Property fee paves way for S&WB state takeover
2nd April 2024 · 0 Comments
By Christopher Tidmore
Contributing Writer
Only a few readers of this newspaper are aware that the New Orleans Sewerage & Water Board was established as a state agency 125 years ago, and as originally chartered by the Legislature, so lies Gov. Jeff Landry’s authority to execute a state takeover of the troubled institution.
On Wednesday, March 27, a task force appointed by Governor Jeff Landry proposed to do just that. The mayor, who serves as chair of the board, her appointees and various City Council members currently constitute the majority of the S&WB’s 11-member governing board; under the state proposal, that count would be reduced to just three seats in total.
Moreover, these appointments by the administration and the City Council would be limited to candidates nominated by the Business Council of New Orleans & the River Region and Greater New Orleans, Inc.; the Government Finance Officers of Louisiana would appoint the treasurer of the new board. Other nominations would come from trade groups representing electricians, general contractors, engineers and lawyers.
Meanwhile, Gov. Landry himself would enjoy three appointments, and other seats would be reserved for the legislative auditor and the state’s attorney general. The remaining three appointments would be drawn from the pool of state legislators representing Orleans Parish.
Such a drastic change in the membership of the S&WB has already drawn massive opposition, yet allies of Landry may have a proverbial “ace up their sleeves.” To help sell the deal, the S&WB might also adopt a funding compromise which could prove both attractive to New Orleans ratepayers – and highly unattractive to some of the governor’s closest supporters in the religious and corporate communities.
In recent months, S&WB Executive Director Ghassan Korban, an expert reformer of water systems hired to New Orleans after his successful overhaul of the Milwaukee Department of Public Works, has quietly advocated a new method of funding Sewerage & Water Board in the form of a property service fee. A rate calculated by a building’s square footage rather than by property tax eligibility would result in literally thousands of properties currently tax-exempt being required to contribute to the reconstruction of the city’s water systems. While not common across the nation, several other U.S. cities have successfully implemented this funding method. Not only must property-tax exempt non-profit organizations such as universities and religious institutions pay the fee, but so must offices of the federal government and large (tax-exempt) industries, just as these institutions pay electrical fees to Entergy.
A property service fee could be designed, as Korban has explained to this newspaper, so that it costs the same – or less – than homeowners pay in taxes (homestead exemptions factored in) and still raise vastly more revenues by forcing institutions who own properties such as Tulane and Loyola universities, the Archdiocese of New Orleans, industries covered by La. industrial tax exemptions, and the offices of the federal government to contribute proportionately to the square footage utilized. Therefore, perhaps for the first time, each would pay for the water used and kept clear from their lecture halls, churches, chemical and processing plants and U.S. governmental agencies.
Roughly three quarters of the water traversing in the city’s underground pipes leaks out, a contributing factor to the rash of potholes and collapsing streets above these water mains. System-wide repair costs, matched with the needs to bring the electrical system for the pumping stations up to Entergy standards, amounts to the Sewerage & Water Board needing a minimum of $939 million, according to Korban, based on its recent 10-year forecast of drainage system upgrade needs. Current revenue projections predict that only seven percent of the projects on the 10-year plan can be funded.
“We are 100 percent ready to take on that responsibility, provided the money to do it comes along with it,” Korban recently said, though he added, “With the current funding, things aren’t going to get any better.”
The Sewerage & Water Board oversees just over 1,600 miles of water mains throughout New Orleans. More than a third are over 100 years old. As a result, upgrades to a damaged section expose faults down the line. Moreover, S&WB’s main water treatment plant has not been significantly updated since the 1950s, and the 25 Hertz-cycle electricity powering the turbines of the main pumping stations are so out-of-date that pumps are often in danger of failing. In order for them to draw modern 60-cycle electricity from Entergy, the Sewerage & Water Board relies on frequency converters, equipment costing millions and prone to malfunction.
In 2023, the Sewerage & Water Board collected just $348 million, with water bills accounting for about a third of those revenues. In addition, three separate property taxes generated about $65 million, from which $10 million comes off the top to pay for a series of massive drainage projects built in Uptown New Orleans over the past decade. The Department of Public Works, which has no dedicated funding source, receives allocations from the city’s general fund.
As the utility cannot currently borrow any additional money without an additional stream of income, $110 million in emergency repairs and catch basin clearance are needed. S&WB stands $40 million short of that amount. Gubernatorial Task Force appointee Paul Flower noted that a long history of sporadic and insufficient rate increases caused the mess that the Sewerage & Water Board finds itself in today.
Consequently, money currently needed to operate day to day comes at the cost of long-term investment, leading to added long-term expenses. Only 40 rate increases have occurred in 70 years. “You have to steal from maintenance. You have to put off capital investment to the point where it’s gonna cost us 10, 15, 20 times what it would have, had we done it correctly,” Flower told Louisiana Illuminator.
Enter the governor. In 1899, the Louisiana Legislature enacted the Sewerage & Water Board to furnish, construct, operate and maintain a water treatment and distribution system and a sanitary sewerage system for the Parish of Orleans. In 1903, for efficiency, the Drainage Commission merged with the S&WB so as to consolidate drainage, water and sewerage programs under one agency for more efficient operations, maintaining the title Sewerage & Water Board.
In the task force’s proposal, S&WB would take responsibility for all pipes and water distribution in the city, not just stormwater and sewerage. Yet the potential loss of the mayoral and councilmanic seats on the board has not been well received. In a statement to the media, Councilmember Helena Moreno wrote that “people who live and work in New Orleans are the ones who will be most impacted by the decisions of this board, but they won’t have a majority seat at the table.” Similar skepticisms came from Councilmen Joe Giarrusso and Oliver Thomas, with Mayor Cantrell and the members of the S&WB remaining silent when this newspaper went to press.
Speaking to The Louisiana Weekly on the condition of anonymity, sources close to the Landry administration have floated the idea that reforms could garner public support if the governance changes were matched with the quick institution of Korban’s proposed property service fee, perhaps set at a rate lower than the average Orleans Parish homeowner pays in property taxes currently – even after the homestead exemption. Broadening the tax base with currently untaxed non-profit, corporate and governmental institutions would still create a windfall of revenues whilst reducing the out-of-pocket costs to the average ratepayer.
Whether that will quell the controversy remains to be seen. Legislation determining the future governance of the S&WB is expected to be considered by the state House and Senate prior to the end of the Regular Session in early June. Even if nothing changes specific to S&WB, another proposed bill – SB73 – would create a host of new state-level guardrails for all public and privately-run sewerage and water systems across Louisiana, including the Sewerage & Water Board.
Senate Bill 73, approved last week by the upper chamber’s Committee on Environmental Quality, would make local boards use sewage billing fees only for sewage system costs. They would also have to petition the state Department of Health, Department of Environmental Quality and Legislative Auditor for approval when parish and municipal boards want to take on more debt or receive money from the state appropriations process. If a judge finds local officials have violated the law, their systems could be placed under a court-appointed receiver. In theory, such a change would make the legal case of a property service fee more feasible, potentially separating revenue collections from the overall parish property tax regime. Historically, the state has looked at rate collection more favorably than simple property taxation.
This article originally published in the April 1, 2024 print edition of The Louisiana Weekly newspaper.
