EID by the Numbers: Capital Spending and Labor Costs
This is part two of EID by the numbers: Spending. This section examines labor costs and capital spending.
EID critics Greg Prada and Jon Jakowatz contend that salaries and benefits are a large reason El Dorado Irrigation District overhead remains high despite downsizing in 2008 and 2010 that reduced overall headcount from a 2007 peak of 305 to 220 today.
EID General Manager Jim Abercrombie references district salary surveys that demonstrate EID’s wages are “just a little better” than comparable districts.
A simple bifurcation of the 2012 operating budget, without any capitalized labor costs backed out, yields:
• $28.3 million, or 63 percent of the operating budget for salary and benefits
• $16.4 million, or 37 percent for everything else
There’s no question that labor costs dominate EID’s operating budget, but a quick comparison to other water districts reveals that most districts spend similar portions of their operating budgets on their employees: San Juan Water, 61 percent of a $71.1 million operations budget; Amador Water: 39 percent of $10.6 million; Calaveras Water: 66 percent of $14.3 million.
The disparate nature of the districts and the sometimes murky world of public utility finances makes any meaningful comparisons difficult for a non-accountant, but Prada argues that it’s not hard to compare benefits in the private sector to those enjoyed by EID employees.
Benefits for line employees include 14 paid holidays plus 22 days of paid time off (sick or vacation) to start, which grows to 37 days at 15 years of service. The district picks up the full cost of PERS retirement, life insurance, HMO medical, premium dental, vision and employee assistance insurance for the employee and their dependents, although the board recently approved a 10 percent employee contribution for dependent medical benefits.
Management gets an additional two weeks off plus a $500 monthly car allowance.
The district’s medical plan costs ratepayers $3.8 million per year, according to a Feb. 8 email from Abercrombie to Prada that recapped total 2011 benefit costs at $31,278 per employee, before FICA, worker’s comp or any prepayment of retiree health benefits.
Abercrombie is quick to produce charts that prove his benefits, although generous, are in line with neighboring utility districts.
Like many public agencies, EID has an unfunded liability for employee retirement benefits, the result of a retroactive increase in retirement pay from 2 percent at 55 to 2.7 percent in 2004. The increase was backed out in 2010, but only for new hires, and not before the district racked up $27.5 million in unfunded pension liability.
The district’s sister liability, a post-employment medical benefit with premium coverage for retirees and their dependents, has created a separate $22.4 million liability.
Abercrombie acknowledges the large unfunded liability, but said he’s doing something about it, starting with a one-time $6 million prepayment to the medical care liability, with more payments to come as debt service coverage improves.
“This is what we’ll do instead of increasing staff or benefits,” he said.
The district is also making regular contributions to a PERS side fund over the next nine years which should cover 70 percent of the pension liability, with market gains hopefully making up the balance.
One reason ratepayer watchdogs Prada and Jakowatz howl so loudly about EID compensation is that it’s nearly impossible for a layman to validate most of the infrastructure projects in EID’s Capital Improvement Plan, or CIP.
The big-ticket items in the 2012 CIP budget, a $3.4 million flume replacement and $3.1 million in waste water lift station upgrades, are nearly invisible to residents, who just want the water to come out of the spigot, and the you-know-what to go down the toilet.
Jakowatz doesn’t question the need for those projects, but worries that EID management continues to slip in sizable other capital projects with little fanfare.
Prada and Jakowatz contend that the district has vast excess capacity in both water and waste water, a claim that will be examined more closely in an upcoming EID by the numbers story.
“I understand that engineers and their IT counterparts want to build world class systems,” said Jakowatz. “Who can blame them? But the board is supposed to rein that in. They let (former General Manager) Ane Deister run wild and to a lesser degree it’s still going on.”
The 2012-16 Capital Improvement Plan includes $7.55 million in IT projects to upgrade district computer systems over the next five years. Proposed projects will integrate databases, enhance cyber security and create a backup data center in El Dorado Hills.
At $2.65 million, the IT upgrades will cost more in 2012 than total CIP spending on water infrastructure projects.
Jakowatz wonders if the IT projects are necessary, and worries that he hasn’t heard meaningful board-level discussion of the relative merits of the various projects which come before it.
“This board doesn’t challenge management to come back with less expensive options,” he said. “That’s what boards are supposed to do.”
Prada cites the discussion, or lack thereof, which preceded approval of the 2012 budget as a prime example. “Management presented the board an operating budget proposal for almost $43 million in the November board meeting,” he said. “They talked about it for 45 minutes and approved it in the next meeting with minimal discussion. They need to dig into this stuff with someone who isn’t beholden to management.”
Abercrombie counters that district infrastructure includes an extensive data network that facilitates remote management of the water and waste water systems. He defends the IT projects as essential avoiding a spill, broken flume or plant mishap, calling them the “insurance we need to get away from 24-hour coverage in the plant.”
No discussion of EID spending can ignore the elephant in the boardroom — Project 184, a water, power generation and recreation project that the district purchased from PG&E for one dollar in the late 1990s and has cost an estimated $100 million since, with another $45.2 million budgeted in the next five years, over half the five-year CIP budget.
The cost of restoring Project 184’s El Dorado Power Plant and the network of dams, ditches, flumes reservoirs that feed it, coupled with the cost of meeting a seemingly endless stream of Federal Energy Regulatory Commission mandates, was grossly underestimated at the time of acquisition, and remains a large budgetary challenge.
In 2012 alone it will consume $9.37 million, more than half the annual capital budget.
The history and relative merits of Project 184 have been argued over 20 years, but Prada and Abercrombie agree that it’s ours and we need to maintain it.
The project came with 15,080 acre-feet of very old, high-priority water rights, and currently provides one-third of the district’s water supply, according to Abercrombie, who insists that it’s a water project “first and foremost,” and that power generation simply helps offset the water costs.
Prada calls for a $2.5 million reduction in the 2013 operating budget, which he claims could reduce the proposed 2013 water rate increase from 11 percent to 6 percent, and eliminate the need for the 5 percent sewer rate hike in 2013.