On April 18, 2007, before San Diego’s Water Department and Metropolitan Wastewater Department were combined into the Public Utilities Department (PUD) the San Diego City Council enacted an ordinance to establish an Independent Rates Oversight Committee (IROC):
“It is the purpose and intent of the City Council to establish the Independent Rates Oversight Committee to serve as an official advisory body to the Mayor, City Council, and City Manager on policy issues relating to the oversight of the City of San Diego’s public utilities department operations including, but not limited to, resource management, planned expenditures, service delivery methods, public awareness and outreach efforts, high quality and affordable utility services provided by the public utilities departments, including the Water and Metropolitan Wastewater Departments. In addition, the Independent Rates Oversight Committee is established to assist the City in tracking and reviewing the use of rate proceeds to advance the capital improvements related to rate packages and work programs adopted by the City Council.”
The ordinance provides for a committee of eleven members plus several ex-officio members. It requires that a majority of the members of the committee shall possess expertise in one or more of the following areas: accounting, auditing, engineering, biology or environmental science, finance or municipal finance, law, and construction management.
Take some time to examine the IROC website agendas and minutes and you’ll understand the considerable effort IROC and its subcommittees put into meaningful oversight on issues that involve ensuring a safe and reliable water supply, sound environmental management, reasonable rates, wise investments, efficient operations, a knowledgeable public, and a sustainable water and wastewater system.
IROC members have contributed countless hours to help San Diego deal with its complex, difficult water and wastewater management challenges. Consider also that the committee members labor without financial compensation–we should be grateful to these dedicated civic-minded volunteers working to improve the community.
Unfortunately the City of San Diego’s Public Utilities Department (PUD) takes its marching orders from the Mayor and City Council. It shouldn’t be hard to see that powerful and wealthy competing interests consume large portions of these politicians’ time, so that a solid background of knowledge, expertise, and understanding of San Diego’s water and wastewater management issues is not a particularly strong suit.
IROC, therefore, has the broad expert knowledge to perform competent oversight that helps compensate for political interference or indifference over the Public Utilities Department.
Water rates are one political issue that some politicians are using in their campaigns. Some politicians are prone to blame high water rates on excessive salaries or financial mismanagement but you don’t usually hear them pointing out that 80% to 90% of San Diego’s water must be imported and the wholesalers selling the water control the price and we have to pay it. San Diego is in a semi-arid region with very limited local water resources, so it’s simply a fact of life that if you want to live in San Diego you’re going to pay plenty for water.
Even though IROC spends a great deal of time reviewing a broad array of factors that influence water rates, the fact is that San Diego has only limited control over water rates. On top of the massive water purchases, there are capital improvements, infrastructure upgrades, replacement of aging pipelines, performing tasks required by law or consent agreements and numerous other factors that make water cost so much.
Notwithstanding Councilmember Carl DeMaio’s claim that he can reduce water rates by 15% and keep that rate frozen for five years, the fact is that the cost of doing so would prevent replacement of worn out infrastructure and preventive maintenance. We would soon face even more broken pipes, sewage spills, wrecked streets, flooded homes, boil water orders, fines, and court orders. It’s important for PUD to be run as efficiently as possible, but cost control must not be an excuse to defer action on innumerable requirements to keep things working. It would certainly make people consider water conservation a lower priority.
Lately, IROC has increasingly been targeted by politicians and affiliated groups who allege it isn’t doing its job as mandated by the city ordinance.
For example, on November 7, 2011, in response to questions raised by Audit Committee member Thomas Hebrank about IROC needing to procure performance audits, an Independent Budget Analyst report was delivered to the committee. The report provides good clarity about the financial constraints IROC faced in initiating such audits.
The City Attorney also was queried by Audit Committee questions that implied IROC was acting beyond the scope of its responsibilities. The City Attorney’s reply was “Based on our review of the annual reports, we conclude that IROC’s recommendations and findings are within its scope of duties as described in the SDMC.”
The same City Attorney report also replied to questions from the Natural Resources and Culture Committee as to (l) whether IROC should be reviewing City policies regarding the water and wastewater utilities or be focusing solely on the City’s use of ratepayer funds, and (2) whether review by IROC is a prerequisite to City Council action on water and wastewater matters.
In this case, the City Attorney concluded that “The focus of IROC is oversight of water and wastewater ratepayer funds and the perfonmance of
the City utilities. IROC is also tasked with advising the Mayor and City Council on policy issues related to water and wastewater service, having assumed that responsibility of the formerer PUAC. While prior review by IROC is recommended so that IROC can accomplish its mission, IROC review is not a legal prerequisite to City Council action.”
Subsequently, on March 5 there was an Audit Committee agenda item entitled “Proposal to Authorize City Auditor to Conduct PERFORMANCE AUDITS OF WATER AND WASTEWATER SYSTEMS. Interestingly, the supporting document for that item was a proposal from the San Diego County Taxpayers Association dated February 2012 entitled “Independent Rates Oversight Committee (IROC) Proposed Municipal Code Revisions”. A reading of the proposal to revise the ordinance seems to indicate that it would significantly curtail the scope of IROC and possibly hamper IROC’s ability to provide value to the Mayor and City Council.
A look at the Audit Committee Actions document for that meeting shows that things went considerably further than authorizing the city auditor to conduct performance audits. Indeed, the action taken was based on the SDCTA proposal to revise and limit IROC’s scope of responsibilities:
ACTION: Motion by Councilmember DeMaio, second by Chair Faulconer, to recommend the City Council:
a. Amend the San Diego Municipal Code in a manner consistent with the proposal’s new municipal code section 26.2003(d), related to the City Auditor.
b. Amend Municipal Code Section 26.2001, titled, “Purpose and Intent,” to read:
“It is the purpose and intent of the City Council to establish the Independent Rates Oversight Committee (IROC) to serve as an official advisory body to the Mayor and City Council on issues relating to water and wastewater system management. The goal of IROC is to ensure that rates charged to City residents are appropriate and the funds generated from rates are used appropriately. By establishing IROC, the Mayor and City Council seek a water and wastewater system that is efficiently and effectively managed.”
c. Make these amendments prior to any consideration of a rate increase in the water and wastewater system.
d. Ensure the City Auditor’s annual independent performance audits on water and wastewater systems do not affect the City’s general fund by funding audits through the Water and Wastewater departments’ Dedicated Reserve from Efficiency and Saving (DRES) fund or by appropriating funding annually from the Water and Wastewater departments’ budgets.
SDCTA’s Sean Karafin kindly shared with me the precise wording of Carl DeMaio’s motion in the above item:
“I would make a motion that we move this proposal to the City Council with recommendation that they amend the San Diego municipal code in a manner consistent with what the Taxpayers Association has suggested under item ‘d’ and the amendments to the purpose section, that I read for the record and I will be happy to provide our City Attorney here with my notes*, and that we make recommendation from the Audit Committee to the City Council that these amendments be made prior to any consideration of a rate increase in the water and wastewater systems.”
At some point after the abovementioned Audit Committee, SDCTA apparently made some revisions to their February proposal and presented the new version at IROC’s March 19 meeting. SDCTA’s President and CEO Lani Lutar and Economic Policy Analyst Sean Karafin’s discussion also included this Powerpoint presentation that was apparently intended to simplify matters by drawing comparisons between specific wording in the existing ordinance juxtaposed above the proposed changes.
The proposal implies that IROC was budgeted $100,000 each year to pay for performance and financial audits and that no financial audit has been performed. However it should have been noted that the Independent Budget Analyst report stated that it wasn’t until April 12, 2010 that funds for utility performance audits were made available to the city auditor.
The SDCTA proposal also seeks to eliminate some expertise requirements for committee members, and further appears to reduce IROC’s independence by requiring it to submit an annual work plan for approval by the Natural Resources and Culture Committee (NR&C).
With great concern about the proposal, IROC called a rare (and possibly the first one ever) special meeting on Monday to discuss the San Diego County Taxpayers Association proposal
SDCTA Economic Policy Analyst Sean Karafin was present to take questions, but he mostly got an earful of criticism.
Andrew Hollingworth was perhaps the only committee member in full support of the revised ordinance. He also added “I think it also appropriate to consider the language of the mayor’s intent in establishing IROC… I believe the taxpayers association have language here which was the original press release establishing IROC.”
Jim Peugh replied: “I guess the City Council passed the ordinance, so I’m not particularly concerned with what the publicity was. I think we need to work just with the ordinance that was passed by the council.”
Irene Stallard-Rodriguez said: “I like some portions of what they’re recommending, there are some good portions that are good, I don’t think all of it is bad, I just don’t think all of it is appropriate, there are one or two things that are good [e.g., deleting the reference to the city manager which no longer exists; and clarifying that water and wastewater departments are now combined]. But the rest of it is like, “you’re kidding.”
Don Billings: “I think there are two issues here; there’s some things that to my surprise were taken to audit and some to city council…which is not just technical changes. It’s a substantial narrowing of IROC’s charter which in my view strips IROC of its ability to examine most of the major factors that track rates and I think it’s foolish…. We wouldn’t be able to look at a lot of the things that drive rates. It’s a caricature of oversight. If you go into the foyer here and look at the mission of the department, it’s about public health and welfare, it’s about water reliability and sustainable supplies, and long range planning and making sure not just that we execute current projects efficiently, which is very important, but it’s so much more than that.”
Gail Welch: “I’ve spent a great deal of time in the finance committee and feel we’re making progress in the finance committee…it seems the charter we have now is a good framework.
Also, Pat Zaharopoulos, President and Chief Executive Officer of the Middle Class Taxpayers Association spoke briefly during public comment. “The present ordinance seems to be broadly written to allow IROC to be independent…the cost of services need to consider the long-range assessment of capital and department operations and infrastructure and many factors to be properly determined. You can’t look at only one variable only and limit you to rates without tampering with your independence and ability to act logically. We oppose the proposed amendment.”
Deputy City Attorney representative Tom Zeleny who attends all IROC meetings as a legal consultant pointed out that the proposal to eliminate certain areas of expertise by committee members would probably mean that some members of IROC would have to be removed.
Zeleny also mentioned what he called a “loophole” in the wording of subsection F of the SDCTA proposal. The proposed wording in that section is so similar to the original wording, Zeleny said, “if the intent is to narrow the focus of IROC, subsection F essentially opens everything up again. A lot of what is considered policy can also be considered a question of cost efficiency. There is simply too much overlap between policy, cost effectiveness, and efficiency. I’ve explained this to the taxpayers association.” He added that he expects SDCTA to reword the proposed revision to eliminate the “loophole.”
When SDCTA’s Sean Karafin had an opportunity to comment, he said “our intent is not really to limit IROC, it’s to focus IROC. There is a significant difference, because if you spread yourself too thin and comment on other [important] sections. But more than anything taxpayers were promised oversight of the expenditures of ratepayer funds…that promise should be met first and foremost.”
Andrew Hollingworth, following up, asked, “Mr. Karafin, is it your intent to basically narrow the focus of IROC so that it serves the mayor’s intent that IROC be the ratepayer watchdog and that the taxpayer’s association perception is that it [IROC] spread out in doing all these other things so that mission has been lost?”
Mr. Karafin: “Exactly.”
It was clear, however, that a solid majority of IROC members were dismayed by the SDCTA proposal.
Irene Stallard-Rodriguez soon declared “I move that IROC oppose the taxpayer association proposal.” Don Billings seconded the motion.
As discussion began, Andrew Hollingworth charged that “several ratepayer proposals I’ve made have been quashed over the years. For example, this year one of the reviews I proposed was to compare rates among other local agencies and that was quashed.”
Don Billings responded: “Let me take exception to that because it has a specific legal definition of “quash” and I’m sure there are no motions to quash in the record. With respect to, for example, the idea of benchmarking, that’s the very first thing we did when we went to [HDR?] engineering and we spent a lot of time examining the question of benchmarking and educating ourselves and discovered that as anybody who does benchmarking knows, rankings are the beginning of the analysis and not the substitute for the analysis. Secondly, unfortunately they get misused. We have to be very careful how we do it…we don’t support “Lone Rangers”, we want it to be done properly and have credibility and far from “quashing” any such effort we asked to be part of that effort. To have it explicitly brought to the Finance Committee to talk about how we identify peers
so we do it carefully, how we identify the metrics so that we do it carefully and properly.”
Gail Welch added, “I go to all the finance subcommittees — in fact I go to all the subcommittees — and there is a lot of focus on rates and costs…there are costs related to everything and that is a main theme. When it comes to benchmarking, I’m not opposed to benchmarking but I think we need to understand who we benchmark against, how one utility is run vs. another and what the layouts and geographics vs. ours are and whether it’s even meaningful to compare us to the people you’re comparing us to.”
Don Billings then said “I’d like to call the motion.”
Jim Peugh: All in favor: all members present voted eye, except Andrew Hollingworth who voted to oppose.
How to handle next steps was then discussed. The consensus seemed to be that a letter to the Mayor and City Council simply stating a rejection of the proposal would not be helpful; rather that the letter should not only to state the rejection of the proposal but also outline the concerns and reasoning for the vote.
Don Billings suggested one way to frame the letter:
“We feel we have been operating in accordance with the ordinance. Indeed most of what we look at is financial. We feel the proposed ordinance would turn IROC into a political tool. How did we get involved in embarking on all these rate increases? Because prior city councils didn’t have the courage to tell ratepayers the truth that we have to fix things. Any jackass (pardon the language) can tell the public that we can cut the budget by 10% but a broader understanding of the entire process is necessary to protect ratepayers. Audits and appropriate benchmarks are necessary, but IROC needs an informed view by looking at management of resources and long-term planning, and this proposal doesn’t let us do that. Risk management, how to invest, having a qualified workforce, essentially all the things that come before the department. It also prevents us from looking at things outside of PUD, since many functions that affect rates are performed by agencies outside of PUD.”
As for the proposed workplan in coordination with NR&C: he added “we can certainly create our own work plan, but it shouldn’t be approved by political committee — or we won’t be independent.”
Andrew Hollingworth immediately countered, “I would strongly oppose any proposal to adopt a workplan that was not adopted by NR&C in consultation with IROC.”
Jim Peugh replied, “In that case I guess we could call it the “Dependent Rates Oversight Committee.”
Following more discussion in the same general tenor, Michael Ross moved for Jim Peugh (in collaboration with Gail Welch) to write a letter to the mayor and city council explaining that IROC believes it has operated according to the ordinance and translate the committee consensus as to why it opposes the SDCTA proposal.
Tom Zeleny then stated that assuming there would not be a future meeting to discuss the particulars of the letter, it would be be advisable to decide at this meeting what should be said in the letter.
So discussion ensued about what particulars should be included in the letter. Some committee members referred to notes they had prepared following the Monday presentation in suggesting wording they thought should be included in the letter.
This discussion greatly displeased Andrew Hollingworth who angrily rose and announced his intention to leave the meeting, saying that discussion of items to include in the letter has “obviously been orchestrated.”
Nearly everyone asked him to stay, saying they wanted to hear his opinions and that they certainly had not coordinated their written topical lists –that today was the first time anyone had discussed them. Briefly, Hollingworth sat back down but after a few more minutes of discussion, he appeared increasingly agitated and growing red in the face. Again he abruptly rose, announced that “IROC’s problem all along is that it hasn’t focused on ratepayers” and then he left the room for good.
As to the question of the proposed workplan, a consensus developed as to a willingness to internally develop a workplan within the committee, but to have one developed and/or approved by the Natural Resources and Culture Committee was unacceptable.
Don Billings again phrased sentiment that seemed to satisfy the committee members: “I think it [the SDCTA proposal] completely misses the point of what IROC is about, to have political approval of what we’re going to look at and what we’re not going to look at. A big reason we get into problems in this city and in managing the public health and welfare is because there’s no buffer from the political interference that prevents the professional managers from managing this operation professionally. To me that’s an essential part of my job on IROC…it’s to call it as I see it and not go into NR&C and ask for instructions. We can create our own work plan but there’s no reason to have one approved by NR&C. IROC’s essense is its independence.”
Electioneering with claims that everyone’s being drastically overcharged for water fuels emotional public sentiment but doesn’t change the fact that it costs money to import water and to responsibly manage our meager local water supply and deteriorating infrastructure. Like police and fire, San Diego’s water supply is a serious public health and safety issue.
