Is the water company’s rate hike just a back-door tax?
In response to criticism likening the Louisville Water Co.’s latest rate hike to a hidden tax, a Metro Council committee on Monday demanded answers about the 5.5-percent increase.
Water company officials appeased the council and spent an hour outlining reasons to raise rates. But because the city has little oversight over the company, the hearing was, more or less, an exercise in futility.
Vince Guenthner, manager of governmental affairs for the water company, testified before the Metro Council’s Transportation and Public Works Committee, saying the company is facing rising costs as a result of expanding service to surrounding areas, infrastructure replacement and new facilities. He says the water company also is beginning work on a new $12.2 million treatment plant that will produce a diluted chlorine bleach solution to disinfect water.
“Those are all very significant costs,” he says. “The chemicals to treat the water, fuel for transportation and power generators all go into maintaining a high water quality.”
Chartered in 1854, the Louisville Water Co. is a stock company owned solely by Metro government. Appointed by the mayor and approved by Metro Council, its board of directors approves the company’s annual rate increases.
The board must determine a rate increase that will fund its capital budget and generate an adequate return for the city, says Guenthner, adding that losing industrial customers such as Philip Morris in recent years has contributed to rising bills.
Last year, the water company raised its rate by 6.5 percent, generating a dividend of $18 million for Metro government. Rates and dividends have gone up significantly since 2004, according to information LEO Weekly obtained through an open records request.
The average Louisville customer uses about 6,000 gallons of water per month with a monthly bill averaging $19.78. The approved rate increase will raise that monthly bill to about $20.87.
The water company’s board of directors tries to keep annual rate increases low to avoid burdening customers, Guenthner says, but hikes are needed to maintain water quality and repair infrastructure.
But not everyone agrees the hikes are necessary.
“Essentially it’s a back-door tax,” says Ed Springston, a south Louisville activist and former mayoral candidate. “The dividend money goes to the city every year and we don’t know what it actually goes to.”
When news of the rate hike broke last month, Barbara Crow, spokeswoman for the Louisville Water Co., said the stockholder dividend that the company pays to the city goes into Metro government’s general fund. Defending the rate increase, Crow said the dividend helps fund other city services, like police and fire protection, and road and park improvements.
If that’s the case, Springston says the water company’s rate increases are being used to create more tax revenue.
In a telephone interview with LEO Weekly, Crow said critics have compared the water company’s rate increases to a hidden tax for decades, adding that the complaint has been more prolific this year due to national economic troubles.
“You’re always going to have a group of people who consider the dividend a hidden tax,” she says. “It’s ridiculous to assume that a stockholder shouldn’t expect a decent return on an investment they made. The city made a smart investment 150 years ago and it’s been good for the city and great for the citizens with a high quality and low cost.”
But Springston believes the initial explanation of the rate increase was an unintended gaffe, demonstrating the quasi-government company needs more oversight.
“We pay taxes for those public services,” Springston says, referring to fire, police and public works. “Her bold statement tells us that money is being spent on tax-funded operations, which most of us of consider an illegal tax scheme to fund the city.”
The fact that Metro Council is at least attempting to hold the water company accountable is encouraging, says Springston, who has contacted Kentucky Attorney General Jack Conway to ask for an investigation into the hike. A spokeswoman in the attorney general’s office confirmed they have received Springton’s request, but she would not comment on the likelihood of an investigation.
“We’d like to know exactly how the rate increase is to be expended,” says Councilwoman Tina Ward-Pugh, D-9, chairwoman of the Transportation and Public Works Committee.
Although she doesn’t view the rate increase as a back-door tax, Ward-Pugh says she does question whether the water company needs such a significant rate hike. “They listed a number of projects, but we’re wondering with the slow down in the economy if that money is going to be spent.”
It’s unlikely the council will have any real pull on the matter.
For instance, at the last Metro Council meeting, Dan Johnson, D-12, introduced a non-binding resolution asking the water company to rescind its 5.5 percent rate increase. At Monday’s committee meeting, water company officials said that would be impossible.
Though Metro government owns the water company, the city’s Board of Water Works — appointed by the mayor — governs the entity, meaning the council has no authority.
However, Ward-Pugh says her committee will continue discussing the matter at its next meeting.
Councilman Hal Heiner, R-19, says the committee wants additional information to better understand the company’s revenue and expenditures. He also says the water company’s public-private ambiguity doesn’t allow for proper oversight.
“At some point a choice needs to be made. Either you’re going to act like a private company that pays a dividend subject to the public service commission, or you’re a government service that shouldn’t be a profit center,” Heiner says. “Are they private or are they public?”