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The Price of Functioning Infrastructure


 By Chris Finnie 

Oliver Wendell Holmes, Jr., Associate Justice of the Supreme Court of the United States from 1902 to 1932, was reported to have said in a speech, “Taxes are the price we pay for a civilized society.” I’m going to lump fees in with that—in this case, water fees.

 

In recent decades, lawmakers have been reluctant to charge that price to upgrade infrastructure. It’s rarely popular with voters, and they’ve found it difficult to justify during round after round of recession.

 

But we’re now seeing the price of the lack of investment. We see it the Flint water system. At the Oroville Dam. And in the Pfeiffer Canyon Bridge collapse.

 

Locally, we see it in the frequent main breaks and leaking storage tanks in the antique infrastructure of the geographically large San Lorenzo Water District. According to district manager Brian Lee, much of the current infrastructure dates back to the beginning of local water districts almost 100 years ago.

 

Sometimes You Just Have to Replace It

 

Anybody who owns a car or a house knows that they take regular maintenance or they break down. It’s just a fact of life. Sometimes you also have to replace things because patching them up just doesn’t work anymore. That’s pretty much the situation we find ourselves in now.

 

When I asked the district how they determine when it’s time to replace instead of repair, district manager Brian Lee gave me the example of a cost/benefit analysis they did at a similar district where he worked before. “We compared multiple years of repair and replacement data to try and discern any patterns. What we found was interesting:

  • The cost to repair a single line is almost always cheaper than replacement, when viewed individually.
  • There is a point where the labor required to repair mainlines is no longer sustainable. When there are too many leaks in need of repair the cost of labor becomes a choke-point. The system reaches critical repair mode. Simply put, the District could not afford to hire the number of crews necessary to keep up with the needed repairs.”

 

As he also pointed out, more main breaks mean more people who have to go without water more often.

 

Enough Money to Operate, Not Enough to Upgrade

 

Which brings us to the rate increase. Comparing the new rates to surrounding areas was difficult because they all charge differently. But an average charge of $178/2 months for SLVWD customers roughly corresponds to $116 in charges for San Jose, $196 in San Francisco, or $162 in Los Angeles. According to an article by KQED in March of this year, two months of water costs the average U.S. household about $240.

 

 

So, the increased rates would put SLVWD users about in the middle of rates in California, and below the national average.

 

The money will be used for infrastructure projects and building emergency reserves. Since 2014, the District has completed $11.85 million of capital improvements, including several interties, pipeline replacement, treatment plant computer upgrades, well repairs, and progress on tank replacement. The majority of recent capital project expenditures relied on proceeds from the sale of district-owned property. Former board member Randall Brown provided a history of the sales, how the money was invested, and how it was used.

 

To make a long story short, the district sold watershed property for $1.2 million in cash and $9.7 million in promissory notes with an interest rate of 8 percent. After 10 years of payments, the district expected to receive a total of $13.4 million. But, like a lot of us with retirement savings invested in the market, the district’s investments were hit by unfavorable market swings—especially the market crash of 2008. However, because the district had made commitments to do a number of these projects, they had to sell investments at a lower rate. They also spent $545,000 to preserve other watershed property.

 

The end result is that the money the district has been using for capital improvements is gone, but the need for improvements is not.

 

As customers, we have a choice, we can either preserve our access to high-quality water by paying higher rates for needed upgrades. Or we can keep patching the system until it crumbles—at which point the replacement costs will likely be much higher.

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