Put $4.5 Billion In Your Pipe

City Paper

The City Council Sept. 22 passed a bill that would more than double the borrowing limit of the Department of Public Works to $4.5 billion. 

The money is needed to rebuild the city’s ancient water and wastewater systems, some of which date back a century and have for years been vexing city residents with water main breaks and sewer leaks in the hundreds of thousands of gallons annually. Typical of these was a 24-inch water main break on September 5 that closed part of Belair Road in the county; more unusual was the 12 million gallon sewage overflow during August 12th’s deluge.

In 2011 the bond limit was set at slightly more than $1 billion each for the fresh water system and the wastewater system, respectively. But in May the department requested the cap be increased to $2.1 billion for the water utility and $2.4 billion for the wastewater system, prompting City Council President Bernard C. “Jack” Young to ask for a hearing to explore other options. In 2013 the city increased water and sewer fees by 15 percent and this year it increased by another 11 percent as part of a series of increases that since 2008 have doubled the fees most home owners pay. Next year it will increase by an additional 11 percent. 

The increases, along with new stormwater and other fees, will cover the borrowing costs, officials say.

“All of this was planned into the rate and the revenues coming in, including the storm water revenues coming in and revenue from the Maryland flush tax,” says Kurt Kocher, a spokesman for the Department of Public Works. “All of this has to be done because it has to be done.”

The bonds are called “revenue bonds,” meaning they will be paid back by revenue generated in the waterworks, not by Baltimore City taxpayers. Almost all Baltimore County residents are part of the system, as are some in Carroll, Harford, Howard, and Anne Arundel. In all, some 1.8 million people depend on Baltimore City’s water and sewer services.

Operating for the past decade under a federal consent decree to curb pollution of the Chesapeake Bay, the city has already spent about a billion dollars to improve sewer lines and treatment. At the same time, the water delivery pipes have been leaking and bursting, and new federal regulations have required even more spending. Until recently the city was replacing its large water mains at a rate of five miles per year. That was not enough to keep up with breakdowns. Public Works Director Rudy Chow proposed an immediate quadrupling of the rate of replacement to 20 miles per year, with a goal of doing 40 miles per year starting next year. At that rate the city could replace its pipeline infrastructure every century.

“The director has talked about this, there was too much deferred maintenance,” Kocher says. “We’re now going to an industry standard turn-around.”

Baltimore is one of many cities that have struggled to refurbish its old waterworks. The job has been made harder by federal policies which have withdrawn almost all financial support for local water projects. In the 1970s the federal government supplied about 39 percent of the city’s capital budget for water and sewer projects. By the 2000s it had fallen to 9 percent, the city says.

The bond issuance system was implemented in 1990. The cap has been raised a half-dozen times since then as the city has begun to restore, replace, and upgrade a waterworks that was built mostly between the 1900s and 1950s. 

Without raising the borrowing cap, the wastewater side of the department will run out of money this year and the drinking water system will next year, the department says. It is at its borrowing limit.

In the past decade the city’s waterworks have tripled their debt from $642 million to more than $1.7 billion. The new limits will more than double that, to $4.5 billion, by 2019. The bonds are sold to investors at varying interest rates. Some are around 5 percent; more recently they start at about 2 percent, because the federal Reserve Bank has kept borrowing costs low to stimulate the economy. 

“While you have the low interest rate, and while you have the high bond rating, you would be foolish . . . not to do these things,” says Kocher, pointing to the 1,000 water-main breaks the city suffers each year. “We cannot have streets collapsing. We cannot have water mains breaking. We cannot have sewage spills. And now we’re not allowed to have uncovered drinking water.”

The city has begun covering its five reservoirs to meet new EPA standards. Montebello II alone costs $45 million.

There is an upside to the work. The water projects create jobs. 

Still, the department has been sensitive to the cost. For some long-lived projects, the department has explored issuing bonds with a 40-year maturity date instead of 30 years to lower the annual payments. And it has masked the impact of the fee increases in its public statements.

Last year, without explanation, DPW decreased its estimate of typical household water use from 320 gallons per day to 170 gallons per day, as the Baltimore Brew reported. That let DPW say the typical family would only see a water and sewer bill increase of $94.50 per year, rather than the $170 that would have been calculated using the old formula. The increase does not include the “flush” and stormwater taxes implemented by the state in recent years.

The change in standards was not entirely a PR stunt, though. Because of water-saving toilets, shower heads, and other devices, the department says the average use has decreased. 

Today the DPW compares average household water bills to peer jurisdictions and concludes that even now, relatively speaking (and at 170-gallons-per-day average usage), Baltimore water is still less than Boston’s, Philadelphia’s, or Washington, D.C.’s. 

But any way you calculate it, the city says, you’ve got to pay more. Next year’s sewer and water rate increases are scheduled to be 11 percent. 

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