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King County Executive
Dow Constantine


Efficiencies and cost reductions enable sewer rate proposal that is less than projected for 2011

Summary

A one-year sewer rate that is lower than the original rate forecast for 2011 and that introduces a new level of fiscal discipline was proposed today by King County Executive Dow Constantine.

Story

A one-year sewer rate that is lower than the original rate forecast for 2011 and that introduces a new level of fiscal discipline was proposed today by King County Executive Dow Constantine.

“By using more conservative financing, this proposed rate helps protect our high bond rating and lead to lower costs over the long term,” said Executive Constantine. “This proposal also benefits from savings and efficiencies that significantly reduce costs without compromising our mission to protect public health and the environment.”

“By calling for a one-year instead of a two-year rate, we can propose a monthly service charge that is nearly a dollar less than the rate forecast in the most recent county budget. This leaves about $8.7 million in ratepayers’ pockets until the revenue is needed,” he added. “This idea is consistent with recommendations from the 34 customer agencies that contract with King County for wastewater treatment, and it’s one that puts our utility in a better position to respond to market conditions as the economy recovers.”

Under the proposal transmitted today to the Metropolitan King County Council, the wholesale sewer rate for 2011 would be set at $35.15 per month, 91 cents less than the projected monthly rate of $36.06 that was forecast in the most recent county budget adopted last fall. It is a 10.2 percent increase over the current monthly rate of $31.90 adopted for 2009 and maintained through 2010.

In line with the county’s long-standing policy that “growth pays for growth,” the proposal also calls for a capacity charge for new sewer hook-ups in 2011 of $50.45 per month, an increase of 2.8 percent from the current $49.07 per month.

The rate proposal has three key elements:
1. Establishing a one-year rate provides economic relief to ratepayers. While two-year rates have been adopted in the past, the one-year rate is about $1.10 less per month in 2011 than it would have been as a two-year rate and 91 cents less per month than projected in the 2010 Budget – thereby saving ratepayers about $8.7 million dollars in 2011.

2. Using more prudent financing helps protect our high bond ratings and result in lower costs over the long term. Previous assumptions had called for putting off the payment of interest on wastewater bonds and instead paying interest on both the principal and interest combined. While this so-called “capitalized interest” softened rate increases in past years during periods of heavy borrowing, paying the interest when it’s due will result in lower rates and lower costs in the long run. “Paying as you go” also helps protect the utility’s current strong bond ratings of “Aa3” by Moody’s and “AA+” by Standard and Poor’s, and helps ensure favorable interest rates when the county goes to market with new bonds this year.

3. Finding efficiencies that reduce capital and operating costs while still protecting public health and environment.

     • By reprioritizing projects and proceeding on only those that are most crucial, the Wastewater Treatment Division (WTD) has reduced planned capital spending by more than $30 million through 2014.

     • By operating new treatment plants with no net increase in full-time employees and other changes in scheduling, WTD was able to lower planned operating costs by $5.8 million in 2011 and $8 million in 2012. Additional savings will continue when Brightwater opens, at which time King County will be running three regional wastewater plants with the same number of employees it took to run two plants just a decade ago. That’s because efficiencies identified by employees through WTD’s innovative Productivity Initiative Program freed up the equivalent of 28 full-time employees to be able to work at the new facilities.

Additional reductions and efficiencies that support the rate proposal include:

• More efficient use of chemicals at the treatment plants,
• Efficiencies in digester cleaning and disposal,
• Scaling back on lower-priority water quality monitoring programs,
• Implementation of a new IT equipment replacement plan,
• Cutting spending on travel,
• Reducing the number of vehicles in Wastewater’s fleet, and
• Decentralizing the billing processes for sewer, septage and industrial waste customers.

Executive Constantine noted that one of the biggest drivers of the rate increase is the need to repay money borrowed to fund some of the most complex and expensive projects outlined in the 1999 Regional Wastewater Services Plan, including the $1.8 billion Brightwater project. The Executive said he expects rate increases to stabilize significantly after 2012 as projects are completed and borrowing to finance construction projects declines.

The benefits of these major projects include the economic stimulus they provide for family-wage construction jobs, and for the growth of our regional economy.

“In the short term, these infrastructure investments are injecting hundreds of millions of dollars into the economy, creating the private-sector construction jobs which are so important during an economic recovery,” said Executive Constantine. “For every $10 million our clean-water utility spends on construction, we create approximately 165 full- and part-time jobs, with a payroll of $3.8 million. With the planned construction spending of $151 million in 2011, we expect to create nearly 2,500 full- and part-time jobs in private industry with a payroll of more than $57 million.”

“Over the long term, these big projects will provide the sewage capacity for future homes and businesses to locate here, with fewer environmental impacts,” he added. “That is critical for companies looking to establish a presence in the Puget Sound region, especially in industries that depend on disposal of wastewater such as biotech and aerospace.”

The capacity charge for new hook-ups is paid by owners of newly-constructed homes and businesses who create the growth in demand for sewer service that, in turn, requires the construction of new treatment facilities such as Brightwater – rather than spreading those new costs over existing homes and businesses.

Under state law, the capacity charge is assessed for 15 years after connection, but property owners can save 5.5 percent if they choose to pay a lump sum upfront.

The sewer rate and capacity charge levied by King County provides the revenues to operate, maintain and expand the regional sewer system so that it can keep pace with regional growth and meet regulatory requirements. For 2011 the county projects an operating budget of $113 million and capital program budget of $210 million.

The amount ratepayers see on their actual bills depends on their local sewer utility. The sewer rate is charged to the 34 cities and sewer districts to which King County provides wastewater conveyance and treatment. Those jurisdictions independently set the rates that appear on bills sent to customers.

King County has a contractual obligation to its customer utilities to have the sewer rate for the coming year in place by the end of June, meaning the King County Council must adopt the 2011 sewer rate by June 30, 2010.



King County Executive
Dow Constantine
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