The great sewer rate scam

Just remember every time you pay the city sewer charge on your RPU bill (city charge), you are subsidizing the luxury homes of others. I find this policy to be unfair and unwise. Every year we are giving away about $5 million which translates to the equivalent of 10% of city taxes… The give away to unsustainable single family detached in on the order of $3.5 – $4 million per year. Approximately 0% of these single family homes are considered affordable ($160k). Rochester has prioritized this subsidy over affordable housing, transit, and infrastructure maintenance. I disagree and will continue to fight the policy.

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Perhaps nothing better illustrates the broken priorities of the City of Rochester than our allocation of sewer rates. Every year we charge sewer rate payers more than $5 million in extra charges to subsidize development. Most of this development that we are subsidizing is so fiscally unsustainable that we must then continue to subsidize it every single year thereafter. Some city leaders refer to this subsidy as an investment, but I don’t consider it an investment if you lose money year after year.

There are certainly some types of investments that do offer a rate of return. Often times, multifamily, business or mixed-use properties have a sufficient density of tax base that they generate revenues that exceed costs. Additionally there are developments like affordable housing that might also offer benefit to justify subsidy. Unfortunately most of the subsidy is going to single family detached housing, which is a perpetual money loser for the city and in no way affordable.

Every single family detached housing unit costs about $14,000 (my estimate, staff agrees) to provide sewer treatment capacity (PIF or Plan investment Fee). We charge $3,500. The remaining $10,500 for every new home is picked up by rate payers. This is a significant portion of the millions of dollars we give away every year in subsidies. When the PIF was first created it was supposed to start out at $500 and increase by $500 per year until it reached $7500. Along the way the city council stopped the increases at the request of special interests.

Knowing this, council members Hruska & Hickey are fine and don’t want any reconsideration. Myself, Campion, Bilderback, and Means asked for data on what the costs should be. President Staver is interested in the data, but likely wants to maintain the subsidies.

Here are the talking points people use to justify this giveaway (especially to single family detached homes) and why they are total BS.

  1. We need to make housing more affordable – Nope, there are already no single family homes being built that are affordable. If you want affordable housing it is multifamily be economic necessity. End of discussion.
  2. It is an investment. – Nope, an investment would imply we pay money now and get it back in the future, here we are paying money now and losing more every year. We do have some development that is financially sustainable and could perhaps justify an investment. I don’t believe in trickle down economics…
  3. It’s about the jobs – Nope, Higher density or mixed use developments generate as many or more jobs than single family detached development, they also have lower ongoing city costs. Throwing this money at single family detached housing is just a gift to those who don’t need a gift. I don’t believe in trickle down economics…
  4. The will just go to other communities – Nope, Rochester is far more expensive to develop in. Lots here go for $60-$80k which is pretty reasonable for a city this size, with a strong economy. Surrounding cities have lots for far less. Some cities even give away lots, and yet Rochester continues to outgrow them all. This is because the people that can afford to build a new home are willing to pay extra to live here. Charging the full cost of sewer would likely have some affect on new construction of single family homes, but it would likely be small.
  5. Other cities don’t have these fees – Surrounding communities have excess capacity that they are choosing to give away. Given the enormous costs associated with sewer treatment, when they need to expand their sewer plants they will like need to implement fees to cover the cost. Other major cities in Minnesota have similar fees.
  6. We couldn’t use these dollars for other things. – Actually we could decrease sewer rates overtime and use the savings to offset tax increases that are happening to support other areas like public safety, transportation, actual affordable housing, and road maintenance. It’s not direct, but public money is public money.

Even though these arguments are total BS we continue to hear them again, and again, and again…

Even I do not intend to set the fee to $14,000 tomorrow or cover 100% of all costs, but subsidizing the wealthiest citizens on the backs of the poorest is terrible policy.

In the next 5 years I would like to get fiscally unsustainable development (where ongoing taxes fail to cover the costs of service) to pay about 75% – 95% of the actual costs of service. I would like to see fiscally sustainable development pay at least 50% – 75% of the costs of service. This would give us the ability to give meaningful fee waivers for needed projects like affordable housing.

In short, I don’t want the poorest people in Rochester to continue subsidizing McMansions. This is about priorities and I think ours are dead wrong.

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