The Proper Way to Figure Hydrant Rentals
Should the Expense of Fire Protection of a City Be Borne by the Consumer, or Should It Be Paid for by General Taxation
ONE of the big questions which arise to puzzle the water works superintendent is that of the proper method of compensation to the water works for fire protection. How are the necessary expenses incident to guarding the municipality from fire by always having an ample supply of water available to be met? Are the consumers as such to be compelled to bear the entire burden, or does it belong to the citizens as a whole irrespective of their actual consumption of water? Mr. Holway, who, by the way, has just resigned his position as superintendent and chief engineer of the Oklahoma City “water “works to engage in private engineering business in Tulsa, has treated this problem in a broad and comprehensive way.
Practically all water works officials believe that their city should arrive at a fair basis for fire hydrant rentals, but comparatively few cities have actually ever done so. The term “Fire Flydrant Rentals” is a very misleading one which should be discontinued. The writer must admit, however, that the term still is in use in his own city and will probably continue to be used. What is actually meant by “Fire Hydrant Rentals” is a charge for fire protection service paid out of taxes.
Fire Protection Not Proportionate to Fire Hydrants
It has been the custom in many cities to place this on the books as a charge of a certain specified amount for each fire hydrant in service, on the assumption that the amount which should be collected for fire protection service is proportionate to the number of fire hydrants. This assumption is far from true, as will be evident to anyone who will take the time to study the rating system in use by the National Board of Fire Underwriters. However, both the system and the term fire hydrant rentals have been so fixed in many cities that it is very difficult to make any change.
Two Classes of Service Rendered
Broadly speaking, a water works system furnishes two separate and distinct things.
First—It furnishes water for consumption either by the householder, the manufacturer, or by the municipality for flushing streets and sewers and other uses. All water so used can be measured and sold equitably on the basis of the amount of water actually consumed.
Second—It furnishes lire protection to each and every dollar’s worth of property within reach of its fire hydrants.
Service Measured By Value of Property Protected
This service consists of having a water works system, including supply works, pumping stations, mains and hydrants ready to concentrate at any moment a large quantity of water at any point in the system. This is a service which can not be measured by the gallons of water actually consumed in fighting fires, which is so small as to be negligible. The only fair way to measure this service is in terms of the value of property protected.
Assume two houses side by side one worth $10,000 and the other $5,000. It is easy to see that the owner of the $10,000 house received twice as much value from the fire protection service as his neighbor. Why then, should he not pay his share for this protection ?
Taxes are supposed to be collected on the basis of a fair valuation of property. It is therefore a simple conclusion that fire protection service can be paid for equitably as taxes.
No Relation of Property Value to Water Consumed
“That is all very well,” your city council will agree, “but it can be paid for just as equitably in the form of water rates, because the man in the $10,000 house uses twice as much water as his neighbor in the $5,000 house.” But does he actually? Positively no. He may use half as much, or four times as much depending on conditions. The big house may have two occupants, the small house may have eight. The large house may use less water on lawn and garden than does the small house. There is no relation whatever between the value of the property and the amount of water consumed.
“The fire protection service consists of having a water works system, including supply works, pumping station, mains and hydrants ready to concentrate at any moment a large quantity of water at any point in the system. This is a service which can not be measured by the gallons of water actually consumed in fighting fires, which is so small as to be negligible. The only fair way to measure this service is in terms of the value of property protected.”
Taking an actual example in the writer’s own city —a large office building worth several hundred thousand dollars is protected by seven fire hydrants within a half block. It has a fire line with standpipe and hose connections on each floor. It receives a tremendous value from the fire protection furnished by the water department as evidenced by its low fire insurance premiums. However, it has its own well and does not use a drop of city water.
“Assume two houses side by side, one worth $10,000 and the other $5,000. It is easy to see that the owner of the $10,000 house received twice as much value from the fire protection service as his neighbor. Why then, should he not pay his just share of this protection?”
A few blocks away stands a small building used as a laundry and assessed at approximately $25,000 exclusive of the value of the ground. The owner of the laundry obviously receives very little value from the fire protection service furnished by the water works as compared with the owner of the office building. However, he uses on an average of nearly a million gallons of water a month.
‘If fire protection service is paid through taxation, the office building and the laundry both pay for what they receive. If, however, it is paid as water rates the laundry is forced to pay not only for what it received but also a share of the cost of furnishing fre’e fire protection to the office building. This is obviously unfair and should not be tolerated by any city that pretends to work on a business-like basis.
Many Decisions in Favor of Payment By Taxation
That the cost of fire protection service should be paid by taxation is evidenced by large numbers of decisions which have been rendered on the question by the courts and by the corporation commissions of the various states. These decisions cover municipally-owned as well as privately-owned systems.
It is the writer’s belief that the superintendent who fails to arrive at a fair basis for fire hydrant rentals in his own mind, does so largely because the whole question is more or less closely bound up with the intricacies of accounting, valuations, and the entire subject of rate-making. He feels that these matters are entirely out of his line and are too technical for him to bother with.
However, when the superintendent has arrived at what he considers a fair basis, he usually discovers that the members of the city council are very little interested in such things as a proper distribution of the costs of operating the water works. As a rule they cannot see what difference it makes who pays the bill so long as it is paid and the public remains satisfied.
Three Methods of Computing Hydrant Rentals
There are in use at jTresent three general methods of computing the cost of fire protection service or hydrant rentals:
—The Comparative Method. By this method, figures are obtained from a large number of other cities, and an arbitrary charge is then made. This method is, of course, entirely unscientific, and the only thing in its favor is the fact that it costs very little in either time or money to obtain the desired information. It usually happens when this method is used that a compromise is effected between the councilman who believes there shall be no hydrant rental and the superintendent who struggles to make the charge as high as he can get it.
—The Excess Method. By this method the cost of a water system for the city is figured without any provision for fire protection service. The difference between this cost and the actual cost of the plant is taken as the investment for fire protection. To illustrate this, assume a water system costing one million dollars. A study shows that if this system had not been designed to provide fire protection it could have been built for seven hundred thousand. The excess cost for fire protection would then be three hundred thousand dollars. Under these conditions seventy per cent, of the cost of operating the system would be collected through water rates and thirty per cent, through fire hydrants rentals by taxation.
—The Proportional Method. By this method the cost of a water system without any provision for fire protection is first figured as in the excess method. Next the cost of a water system is figured for fire protection only, with no provision for commercial or domestic consumption. The relative costs of these two imaginary systems are then used to proportion the costs of operating the system between water rates and fire protection charges. To illustrate this method, assume the same system as above worth approximately one million dollars. The cost of a system for supplying domestic and commercial consumers with no provision for fire protection would cost seven hundred thousand. A study shows that a separate system designed to furnish fire protection alone would cost five hundred thousand dollars. In this case water rates would care for seven-twelfths and fire hydrants rentals for five-twelfths of the total cost of operating this system.
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How to Figure Hydrant Rentals
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Both the excess and proportional methods can be supported by logical arguments. Both are used before the various state corporation commissions.
Equitable Charge for Fire Protection Service
The writer recently made a study to determine an equitable charge for fire protection service in Oklahoma City. Both the excess and proportional methods were used in this study.
It was found that a system designed to furnish no fire protection would require a smaller pumping station and less equipment, smaller and fewer mains, no fire hydrants, and fewer valves, than the existing system. The pressure in the mains could be materially reduced if fire protection were not considered and lighter weight pipe used in many places.
“Taxes are supposed to be collected on the basis of a fair valuation of property. It is therefore a simple conclusion that fire protection service can be paid for equitably as taxes.”
In systems designed for fire protection only, we found that our enormous storage reservoir could be supplemented by a few wells and small concrete basin. Expensive steam pumps and boilers could be replaced by reasonably priced gasoline driven pumps. The filtration plant could be dispensed with, as could some of the mains in the existing system.
Interest and sinking fund charges were supplied to the costs of these theoretical plants and the estimated costs of operation were set up to operate these plants, using actual costs of previous years as a basis for calculation.
Results of Investigations
Our investigation gave us tbe following results: Total budget for the year including interest on bonds, sinking fund, operation and maintenance, $662,000.
Amount to be raised by taxation to cover fire protection service, (a) by the excess method, $120,000: (b) by the proportional method, $180,000.
The amount actually used for fire protection service in the budget was $160,000 which is twenty-four and two-tenths per cent, of the annual costs of the department. This amount, divided by the number of fire hydrants in use gives a hydrant rental charge of $136 annually.
In general, the smaller the city, the greater the proportion of the annual cost of the water system should be borne by the fire protection charge. In some cases sixty per cent, or more is chargeable to fire protection. In fact, most water systems were originally built, not primarily for serving domestic consumers, as many believe, but for fire protection.
Basis Believed Fair and Reasonable
The writer believes that the basis arrived at for Oklahoma City for furnishing fire protection is fair and reasonable in every way. If the amount appears large at first glance, it must be remembered that it costs more money to obtain a satisfactory water supply in Oklahoma than it does in some parts of the country. Furthermore, Oklahoma City has developed in such a short period that all of its water works are still outstanding. It therefore requires high interest and sinking fund charges in comparison with older and slower growing cities.
In a paper of this kind it is very difficult to make all points clear without giving an immense amount of details. The writer has, therefore, merely attempted to give a few of the best reasons why every water works should be paid for fire protection service, and to give a brief outline of a successful method of arriving at a fair amount to be paid for such service.
(Excerpts from paper read before the twelfth annual convention of the Southwest Water Works Association, Wichita Falls, Tex.)