Will Higher Water And Sewer Rates Drain Our Budgets In Framingham?

The following is an opinion column by Geoffrey Epstein. Epstein is the former District 6 Framingham School Committee member and former Chair of its Finance & Operations Subcommittee. The opinions are the author's own, and the column does not necessarily reflect the views of Framingham Patch

FRAMINGHAM, MA - On Thursday, June 9 at 7 p.m., the city will host a public hearing on water and sewer rates in Framingham.

In most Massachusetts cities and towns, such a hearing would be a drab affair, attracting little community interest, as managing such basic services is usually straightforward and uncontroversial. However, Framingham has a decades long history of problems delivering water and sewer services in an efficient, cost-effective manner, and the latest upheaval is a very large structural deficit in the Enterprise Fund which finances the entire water & sewer operation. So, the community should be highly engaged in following these developments.

A water and sewer rate increase of 16% is planned, following a 9% increase last year, and $6.35 million of one-time American Rescue Plan Act funds pumped into the Enterprise Fund to prop it up, rather than used to address genuine pandemic-induced damage in the city.

Anyone observing all of this must have a number of basic questions:

1. Why are we having such a financial problem?
2. Will this next increase fix the problem?
3. What factors are driving the sharply rising costs?
4. Will we ever get the water and sewer problems under control, as they track all the way back to 2007 and the 50 sewage overflows which drew state Department of Environmental Protection intervention?

Perhaps the Framingham community will turn up in force at the June 9 public hearing and provide feedback which will help guide the city going forward. However, to be most effective the citizenry must know the basic facts, so they can make sound judgments, ask good questions, and suggest alternate approaches.

To the Mayor’s credit, he held a public meeting on May 19, which provided some of the background and showed how a 16% rate increase would remove the Enterprise Fund deficit and provide enough recurring revenue for the next year or so. However, much of the story behind the current crisis was left untold or buried in the numbers and no options other than a rate increase were presented.

The video of the meeting can be found at www.framinghamtv.com if you search on “water & sewer."

The city website is not much help as there is no section which deals with what is actually going on with this problem, even though, as the Mayor said in his state of the city address on January 31st,2022: “The most significant problem we currently face is the funding of our water and sewer system.”

It takes some digging to unearth sufficient information to gain more insight into the problem, but here is an attempt to provide more context. This analysis is based on the Mayor’s May 19 presentation plus a report on the Enterprise Fund produced for the City Council in early 2021.

Of all the factors driving up water & sewer costs, two bear more emphasis:

1. The rapid rise in water and sewer annual debt service in the period FY17-FY21, which went from $14,894,047 to $20,612,085 – a roughly $6 million increase in annual recurring costs in just five years.
2. The downward trend in water consumption by large-volume business users, who in that same FY17-FY21 period cut their water use by as much as 30%, reducing city rate revenue by at least several million dollars annually.

That is a steady 5-year trend, largely unaffected by the pandemic. So, the special business rate tiers which were added in 2008 to shift the burden of fixing the sewer system to businesses (a remarkably anti-business move) have resulted in businesses cutting their costs by conserving water. Ironically, the Massachusetts Water Resources Authority has an entire program designed to help businesses lower their water use, as this link explains.

The first of these two factors comes as no surprise, as it turns out that in 2017 the town had new water and sewer master plans developed by Stantec Consulting Services. The wastewater master plan includes notes near the end in section 10.5.1, that the recurring debt service cost for all the recommended improvements is estimated at $10 million annually.

The water master plan identifies a backlog of $136 million in water projects which would require an investment of around $7 million per year to retire the backlog in 20 years. It appears that the town, then city, followed up on the plan recommendations and executed new projects which thus far have helped drive up the annual water and sewer debt service by $6 million.

The major question which needs to be answered is: What is the rate at which water and sewer projects are being expanded? There is a possible further $11 million increase in annual debt service needed to bring the water and sewer systems into good shape.

Are more major water & sewer projects already in the pipeline? Hopefully, this whole issue of the project side of water & sewer operations will be addressed by the Mayor before any rate hike is finalized. The community deserves an explanation.

The water master plan may be found at this link.

The wastewater master plan could not be found on the city website.

The second factor shows the folly of forcing business to bear the burden of a problem it did not create. For too long the town/city has been shifting water and sewer cost increases onto the business community, at the same time as business is supposedly supported and encouraged. The further point to make is that we should be reducing water and sewer revenue dependence on business, so we can avoid having a water and sewer revenue shortfall every time there is a business cycle downturn.

It is time to review this whole rate structure approach, especially as businesses, having come through the pandemic, don’t need to be further damaged by water and sewer rate increases which could force them to shut down or simply move to Natick where the water and sewer rates are half those in Framingham.

From a strategic point of view, it seems remarkable that Framingham has moved ahead with major water and sewer capital projects with little discussion about how to best pay for them, and has funded them entirely through rate increases, rather than deploying some of the property tax revenue stream or other means to defray those costs. The scale of these water and sewer projects is huge.

Water and sewer projects completed since 2007 have cost of order $250 million, and it seems that we may have possibly another $200 million or more projects still to complete. These water and sewer projects have always been much more substantial than other capital projects like the new Fuller Middle School, which needed just $60 million in city funding and was paid for by a property tax increase. The ‘advantage’ of the property tax funding approach is that residents can deduct increased property taxes on their annual tax returns, whereas they cannot deduct any water and sewer costs, plus the better-off homeowners pay more than the lower-income homeowners, which is more equitable. Fees, almost always, punish the less well off.

Finally, the root cause of the Enterprise Fund structural deficit has little to do with the pandemic. It is a problem entirely of our own making and the last thing we want to do is simply raise rates, punishing the less well-off homeowners, driving businesses out of town, ensuring that city revenue shortfalls will be worse in the next business slowdown, and not having any certainty that we have actually solved the problem.

And the city continues to pay down its pension liability by 2030, rather than 2040, locking up about $10 million in recurring annual funds which could help solve the water and sewer problem. And the city stabilization (rainy day) fund remains plush with $16 million, never to be tapped, only used as a financial ornament to impress Moody’s when they do the annual city bond rating review.

No doubt other members of the community know more of the water and sewer story than I do, and I hope they come to the June 9 hearing and contribute to the creation of a better solution than appears to be coming our way.

Most of all,we need a whole lot more transparency from city government and that includes providing a much more complete and understandable fact-based narrative when we have major problems to solve, so that the community can be easily brought up to speed and collaborate in a genuine partnership with government for the betterment of us all. The city website remains a graveyard of buried information which defies disinterment by even the most energetic researchers.