Monday, July 21, 2008

Water Sale Agreement To New Berlin Is Insufficient, Premature

Props to Gretchen Schuldt for publishing the first details of proposed agreements between Milwaukee and New Berlin to send Lake Michigan water to the so-called middle portion of New Berlin that is outside of the Great Lakes Basin.

The key elements of the plan, in addition to recurring revenues from the sale of water, would include a one-time $1.5 million payment to Milwaukee's general fund, proposed by Alds. Michael Murphy and James Bohl, an annual meeting to discuss employment and job access issues, and a pledge by both communities against raiding each other's businesses.

$1.5 million is equal to a one-time bonus of about 18 months of first-year revenue to Milwaukee from New Berlin for the Lake Michigan diversion, according to information submitted to the Common Council by the Milwaukee Water Works.

That first year revenue is expected to be $996,000, the documents show.

That rate is based on what the Public Service Commission permitted to be charged for an earlier diversion Menomonee Falls - - a wholesale rate of that the utility calls a "commodity charge" $0.668 per 1,000 gallons of water. (p. of the document).

Or looked at another way, $1.5 million is a premium equal to an upfront annual payment of $75,000 per year covering the 20 year agreement, (see p. 7).

That payment presumably could be used for anything from tax relief to housing, transit or other needs that Milwaukee has justifiably felt it has managed without sufficient regional cooperation.

More about that below.

Sources at City Hall say that without strong objections at a July 29th Common Council committee Public Works committee meeting, the plan is likely to win approval.

My view is that adoption is premature, for the reasons stated below, and remember - - New Berlin is not in a water crisis - - so there is time to consider and produce more information that would inform and improve a final, better plan.

Documents included in a package of resolutions and reports to be considered by the council committee indicate that substantial communications have taken place between Milwaukee and New Berlin negotiators.

What is missing is an answer to this question:

Given that the water can spur development in New Berlin, and that water is a finite resource under known social and physical pressures, and given that this will be only the first of many diversion-and-water-sale applications, has the water's true value been calculated and recognized in the proposed agreements?

This question has been given some consideration, as the one-time $1.5 million payment is on the table separate from per-gallon water-sale charges, and infrastructure costs.

But what is the origin of the $1.5 million figure, and what is it intended to cover?

And given the potential development benefit to accrue to New Berlin from this new, fresh water delivery, frankly, is it enough?

Documentation submitted in both New Berlin's diversion application made to the State of Wisconsin, and included in the council committee packet, indicate that New Berlin's growth plans show a potential 1,119 units of new housing (p. 8 in that highlighted document) in the area to which the diverted water would go.

[Update: that link was not working, but has been corrected by the city. The housing data also appears on p. 21 of the New Berlin diversion application, here.]

6.5% of the new, probable construction is expected to be multi-unit housing of some type, though it is not clear from the documentation if any of those units are for the typical residents of affordable housing - - low-income and elderly persons.

More about affordable housing in a moment.

Even in today's depressed housing market, $1.5 million could equal the value of less than a handful of new housing units in the area to which the new supply of Lake Michigan water will be directed.

And what about added tax base to service that new housing - - industry, commercial properties, and retail shops?

So $1.5 million is a lot of money, but you have to consider its complete context.

I think the negotiators should go back to the table and come up with a different number that is based on water's relationship to tax-base development and sharing - - a big piece of the true-value concept.

Since this will be the first diversion sale under the framework of the Great Lakes Compact, thus precedent-setting, the water-value question should be answered before applications and sales are approved in Wisconsin and the region.

Here is another question that should be examined:

Does the proposed sale meet existing City of Milwaukee policies, which call for the existence of affordable housing programs in the purchasing communities as a prior consideration?

And there is a related requirement expressed in city policy - - "...that any diversion request include an analysis of the impact of such diversion on land use, transportation and economic development, and how comprehensive planning, including conservation planning can mitigate negative effects.' (Council resolution 040646, adopted unanimously 9/21/04).

Is Milwaukee satisfied that the sale and related agreements meet that broad planning and land-use expectation?

The documents state that New Berlin currently provides 80 units of affordable housing, or about 6% of the 1,300 provided throughout Waukesha County.

This data and the data below are at this link, pages 9-10.

The City of Waukesha leads with 811, then New Berlin with 80, Menomomee Falls, 78, Hartland, 72, Sussex, 50. Pewaukee, 46 and Brookfield, 45.

No other community has more than 40; Butler has three, Elm Grove has one.

The date do not differentiate between affordable housing for senior citizens and for low-income families or individuals not seniors.

And you wonder why housing and economic justice advocates say it's unacceptable that the Southeastern Wisconsin Regional Planning Commission hasn't written a regional housing plan with affordable housing recommendations since 1975?

[Again, this document had been taken off the city's website, but is back as of Tuesday.]

To some, this will be a matter of semantics, but does Milwaukee consider 80 existing units sufficient in a city that borders Milwaukee?

Also consider the cost to the Milwaukee Water Works of upgrading its pumps and other equipment to push water past the subcontinental divide.

Documents indicate that the Milwaukee Water Works has been planning infrastructure expenditures separate from New Berlin's application that total $6,850,000, and those improvements, given their location, will allow the utility to deliver water to New Berlin.

Even if these scheduled improvements are totally coincidental to the New Berlin plan, shouldn't it bear some portion of those costs, since without them, Lake Michigan water cannot get to New Berlin unless it built a separate intake system of its own, or paid Oak Creek or Racine to pump it.?

Maybe infrastructure cost-sharing needs to be another piece of the agreement?

And what happens when the City of Waukesha comes forward with a diversion application that could call for six times as much diverted water than what New Berlin wants?

If New Berlin isn't charged some or all of the Milwaukee infrastructure cost, neither will Waukesha and the growing number of other communities who will be lining up for a water deal, and will not want to pay one cent beyond what New Berlin was charged.

And who would blame them?

Every car purchaser, home buyer and government official knows a signed agreement is tough to renegotiate and then amend.

That's why you get all the questions out on the table at the beginning, and make the best eventual deal you can.

I think the negotiators have approached some of the regional issues with the one-time payment concept.

But questions about its sufficiency aside, the negotiators have not addressed the full water value issue.

It's a big, important, historic issue. Perhaps both parties need to engage some independent expertise.

It's not a new idea.

An attorney for the City of Waukesha Water Utility suggested it years ago as a way for New Berlin to eventually win Lake Michigan water from Milwaukee.

So we're at the beginning of a process, not a decision-point.

One final thought:

Basic social issues in the region that are related to water and its development potential are not being studied by the water supply advisory committee created by the Southeastern Wisconsin Regional Water Commission.

From its beginning, that study was aimed at nuts-and-bolts, cost-benefit analyses.

Who has excess water-pumping and treatment capacity? Milwaukee.

Who has excess water needs? Some suburbs.

What's the solution most likely to be recommended by SEWRPC: Meet the requirements of the Great Lakes Compact, have Milwaukee deliver Lake Michigan water to buyers, and continue to validate regional sprawl away from Milwaukee that has been enabled by SEWRPC master land-use plan.

The lack of a big-picture analysis creates further need for Milwaukee and New Berlin to go several steps further and frame this proposed water sale as the regional model that it will surely become.

New Berlin is under a consent decree to provide cleaner water to its customers, but the authorities have extended the deadlines because the city was making good faith efforts to come up with a solution.

Knowing that Lake Michigan was a likely supply option down the road, New Berlin deferred the purchase of expensive filtration equipment that could have already been in place and removing naturally-occurring radium in its well water.

It preferred the Lake Michigan option.

Heavy rainfall in both 2007 and 2008 has helped New Berlin avoid severe supply problems.

This means both Milwaukee and New Berlin have time to get more information for consideration, and to deliver that information to their constituents and people across the Great Lakes region, all of whom, given that these waters are held in common trust, are on a definite "need-to-know" basis.


Anonymous said...

Thanks for the mention on your post.

Double-check that $996,000 figure, though. It's part of the Water Works puzzling math on this topic. If you look at the column for the "middle third," it shows a water volume sale that is lower than than for the "eastern third." That can't possibly be a combined amount.

But if you look at the service charge and fire protection amounts, those do look like total combined amounts for the "middle third" and "eastern third."

I think Water Works may have made a couple math errors.

Kori Schneider Peragine said...

What if instead of the $1.5 million agreement between New Berlin and Milwaukee, the City were to require the adoption of an inclusionary zoning ordinance (requiring a % of new housing development to be affordable) of communities it sells water to?

With a "20% affordable" inclusionary zoning ordinance, New Berlin would create over 200 affordable housing units (based on the development plan which projects the creation of 1100 new housing units).

This still falls short of the community's fair share of affordable housing, but if the policy were included in all water sale agreements, we might make a dent in the extreme inequity that exists.