Why Have the Rate Increase and New Service Fee Been Proposed?
According to the Board, nearly $1 billion in improvements are needed to upgrade the
city’s sewerage and drainage systems. Some of the specific factors driving the
drainage fee proposal include the following:
Flooding is a Major Problem
New Orleans is the only urban area in the country below sea level, bordered by seawalls
and levees. The City receives an average of 58 inches of rain a year and is prone to
street flooding on a frequent basis. The May 8 - 9, 1995 flood, the most recent severe
flood, caused $388 million worth of documented damage in Orleans Parish. Through
improvements funded by the drainage fee, the system’s current capability of removing
1” of rainwater in the first hour of a storm and ½” after that, would be
increased to 1” per hour after the first hour. According to the Board, this would
increase the drainage capacity to the extent that flooding from a storm as severe as the
May 1995 event would be reduced by 60 to 70 percent. Board officials concede that no
amount of improvements will ever be able to totally eliminate flood damage in all areas of
the City.
Proponents suggest, however, that the revenue from the drainage fee would help build
new canals, expand others and add pumping stations to ensure that water is drained from
the city as quickly as possible, thereby significantly reducing flood damage and enhancing
property values. [Please see Table 2 for a specific list of capital projects that would be
funded if the drainage fee is approved].
The Board’s Costs Have Increased, While Revenue Sources Have Been Reduced.
The Board’s operating costs have increased over 50 percent since 1986, when the
last rate increases were approved. In addition, the Board lost a major revenue source in
1991 when voters refused to renew a four-mill ad valorem tax dedicated to drainage. The
four mills had provided approximately $6 million per year for drainage projects.
The New Drainage Fee Would Place the Board in a Position to Take Advantage of
Federal Matching Funds
If the Board is able to raise local funds in the amount of $110 million though the
drainage fee, the Federal Government (through the U.S. Army Corps of Engineers,) will
provide $330 million for drainage projects in New Orleans. If the Board is unable to
provide the local match, the federal funds would go to other areas or projects and the
City would lose an opportunity to defray a major portion of the capital improvements.
In the case of the sewerage fee increase, the three primary factors driving the
proposal are:
A Federal Consent Decree Requires Extensive Repair and Modernization of
City’s Sewerage Collection System
The Board is required under a 1998 Federal Consent Decree to significantly improve the
city’s sewer collection system in order to meet Environmental Protection Agency (EPA)
regulations. The estimated cost of the sewer system improvements is $200 million, of which
the EPA is expected to provide half of the funds. In addition, the Board agreed to pay a
penalty of $1.5 million over three years and perform a Supplemental Environmental Program
of $2 million over five years titled, “Lincoln Beach Water Quality Improvement
Plan.”
Most of the problems requiring correction are the results of years of postponed
maintenance of the sewerage system. As a result, ground water has infiltrated collection
pipes to such an extent that the treatment system is sometimes overloaded and raw sewerage
has been dumped into Lake Pontchartrain. The problem is exacerbated by old and
deteriorated cross-connections between the sewerage and drainage systems. In addition,
some property owners have illegally tied drainage pipes to the sewerage system, further
compounding the problem.
Under the terms of the Consent Decree, the Board has agreed to institute several
remedial measures to prevent unauthorized discharges. According to the Board, it will be
impossible to meet the Consent Decree requirements without additional revenue. Monetary
fines detailed in the Consent Decree could be imposed for every day a specific deadline is
not met. In addition, because the City is a signatory to the Consent Decree, the Court
could order the City to pay the fines.
The Sewerage Rate Increase Will Prevent the Board from Defaulting on Bonds
According to the Board’s consulting engineer, (Black & Veatch) the Board will
need to increase sewerage revenues by 33 percent in 1999, 4 percent in 2000, 4 percent in
2001, and 4 percent in 2002 to meet forecast revenue requirements and provide adequate
debt service coverage on bonds. Again, if the Board fails to increase sewerage revenues,
the Board of Liquidation, City Debt, may compel the Board to raise rates to prevent a bond
default.
The Sewerage Rate Increase Will Enable the Board to Take Advantage of Federal
Funds
By proceeding with the projects outlined in the Consent Decree, the Board will be able
to draw on an EPA commitment to provide $100 million over a 10-year period. |
