RATE REVISION IN MUNICIPAL WORKS
It goes without saying that every Water board or Superintendent of Water Works should be thoroughly well informed as to all the fundamental facts of his system having a bearing on the rates. It is often wise to publish a report of the facts concerning this question for the benefit of consumers, and it is always wise to keep ahead of public discussion of rates and keep the public well informed from time to time of conditions and facts which bear on the subject, so as to guide it if possible toward a sound judgment. A printed report of a study of the rate question was published by the writer in 1915 for the Waltham Water Department and this outline is offered to show a method of treating the problem in municipal works, with the hope that it may be of use to some one. We also have attempted some general observations in the light of our study and after the experience subsequent to the preparation of the 1915 report.
Rate Fixing in Waltham, Mass.
It was decided at the outset that the period to be forecasted should take in the succeeding five years. The Waltham case was much simplified by the fact that the works are not only municipally owned, but that the city has, fortunately, in the main lived up to the principle that its water works are held by it in trust for the people, and has, therefore, given the water takers the benefit of any surplus of receipts over expenditures by reducing the cost of water from time to time to those who pay for and use it. The use of city water for public purposes had for several years been cared for by a charge for all public use of water, except drinking fountains and watering troughs, together with a levy of the nominal sum of $5 annually for each public hydrant. Supplies for private hydrants and for fire protection purposes have always been furnished free the* owner paying the entire cost of installation. The question of the fairness of this deal from a financial point of view was not considered in the 1915 investigation. It had proved satisfactory to all parties for several years and the fact that the Department has never paid taxes to the city pretty nearly evened up the obligation. With this phase of the question eliminated and granted that the consumers ought to receive the full benefit of their co-operative venture, the investigation which covered the five years succeeding 1915, and as many preceding years as was necessary to help in forecasting the future, was begun along the following lines:
1st.—A complete estimate of the reproduction cost of the entire system was made.
2nd. Figures were prepared to show in detail all expenditures for the preceding five years, classified and tabulated so as to show their relation to future expenditures. A chart was prepared showing the growth of population in Waltham. Other charts were made showing the quantity and quality of the water from vear to year for a long period. The Waltham supply is a ground water taken from two large wells near the Charles River.
3rd.—The effect of metering on revenue and consumption was also especially studied for the preceding five-year period, as this was a very uncertain element in any estimate of future revenue. Up to 1915 less than 40 per cent, of the services were metered.
With all these facts fully investigated and at hand, certain assumptions for the future were made. For one thing it was assumed that metering would be rapidly continued so as to be entirely completed at the end of the five-year period under consideration, and again that such metering would result in some reduction in the per capita consumption. In 1913 the consumption was 91 gallons per person, with 25 per cent, metered, while in 1916 it was 76, with 41 per cent, metered. We believe that this figure should certainly be cut to 65 by the end of the next five years.
The next step consisted in forecasting probable future expenditures, both ordinary and extraordinary. In Waltham these consisted of the following: 1—Installation of and repairs to services. 2— Operating expenses, pumping, care of real estate, reservoirs, mains, gates, hydrants, etc. 3—Fixed charges. 4—Extension of metered services. 5—Replacement of mains. 6—Higher service for the higher parts of the city. 7—Additions to the collecting works to provide for a larger supply. 8—Extension of mains.
In order to ascertain how much profit or loss the next five years would bring, a careful estimate of income on the basis of existing rates was made. Investigation of past experience seemed to indicate that the income from metered services averaged 90 per cent, of what it had been under fixture rates, and this percentage was used as a basis for estimating that portion of the income as the fixture rate services should be changed over to metered. The remainder of the estimate was comparatively simple. The estimate of income consisted of the following items: 1—Income from fixture rate services. 2—Income from existing metered services. 3—Income from existing fixture rate services changed over to metered. 4—Income from new services. 5—Income from a new high level supply. 6—Income from installation of services, repairs, etc.
The estimate showed a surplus of income over expenses. Definite recommendations were accordingly made looking to a small reduction in income. The reductions were intended to apply to certain charges which the water takers found most annoying as, for instance, an annual charge of 10 per cent, of the cost for the meter and its installation in every case. It was also recommended that the city assume the duty of installing supplementary meters in multi-tenement houses, if the owner would arrange the piping so that all meters could be set near together in one cellar. The report was not published until 1916, and its recommendations were not carried out until the year was half gone, so their effects were not very apparent up to the end of the financial year 1916. Work on the extension of the supply has not yet been begun. It proved to be a bigger problem than was anticipated and may cost a large amount of money. All this, together with a large saving in operating expenses, due to a new and business-like administration of affairs, rather upset the estimates and the department had a larger surplus than was anticipated on January 31st of this year. Just as soon as a definite policy in regard to a more adequate supply can be adopted, it is intended to apply the elements of the 1915 study to the new conditions and adjust prices accordingly.
Summary and Conclusions.
The question may be asked as to why an estimate of reproduction cost was made in this case where it was not used in fixing the rates. The answer is that the reproduction cost was a sort of taking account of stock. The city auditor has always carried a statement of the book value of the works on his books from year to year and it was considered wise to check that up with actual figures of values. There is no better way of ascertaining the correct location of fixtures, exposing the weak spots in office and field organization and obtaining an intelligent and comprehensive knowledge of the business.
We attempted to provide for a period of five years. It is a very difficult task to plan so far ahead. The writer knows of one case at least where provision for a fair return is made by giving the water takers an annual discount. The surplus, if there is any, is returned in this way to them each year, while the rates remain unchanged.
While it is a fact that we would, if making a new study of the rates to-day, follow practically the same general course that we did in 1915, it should be stated that subsequent experience and reflection call for some modifications in the program. In the main, however, the methods adopted in Waltham were simple and direct and in retrospect; seem wise. Here is a basis for further revision which can be followed from time to time as conditions change. The writer believes that it is only fair and logical for the Water Department to pay taxes on its property, and also that the city should be charged a fair rate for what water it uses as well as for hydrant service. As a basis, therefore, for rate fixing, he would charge a fair price for everything furnished the city, and, in return, hold the water department to a strict accounting for all it receives. He would not, however, provide for a franchise tax. If it had received but $50 per hydrant, the Waltham Water Department could have paid taxes on the value of its plant and in 1916 would have made a further profit to the department of more than $3,000 on the deal. Where the works have been paid for and maintained by the consumers, the evil practice of taking water works earnings for general municipal expenses should be stopped. The great advantage of an attempt to inform the public is, of course, to make clear to all the necessity of looking ahead. Without a careful foresight as to the expenditures which are sure to be required as well as the probable additional demands, there is always danger that the public may call for the distribution of any surplus which may temporarily accumulate.
The wholesale user now gets the low price in Waltham and in most other places. He also gets the free fire service. Perhaps this is right to a certain extent, but we must bear in mind that the poor man is becoming fully as importam an element in democracy as his richer brother. It is well, therefore, in America and in these times, for the management to consider this element in municipal service. The question of relative rates for different services is, however, only a part, though an important part, of the problem. The main question is rather the necessary amount to be charged upon consumers in order to cover cost. This question, the writer maintains, can be solved satisfactorily only by careful study of future developments, based upon the lessons of the past. There is no panacea for all the difficulties of rate fixing, but the ideal for which we must strive, namely, a square deal and equal privileges for all, can only be reached when we have acquired sufficient wisdom from experience to decide how long to rest upon established order and when to cut loose and go ahead.