisions — decisions made during Mayor Mars’ time as a Commissioner where he repeatedly approved of these policy adjustments. If the city administrator were truly interested in the rate/fee policy decisions of the Commission in 2003, 2007, 2008 or up until 2016, he need only walk down the hall to Mayor Mars’ office to find the answer. Instead, he is trying to make a political point to incite public outrage by challenging the Commission to explain decisions from years ago when many of the Commissioners were not even Commissioners. But Mayor Mars was.
What really happened with Willy McCoy’s?
The City’s first attacks against the Commission arose from the Willy McCoy’s development and the assessment of Water Capacity Charges (WCC) and Trunk Water Charges (TWC) for a new restaurant. If Shakopee residents really understood the issues involved in that development, they would certainly have less sympathy for the tenant who was opening the Willy McCoy’s restaurant. Land developers understand they need the land to be connected to “the grid.” These costs are typically incurred by the owner of the property, NOT the initial tenant. Those costs are associated with water access throughout the economic life of the property. Essentially, the owners of Willy McCoy’s agreed to pay for something that they shouldn’t have.
In response to the Willy McCoy’s situation, the City Council, blinded by the magic phrase “economic development,” was willing to attack the SPU for not shifting the additional costs for providing water to the development upon pre-existing customers, rather than using the development funds at its disposal because Willy McCoy’s didn’t pay its employees sufficient wages.
What’s the City Council’s motivation?
So why is the City spending staff time and resources attacking another public body? Why are they trying to whip up public opinion by spreading false or disingenuous information disparaging the intentions and professionalism of the public servants on the Commission and SPU’s dedicated professionals? The answer became clear to me once I received the latest round of “questions” from the City Administrator — it’s about controlling funds.
Two issues starkly reveal that the City’s motivation to gain control of the city utilities as its “piggy bank” and avoid the public perception that its revenues are in fact disguised taxes (which would never gain the public’s approval). First, they would shift new infrastructure costs for developments such as Willy McCoy’s onto the established users through increased rates, rather than assessing those costs to the new development. Second, they’d increase usage rates for preexisting users thereby increasing revenues for the City, so they can avoid the stigma of raising taxes.
The City wants to shift the cost of expanding the water infrastructure to the citizens through increased usage fees. It’s no secret that the Council and City staff are extremely motivated to encourage economic development. But at what price? Political opposition arises whenever tax increment financing (TIF) is even mentioned. But if the City can encourage new businesses by lowering other startup costs, such as WCC and TWC fees, they can avoid the political costs of shifting those to Shakopee citizens.
In fact, the City Administrator admitted as much in his latest missive to SPU by questioning whether “SPUC [is] using WCC/TWC in any way to subsidize water rates.” At the December 4th City Council meeting, City Planning Director Mr. Kerski argued that the users should pay for new infrastructure costs rather than the developers. Thus, the city’s motivation is clear — to have the system users pay most or all of the additional costs to add infrastructure to accommodate new development. This could increase water usage rates 60-100% or more, depending on the amount of new infrastructure needed. So who do you think should pay for it?
Do we really want utility costs increased?
In addition, the City Administrator challenges the amount remitted to the city of Shakopee every year for both water and electric services provided to its citizens. Given that we are a public utility supplier, any amounts that we remit are, in fact, taken directly out of the pockets of our citizens. It’s essentially a disguised tax. Typically, the SPU will remit about $2.5 million in both electric and water fees from our citizens. According to the City Administrator, the SPU should increase those amounts because some other communities pay more in remittances than does SPU – perhaps communities whose utilities are run by the city? SPU nets no profits. Consequently, any increase in remittances will mean increases in user rates.
To be fair to City staff, they want to encourage more development in Shakopee – an admirable goal which I share. However, while the city compares SPU charges with those imposed by other communities, they do not account for the unique issues that directly affect the rates and fees for our customers here in Shakopee. Examples include the continuing high rate of development (i.e., the areas we have yet to build out), limitations on the location of wells, the different elevation areas to transport water, and the storage/treatment facilities to support that system. In other words, the City staff is comparing apples to oranges in its criticism of the SPU fee structure.
Is it worth it?
Ironically, the city administrator is the one who approached me to become an SPU commissioner. As an attorney, I felt obligated to use my time and talents for the Shakopee community. So I agreed – notwithstanding the nominal compensation given the time, effort and public acrimony I would eventually endure. Today, I have no interest in continuing as commissioner once my term expires.
In fact, I fully expect that I won’t be reappointed by the mayor once my term is over. But I’ll be in good company. One of the most qualified commissioners, an electrical engineer by education and profession, was refused reappointment for political reasons by the Mayor and City Council. I am not a politician. And I have no aspirations to be one. But I’m compelled to speak out against this ill-advised plan by the City. I’m opposed to hidden taxes being used to fund profligate spending by our elected officials. Whether as a commissioner, or an informed citizen and taxpayer of Shakopee, I believe the Council’s plan to use the SPU as a backdoor method of imposing another tax on our citizens is inappropriate.