Preamble:
Patrick Sweetland (Chair and Bay Area Water Supply and Conservation Agency representative) and Colleen Adams (Vice Chair - Controller's representative) presented their first Annual mandated (Proposition P) Report of the activities of the Revenue Bond Oversight Committee (RBOC). As a member of the RBOC (Board's first chair)and co-author of 2002 Proposition P (enabling legislation) I was disappointed in the lack of substance in their report. They requested input. I provided the following input. The final report, to my way of thinking, was not sufficient and not what we envisioned in writing Proposition P in 2002. Proposition P was a byproduct of the 2000-2002 Mayor's Infrastructure Taskforce. Email follows
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Subject:Your Annual Report for The Revenue Bond Oversight Committee
From:Brian <brian@h2oecon.com>
Date:Tue, 11 Jan 2005 10:24:26 -0800
To:patrick sweetland <psweetland@dalycity.org>, colleen adams <colleen_adams@hyperion.com>, karol ostberg <kostberg@sfwater.org>
Dear Patrick and Colleen,
Respectfully, I feel your proposed annual report lacks substance.
I believe that the committee should meet monthly, the minutes should be a full replication of the entire proceedings, and that individual members should be permitted to directly ask reasonable questions of the SFPUC rooted in their discipline and not be required to make a case to the entire committee on each and every data request. The RBOC meetings are too infrequent (quarterly) and we all come from different disciplines and have different knowledge levels regarding the SFPUC.
The purchasing power of the $1.6 billion funding granted by the voters in 2002 has been significantly eroded by inflation. Most San Francisco voters approved Proposition A in the belief that the SFPUC had a viable CIP plan and that this plan would be immediately implemented upon funding approval. This has not happened. As of writing approximately $67 million has been spent on Proposition A projects. I feel that by not addressing these issues, we would be accessories to a breach of public trust.
What is the annual report to include? "The Committee shall issue regular reports on the result of its activities. A report shall be issued at least once a year." [And shall be a public record and posted on the Website.] "The Committee shall provide oversight to ensure that: (1) The proceeds from revenue bonds...are expended in accordance with the authorizing bond resolution and applicable law; (2) Bond proceeds are expended solely for uses [authorized]; and (3) Revenue bond funds are appropriately expended for authorized capital improvements so that an uninterrupted supply of water and power continues to flow to the City and to the PUC's customers."
To my mind this means we must not only point out malfeasance but also address whether system reliability is being properly improved.
During the first two years of the the thirteen year program, the big projects that are the heart of the program have been delayed by more than two years. Three of four of these projects are called by the CIP of 2002 "critical high priority for immediate implementation." Those served by the SFPUC, who authorized and funded the program, deserved progress towards building these critical projects. They have not received it. By delaying the heart of its capital program, the SFPUC is failing to improve system reliability, and is squandering funds because the cost of those projects done later will rise.
There are other substantive matters I would include in our report:
Some indication has come to the RBOC’s attention that amounts spent before the start of the program (which we deem to be January 1, 2003) and before the voters voted to authorize the the funding under our purview (November 2002) may be charged to the bond program. This must not be done. Voters authorize future expenditures. Unless expressed clearly in the ordinance authorizing bonds, not the case here, bonds should not be used to finance past expenses. That is taking from the bond fund and depletes the fund. (For some indication that such unfortunate accounting may be done, see Quarterly Report for Sept. 2003, page 1-3, footnote at bottom.)
The RBOC notes that much of the CIP effort to date has been spent and is being spent planning. While careful planning is commendable, it must be understood that the cost of planning is not only in the direct expenditures on consultants and salaries. Time is a greater concern, for two reasons. First, costs are rising as time passes. The same work done later will cost more. While at present a 3% inflation rate (CPI - probably not the appropriate inflationary index for the CIP) is assumed by SFPUC, during a recent 17 month period, the cost of a basket of construction materials commonly used in engineered construction such as for water projects, rose nearly 25%. (Engineering News Record, Construction Cost Index, April 2003 to October 2004.) The second reason time is so important is that the idea of the program is to reduce the risk that the city and other users will be without water following an earthquake or similar disaster. By delaying the day when the program is completed (or key program work is), water users are at risk for longer. While SFPUC’s schedule still shows the program being completed by 2015, the large jobs, which may be called the "Big Four", have been delayed an average of 28 months. The Irvington tunnel project, which creates key redundancy and will allow maintenance of a tunnel that has not been maintained for thirty years, has been delayed 50 months. The RBOC notes that implementation of the CIP to date has emphasized starting smaller and local projects, but has put off the critical priority, larger regional projects that are the heart of the program and provide most of its benefits.
(The"Big Four" comprise more than half the CIP program in dollar terms. The four projects are Irvington tunnel, Calaveras dam, Bay Division Pipeline Hydraulic, and San Joaquin Pipeline No.4. The CIP deems three of the four "critical high priority for immediate implementation." The Irvington tunnel job builds a second tunnel through the coastal hills, to Fremont. The Calaveras dam project is to build a new dam to replace one that is unsafe, allowing at least as much water to be stored at the reservoir as the dam was designed to store. The Bay Division Pipeline job builds a fifth pipeline/tunnel combination to bring water from the east bay across to the Peninsula. The San Joaquin No.4 is another pipeline with which to bring water across that valley, and will also rehabilitate the three existing pipelines, which are corroding, and have operational deficiencies that should be remedied.)
The RBOC notes that the CIP for water may be significantly changed. The SFPUC undertook a programmatic EIR (environmental impact report) process. This process is hoped to take about three years. In the course of it, many assumptions underlying the program as originally conceived will be questioned. It is very possible that the set of projects that emerges from the process is quite different than those for which funds were voted when this committee and the bonds for which it provides oversight were authorized. These program changes mean that the day when water users enjoy greater protections will be extended. The delays will increases costs (or will reduce how much can be accomplished for the authorized money).
RBOC questions the amount of consulting done to date. While it does not have figures at present, it seems excessive. As one example, about a million dollars was expended in Red Oak's study of the PUC organization. That study seems to have accomplished little. We should also question how effective are these numerous CIP consulting studies and how these contracts are awarded.
SFPUC has a $250 million commercial paper program. This may well be the most expeditious method for early CIP funding, however, RBOC should note that the SFPUC did not do an a priori cost benefit analysis on CP v incremental revenue bond issuance. In this context, we question the decision making process of the SFPUC. We also question the method used by the SFPUC to estimate water demand and the price/revenue relationship required to retire the immense revenue bond debt associated with planning and implementing the CIP.
Thank you for soliciting and considering these comments.
Cheers, Brian Browne