Saturday, March 20, 2010

Mayor's Citizens Gas Deal: Intriguing Idea Marred by Brazen Hypocrisy & Political Cowardice

If you didn’t hear me on Abdul in the Morning this past Monday morning, let me share that the Mayor’s proposal to sell the city’s water and wastewater companies to Citizens Gas makes sense intuitively.

Who wouldn’t automatically think that a non-profit structure, specifically a “charitable trust” like Citizens Gas, must be more efficient than a private company because they don’t have evil stockholders to placate. (Of course, one would think this mentality might compel Republicans to favor a single-payer healthcare system over for-profit insurance companies, but I guess Republicans only like profit motives on healthcare, not on utilities).

It’s also a PR masterstroke. The phrase “charitable trust” makes you think your grandma will be providing your drinking water now. (Heck, if the City could give Brighthouse to a “charitable trust,” maybe I wouldn’t have my six favorite channels intermittently disappearing while I continuously call to get a four-hour window for “service” at times I’m never home because I have a job).

But the prospect that this deal favors the city is obscured by the fact it is the most brazenly political, hypocritical, and cowardly act undertaken by an elected official in Indianapolis since Unigov was implemented.

The terms are these. The City of Indianapolis will receive $170 million at closing, then $90 million on October 1, 2011. In addition, Citizens Gas will assume $1.5 billion dollars worth of the city’s debt. This is why people keep talking about a $2 billion dollar deal.

Folks, the "$2 billion sale" figure is false, no matter how many times Abdul and the Mayor say it. If you read the Memorandum of Understanding (MOU) between Citizens and the City, you will see that Citizens Gas will only move forward with this deal if the Indiana Utility Regulatory Commission (IURC) permits the assumption of this debt to be figured into its rate structure. In other words, you won’t save dollars because this debt is assumed. You’ll just pay it in higher water and sewer rates instead of in higher taxes.

And this is precisely the Mayor’s goal. Mayor Ballard wants this deal because elected officials won't do the right thing by raising taxes to invest in necessary water and sewer infrastructure improvements if they know they are going to get attacked politically.

From the Mayor at his press conference:

Let me be clear. This solution works for the long term. With this, we will take politics out of running our water and wastewater systems. No more politicians putting off doing what is right for the long term for what is politically expedient today.

He’s wrong about the first part because Bart Peterson in 2005 sought a $350 million bump in water and sewer rates for these very enhancements.

In other words, there are courageous “politicians” who will say, “We need this, and your rates are going to have to go up.” Mayor Ballard just is not one of them, apparently. But his remarks to the Star about how politicians will be attacked for doing the right thing is dead on, and he knows. You know how? Because he did it against Bart Peterson. In 2007, Ballard banged Peterson for repeatedly “raising taxes,” and he included in his list every water or sewer increase sought by the city.

Simply put, Mayor Ballard is the guy who robs the store and then tells the owner, “You better get a security system.” I try to keep this blog analytical, but I can’t contain myself. Among all politicians and strategems I’ve seen at all level s of government, nothing compares to this for pure political cowardice.

Even the underpinning of this deal is based on a distortion of history. The Mayor is fond of saying that Citizens Gas was founded as a public trust to avoid having rate decisions made by politicians. Here’s a term of art for your, Mayor. That’s crap.

According to Citizens’ own website, the trust was founded principally to avoid the city having its natural gas supply taken over by monopolist robber barons. Now, it is true that there was concern about political patronage, but that had nothing to do with retribution for setting rates and everything to do with fear of the mayor’s brother with no background in natural gas systems running the whole show and blowing up the city. But last time I checked, quite a few decade had passed since Tammany Hall. In other words, the concerns about re-election that concern Cowardly Greg aren’t the concerns that animated Eli Lilly back in the day. Of course, Lilly was a leader.

But, iPOPA, you say. This can’t ALL be about politics. Aren't there cost savings?

Sure. Not having to earn a profit is good, and the trust can issue tax-exempt bonds (though the city could also, I believe). But the main alleged advantage to this deal is that by consolidating utilities, we achieve “synergies” (the most hackneyed phrase in management, by the way) of $40 million per year. Again, intuitively, this makes sense. If you fold three companies into one, you won’t need three HR, IT, or legal departments. But $40 million?!? Even the Mayor doubts this.

More from Mayor Ballard’s press conference:
Reporter: Any promises with rates?

Mayor Ballard: Not at the moment. We’ll have to look at that. They’ll be lower than previously forecast. I think we…that’s pretty much in there. That’s one reason we’re doing it.

The Mayor regarding “synergy savings”:
Mayor: If there are some synergies later on, I think you said, I think the Star said today lawyers and IT. Maybe, maybe not. It’s up to them. People still have to do the work. The systems still need to be maintained. So I mean, I hear a lot of that when we do things within the city, but you never see it happening. It’s just all speculation.

In other words, Mayor Ballard is only able to speculate that rates will be lower than they would be without the deal (though still going up massively), but he can’t tell you how they got to the $40 million in savings per year, nor does he even believe it. Do you?

But here’s the most troubling part. How did the City get the $262 million purchase price? Why isn’t that report on-line, Mr. Mayor? How do we know we’re not getting rooked for turning over our water supply in perpetuity?

Also, why the lump sum? The Mayor repeatedly called this a long-term solution. So why aren’t we having the savings paid out over time, like over the 50-year period the Mayor referred to at his press conference? If Citizens will save us $40 mill per year, why don’t we have them pay us $35 million per year indefinitely? They’d still save $5 million off their operating costs, wouldn’t they?

Or how about this. Why don’t they just assume the debt and forget the $262 million? We all know the cash is just an advance against a higher future rate increase. Why not forget the cash and have lower rates in the future, Mr. Mayor?

Here’s why. If Citizens Gas doesn’t give up the $262 million, Mayor Ballard can’t put up little signs telling you about the new sidewalks he’s going to start building in your neighborhood right before his re-election. That’s what this is principally about.

From the Mayor’s press conference:
We will use the cash from this deal to make a transformational investment in our city’s infrastructure. Roads, bridges, and sidewalk needs, many of which have been neglected for a generation, would be addressed.

A true leader would have not permitted this neglect to continue once he took office. And a true leader would ensure a revenue stream from this sale for 50 years and beyond. But Mayor Ballard has never been that.

I promise you that if members of the City-County Council said, “Mr. Mayor, we’ll vote for your deal, and in exchange, you forego the lump sum and spread the benefits out over time,” he wouldn’t do it. He wants to finance his re-election on your future rate hikes, folks.

But, iPOPA, you say, “If the Mayor does this deal and rates go up now so Cit Gas can pay for the $262 million, the Mayor will get creamed in November, 2011."

Oh, did I forget to tell you about how the Mayor ensured that wouldn’t happen? Here’s another quote from the the Mayor's press conference:
Additionally, after acquiring the water system in 2002, the city flat-lined water rates for five years while simultaneously taking on more debt than the system is worth.

Sentient beings might conclude that the Mayor is faulting his predecessor for negotiating a deal where rates stayed the same for five years while debt went up from necessary improvements. But do you know the MOU has a two-year rate freeze following closing on this deal?

Think about that.

While saying how bad rate freezes are, the Mayor’s deal includes one, and a two-year freeze specifically means there will be no more rate increases in 2010 or 2011, which – well, what a surprise! – would mean no rate increases until after the November 2011 election. To quote The Church Lady when she referred to Satan: “How conveeeeenient!”

Of course, it’s probably not all that likely that a rate increase would be needed in 2011 though. Look at this exchange from the press conference:
REPORTER: Do you support the current rate increase that’s before the IURC?

CAREY LYKINS (Cit Gas CEO): No, I’m not a part of it, and I’m not familiar with the details of it. I would presume that it’s all necessary and required, but I have not seen the case.

Doesn’t it seem like Mr. Lykins is disinterested? So why does the MOU state that this deal only moves forward if the IURC outcome is one that Citizens Gas views as “favorable?" "And which outcome IS favorable to Citizens?" I ask in jest, knowing they want that 35% increase in rates because it will probably cover a huge chunk of the $262 million.

Not convinced yet that your Mayor is out to lunch? Here’s another great line from the Mayor’s press conference:
In 2008, the water system proved unable to correct itself without huge rate increases.

I’ve heard of anthropomorphism before, but is anybody else surprised to learn that water systems have the ability to correct themselves without any humans, especially a mayor, being involved? Unfortunately, this “little water system that could” just couldn’t correct itself without first imposing a huge rate increase on itself.
Another classic:
REPORTER: Mayor, you mentioned taking politics out as a positive thing. How can you insure accountability and any guarantee for ratepayers under this deal?

MAYOR: Utilities were created, just as Carey said, utilities were created for a certain reason in cities and municipalities across the country. A lot of that reason was to take politics out of it, so that the interest of the municipality, the city, is looked after in the long term. They are extremely accountable. Extremely accountable. You talk to any utility, and they will tell you, they’re accountable, and they will be.

I bet if you talk to Bernie Madoff, he’d tell you investment brokers are very accountable, too.

Another zinger:
We will look at greatly enhancing our connectivity with greenways and bike lanes and may look at addressing unsalveagable, abandoned homes.

Silly me. I thought the Mayor made abandoned homes one of his campaign priorities. Now he's letting you know that he might look at it now if he gets this $262 million. What happened to "cutting the fluff," Mr. Mayor? Can't you use all of the efficiencies that you boasted about being able to find for abandoned homes?

Finally, let me ask a simple question. Mr. Mayor, the contracts with Veolia and United Water both had minority business enterprise and women business enterprise mandates. I didn't see that in your MOU. Are you turning your back on MBEs and WBEs?

If the devil is in the details, this deal isn't getting my blessing until the Mayor exorcises its craven and hypocritical political components. I'll let the cowardly ones slide. I've come to expect them.



Anonymous said...

I have lost about 6 of my favorite Brighthouse channels. They gave me the same response that they would give me a 4 hour window but that it was about 2 weeks away. I wonder if there is a conspiracy. I keep hoping AT&T give Uverse in my area soon.

varangianguard said...

Great post, IPOPA!

Unknown said...

"Synergy"!?!?!?!?!? That is one of those corporate buzz words that has almost no meaning at all.

"Synergy" is expression that tells me the Mayor has no clue about how this is going to save $40 million.

I guess that is the term he is using to get re-elected 2011. In 2007, it was "efficiencies" that would save money. Now it is "synergy."

Anonymous said...


Anonymous said...

Hmm Synergies in combining services such as IT, HR, Purchasing, etc will bring significant savings of almost $40M a year. Didn't Peterson get reamed, creamed and screamed at and voted / hated out of office for claiming the same during IndyWorks by these very same Republicans? Why is combining a public safety program any different? Oh I know - cos they didn't think of it before! Minor Ballard (he ain't no Major - trust me!) is being led by the nose by our old pal Goldsmith who meets with him almost every Thursday and tells him which arm to move, which doc to sign and which word to enunciate and emphasize. Can Skip Stitt and Mitch Roob be far behind?
I come to bury Caesar, not to praise him........