Politicians are planning to take away your right to vote on water revenue bonds, while raising water and sewer rates 300%.

As we near the November election there is a growing concern within the private back rooms of several politicians. The revelation of a widespread "political maneuver" that will strip the electorate of their right to vote on water revenue bonds, and provide the ability to politicians to manipulate water rate increases and raise your rates 300%, would be a lot for politicians to loose. If you vote for the 5 billion dollar water revenue bond disguised as a $1.6 billion proposal you have a lot to loose.

Individually the political scheme may seem simple; collectively they are somewhat complex and seemingly clever. Put together with their final proposal in the November ballot, there is an oxymoron in the politicians plot.

Some people call this political maneuver nothing more then a "shell game". The rules of the game are simple. In the end, the ratepayer looses and the politician wins if the public supports the revenue bonds in November. The politician has access to the bond funds that they have accessed for over twenty years to the tune of over 1 billion dollars that we know of.

What is this all about?

Recently, Mayor Willie L. Brown, Jr. wrote, "Securing San Francisco’s Water Supply: Hetch Hetchy". Therein, Mayor Brown publicly stated that he supported Senator, Jackie Speiers Senate Bill 1870. This Senate bill supports an "Authority" governed by suburban customers. The "Authority" will permit politicians to pass revenue bonds, secured by the Hetch Hetchy, an "asset" belonging to San Francisco.

Under California Constitution and federal law, San Francisco is the owner, operator and manager of the Hetch Hetchy Water collection and distribution system. As such, its duties and responsibilities, as well as its discretion in the expenditure of system revenues, are provided for and set by law.

Although SB 1870 expressly provides that "[n]othing in this division changes the governance, control, or ownership of the regional water system," a number of provisions in the legislation appear to directly interfere with, or subtract from, San Francisco’s well-established autonomy in managing the Hetch Hetchy System. Utilizing the "carrot" of upwards of $2 billion in revenue bond funds, bond funds the politicians, using the Authority, state it will pass; San Francisco may be forced into contracts with its wholesale customers that shift authority for system operations from the San Francisco Public Utilities Commission to the regional Authority created by SB 1870. Given the state of the economy, saying that San Francisco has the "choice" to decline to enter into oversight contracts with the Authority is a classic Hobson’s choice, i.e. no choice at all.

Interestingly enough, until the Authority issues and sells its revenue bonds, it has no source of funding. For San Francisco to "advance" operation funds to the nascent Authority would, in the opinion of many authorities of State law, be an unconstitutional gift of public funds.

By supporting SB 1870, a Peninsula based legislation, Mayor Willie L. Brown Jr. may likely leave a legacy to San Francisco as the Mayor who ceded control of the Hetch Hetchy System and stripped the voter of their right to pass or reject utility revenue bonds.

The "Authority" is authorized to issue revenue bonds without any voter approval, the exact opposite of the procedure mandated in San Francisco. By definition, revenue bonds can only be sold if there is a dedicated and reliable "revenue source" to which bondholders have recourse in the event that the issuer defaults. The only revenue source available to the Authority is the money received by San Francisco from Hetch Hetchy system operations. Therefore, in order for the Authority to sell revenue bonds, San Francisco would have to agree to dedicate its operational revenues to bonds issued by, for all intents and purposes, a foreign entity operating under rules and procedures contrary to City Charter.

SB1870 contains language declaring the San Francisco water system to be a matter of statewide importance. This language is calculated to overcome certain constitutional obstacles to the Legislature interfering in San Francisco’s utility operation. There is ample reason to doubt that this language will achieve its objective. Moreover, nothing that the Legislature does can affect the relationship between San Francisco and the federal government as specified in the Raker Act of 1913.

Since the proposed Authority alone would control the schedule for issuance and sale of bonds, San Francisco would be delegating to the Authority, its Charter-conferred authority over the setting of rates and the disposition of its revenues, a proposition of doubtful legality as expressed by numerous legal experts. The structure of the Spier-Brown-Ammiano-BAWUA (Peninsula -- Bay Area Water Users Association) maneuver has a number of goals: including but not limited to (1) stripping San Francisco of its control over the Hetch Hetchy system, (2) ensuring San Francisco voters are forever stripped of their current Charter rights to decide on revenue bond issuance, (3) hand over significant control of the Hetch Hetchy system to a Peninsula trade-organization (BAWUA) who have used inaccurate and misleading scare tactics to achieve their political goals, and (4) create an unwieldy new political entity that will resist all efforts by users (ratepayers) to have any influence over its operations and ratemaking activities.

The creation of this Authority adds nothing to the productive capability and efficiency of the Hetch Hetchy system nor does it relieve anyone from their current debt burden. At best it is a sham. At worst it is a brilliant political, self-serving con game, which as presented is an insult to the voters of the Bay Area. The following set if tables summarizes how the system works today (August 2002), how it will work if just the Spier-Brown political contrivance is successful, and how it will work with both the Brown-Spier mischief and the Ammiano "poison pill" (voters of San Francisco are relieved by Ammiano legislation of being involved in their historical right to issue revenue bonds).

Current System (August 2002) --- San Francisco Controls Hetch Hetchy and Voters Control Bond Issuing Process:

After Brown-Spier Legislation --- San Francisco loses control of Hetch Hetchy and SF Voters Control is Weakened/Removed:

After Brown-Spier Legislation and Ammiano --- San Francisco loses control of Hetch Hetchy and SF Voters Lose Complete Control over Revenue Bond Issuance:

A review of these tables shows clearly that in reality no debt is transferred. The creation of an Authority serves one purpose - divest San Francisco of its managerial control over the Hetch Hetchy system. For the Hetch Hetchy system the creation of the Authority is a zero sum game. In actuality, no debt is transferred. These type statements only serve as political propaganda. This new system also opens the ratepayers of San Francisco to possible "financial intimidation" by Peninsula politicians. A demand by the Peninsula that they require $4 billion in repairs could mean that San Francisco would have to increase its share from $1 billion to $2 billion, an increase of approximately $75,000,000 in new revenues generated from rate increases.

The cost of this Authority is unknown. Organizational and operational costs are likely to amount to millions of dollars over the next ten or more years. All of these costs must be paid for out of the revenues from water sales, as do San Francisco’s increased costs in its detailed and onerous "interface" with the Authority. All of these costs, by the way, will increase the rates charged to San Francisco water customers well beyond the administrative costs derived from San Francisco’s management of utility operations currently included in water rates.

So long as Authority bonds are outstanding (through at least 2050), San Francisco is prohibited by SB 1870 from transferring, disposing of or "privatizing" any portion of its water infrastructure, even if such a transfer of disposition was deemed appropriate by San Francisco’s elected officials and voters.

Mayor Brown, by supporting the Authority, maneuvers to put into place a sure-fire system that strips the citizen of bond control. His alliance is nothing less then support for an additional, larger, more inefficient district governance process. A bigger bureaucracy will be created. Willie Brown ignores his own Infrastructure Task Force recommendation, that is, create a leaner, meaner and more efficient San Francisco Public Utilities, discontinue siphoning off bond funds into other city departments, and spend the bond funds solely on the maintenance of our water system. Most importantly keep political decision making out of the Public Utilities (PUC).

Creation of an entity that strips the voter of control over bond funds will likely result in billions of dollars of debt, as evidenced at the San Francisco Airport where funding is controlled by politicians and the debt is near $5 billion. Now the politicians want control over your Hetch Hetchy Water system. Is this what we want?

The November water revenue bond measure is alleged to be $1.6 billion. It appears that the clever political machine has maneuvered to create a money making mechanism controlled by the politically appointed San Francisco Public Utilities Commission and General Manager, the proposed Peninsula Authority that positions to pass $2 billion without voter approval as created in SB 1870, and ambitious members of the Board of Supervisors, State Senate and other localities who prefer governing by the government when it comes to rates and revenue sources.

Can we trust these politicians? The majority of the Mayors own Infrastructure Task Force strongly opposes the political manipulation of the San Francisco Public Utilities as related by several experts in the field of utilities, law and economics.

"Another glaring example of political misdeed occurred in 1997 when the voters, in all of their wisdom, gave the PUC the right to issue $304 million for seismic and water quality projects. The voters set four specific milestones. Develop a plan, have the plan certified by an "independent" engineer, issue the bonds, and use the money to pay for the work. What did PUC do? Well, no plan was developed; the Board of Supervisors with Mayoral signature retroactively overturned the will of the people and allowed the PUC to issue commercial paper, less then 50% of the work was completed and project costs are running over at 39%. Shamefully, an in-house engineer was used to certify project plans in 2001. The mandate by the people was basically ignored. How can we trust them with $1.6 billion, no long term strategic plan and the ability to pass limitless bond funding without the vote of the rate payer?"

"Mayor Brown is talking about sharing costs with the Peninsula and uses this excuse, along with natural disasters of biblical proportion, as a rationalization for backing Speir’s "bank plan". The truth is, the suburban customer, already share the costs. Suburban customers pay for the cost of delivering water to them. These customers have always been able to turn their faucets on and flush their toilets. There is no justification for a Marshall Plan to the Peninsula. Simply put, politicians want control of voting power so they can issue bonds and increase your water and sewer rates whenever they wish to do so."

Peninsula folks should be aware that the Speir-Brown coalition sees them as deep pockets, while specifically excluding them from voting for the revenue bonds. San Francisco should be just as alert, as Speir and Brown are ensuring that you will lose your right to issue bonds and you will cede control of the Hetch Hetchy system. In addition, Supervisor Ammiano proposes to create another system of management that strips you of the right to vote on bond funding. This legislation was manufactured to look good while socking it to the ratepayer and giving bond approval to the Board of Supervisors. The legislation was proposed shortly after Ammiano pushed through a 50% obligation of tenants to pay rate increases. What a team!

We should also think about the past.

In 1997 the politicians and the Public Utilities Commission told you that there was an emergency need to retrofit the city reservoirs and purify the water. We passed bond funding for $304 million dollars under Propositions A and B that year. Politicians manipulated those funds, the projects were not completed, the cost escalated to near 40%. Similar to current practices in the private sector, the city manipulated the financing process without your permission. Some of the projects listed and proposed five years ago are included in the current projects. Perhaps it is time to ask, who profited on the 1997 deal? How will they manipulate this bond issue? How will the Authority be manipulated? What ever happened to "truth" in Government? If they couldn’t handle to $304 million why should we give them more?

Economic Impact on Rates

Water rates for suburban wholesale customers will increase by a factor of 3. City retail customers will see rates increase by a factor of 2.53. The amount of City revenues going for debt will go from 15% to approximately 70%, placing SFPUC in a debtor category only matched by SFO. All Peninsula revenues will be dedicated to debt service.

SFPUC project that the "Project Construction Deposits" will amount to $3,779,009 and that $845,082,000 will be required for Issuance cost ($46,241,000), Reserve Fund Deposits ($327,452,000), Bond Insurance Premiums ($24,193,000)), and Capitalized Interest Fund Deposits ($447,196,009). These "issuance costs" are approximately 22% of the "Project Construction Fund Costs." The total of project and construction costs amounts to $462,0291,000. This amount assumes that the SFPUC will implement a Clean Water (sewerage) CIP of the magnitude of $600,000,000 immediately after the divestment of voter revenue bond oversight pursuant to the passage of the Ammiano legislation.

Because the SFPUC have developed a numerous and inconsistent plans it is difficult to relate prior documents to the current proposed funding request of $3.6 billion. Currently the SFPUC are requesting $1.6 billion in San Francisco voter approved bonds. The Peninsula Authority, using San Francisco's Hetch Hetchy assets, will issue an additional $2 billion (without voter approval) in revenue bonds and turn the money over to the SFPUC, which will in turn bill the Peninsula customers and return the money (plus a surcharge to operate the Authority) to the Spier-Brown created (SB1870) Peninsula Authority. The surcharge will be assessed to cover this double transaction, which most on the Mayor's Infrastructure Task Force to be of no functional value and only correlated with political agendae.

The change in debt service requirement is dramatic. Currently SFPUC-Water Enterprise uses approximately 14% of its revenues for debt service. After the proposed bond issuance is completed 68% of its revenues will be required to service debt. The SFPUC-Clean Water Enterprise currently uses 21% of its revenues for debt service. After it completes the estimated one billion CIP its debt service requirements will be approximately 69%. The BAWUA sponsored Peninsula Authority will be funded from a surcharge collected by SFPUC. Hence more than 100 percent of the Authority "revenues" will come from debt-service. The anomaly being that the Authority theoretically only is an entity to issue debt on a San Francisco asset.

The reality appears to be that Spier-Brown et al are creating a de facto partner to manage and run the San Francisco Hetch Hetchy system. This latter fact ignores the Task Force recommendation and now a ballot measure for November 2002 that a multidisciplinary oversight committee is formed with Peninsula representation. The Mayor's Task Force and numerous constitutional scholars question the legality of the Peninsula-Brown-Certain City Politicians and local trade associations take-over of one of the nation's largest and best multi-utility (power, water, and wastewater) systems in order to create a bank and a self-serving WPA program to benefit their political cronies.

The truth is, we must require efficiency and there is an answer to the problem!

Keep all bond funding for Public Utilities subject to approval of the people, mandate that the bond funds are used as designated by the people, allow the professionals in PUC to do their job, create a viable long term strategic plan, include a representative from suburban customers on a professional Public Utilities Commission, and most importantly, take control of the system away from politicians.

Richard Bodisco

Rich Bodisco conceived of the Freeze on Water and Sewer rates and wrote Term Limitation Law for San Francisco Supervisors. He Chaired the Mayor’s PUC Infrastructure Task Force. Mr. Bodisco is a native of the city and a real estate Broker.

He can be reached at 415-681-4100.