The Oct. 16 Bethesda Beat article about WSSCs outrageous 9% rate increase proposal made it plain that our politicians believe WSSC is in trouble.
A follow-up Bethesda Beat story on Oct. 21 reported on a Montgomery County Council’s committee recommendation to conditionally approve a 6% increase.
The central question for policymakers remains: is this a short-term cash-flow problem that can be solved with rate adjustments, or is there something structurally wrong with WSSC?
WSSC departed from the cost-cutting regimen imposed by the state following the 1998 state intervention that was supposed to bring costs and rates under control. Rates have risen continuously since 2005 after a six-year pause and a one-third cut in its workforce (starting on page 3 of a council staff memo).
In the Oct. 21 committee meeting, Chairman Tom Hucker cited a Sept. 30 state benchmarking survey presentation by the Department of Legislative Services when questioning the number of employees, pay raises for management, and delinquent receivables.
That presentation provides data in exhibits cited below comparing WSSC spending, capacity, and liquidity to neighboring water and sewer utilities. The cost and capacity problems appear to me to be structural, and the liquidity problem is a symptom of this.
Reckless spending
WSSC wastes a lot of money compared to large-area peers with its large number of employees, and contract labor and IT costs. The state’s new survey shines a bright light on this productivity problem.
Employee counts (Exhibit 1 of the state benchmarking survey presentation on p. 5) show WSSC has 50% more employees than the D.C. Water and Sewer Authority — 1,695 vs. 1,109 — reflecting the economies of scale for D.C.’s Blue Plains sewage treatment operation, and more than double what Fairfax County has (763).
IT spending differences (Exhibit 3 on p. 7) are way out of line for WSSC: a whopping $236 million vs. D.C.’s $85 million and Fairfax’s $13 million.
Contract labor costs for five years (Exhibit 6 on p. 10) for WSSC were an embarrassingly high $313 million vs. Fairfax’s $3.5 million. There was no five-year total for D.C., but it had paid $1 million for one year.
Headquarters square-foot differences were equally stunning (Exhibit 11 on p. 15), showing WSSC with 326,000 square feet vs. D.C.’s 150,000 square feet. The reported Fairfax sewer headquarters space is only 21,000 square feet. The separate Fairfax water utility space was not reported.
Wasted capacity
WSSC has huge capacity that doesn’t generate revenues, increases costs. In the parlance of economists, this is evidence of diseconomies of scale. Wasted capacity seems less than in D.C., but D.C. is dealing with much older pipes. Fairfax is much more efficient.
Exhibit 4 on p. 8 shows WSSC lost water due to leaky pipes and its underbilling of 20% vs. D.C.’s 28% and Fairfax’s 8%.
Even more stunning is wasted sewer capacity (Exhibit 5 on p. 9) for sewer infiltration/inflow (ground water that gets into sewer pipes and must be processed without generating any revenue). For WSSC, it is 89 million gallons per day (MGD) vs. D.C.’s 123 MGD and Fairfax’s much lower 44 MGD. But, WSSC doesn’t even talk about under billing, leaks, or ground water waste treatment problems in its capital budget.
Financial risk
WSSC liquidity is a growing problem, far worse than it is for its peers, and could cause service interruptions if there were an interest rate spike or economic slowdown next year that would cause it to run out of cash.
WSSC has the largest percentage of delinquent customers (19%) according to Exhibit 9 on p. 13, vs. D.C.’s 11% and Fairfax’s 3%.
Cash reserves shown in Exhibit 12 on p. 16 are extremely low, as well — just 113 days for WSSC vs. D.C.’s 337 days and Fairfax sewer’s 152 days. Water reserves were not provided, but previous budget presentations showed this at about one year, similar to what D.C. has.
Conclusion
Major restructuring is needed to cut costs, better manage assets and stabilize liquidity. WSSC needs to stop living from rate increase to rate increase.
Splitting the organization in two, by county, can be done by dividing up the assets, which break closely by county, making this feasible.
Devolving WSSC from the state to two separate county utilities would improve accountability, and will pay dividends to our residents in sustained service, lower costs and lower rate increases.
Gordie Brenne of Silver Spring is the treasurer of the Montgomery County Taxpayers League.
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