Council already in support of more transparent funding of King County utilities, as recommended by new state audit

September 16, 2009

Summary

Even more savings at Solid Waste identified by County than by audit

Story

Councilmembers Larry Gossett, Larry Phillips and Julia Patterson issued the following statement in connection with the Performance Audit Report from State Auditor Brian Sonntag examining King County’s Solid Waste and Wastewater Treatment Divisions:

Performance audits are a valuable tool to identify savings and efficiencies, and the King County Council is completing one of its own that found $105 million in Metro fleet replacement reserves that can be safely used to keep bus service on the streets.

The document released today on King County utilities recommends some efficiencies that we will pursue with the Executive branch. Other findings do not appear to acknowledge savings already identified by the County or fully grasp the realities of running a landfill.

We share the desire to keep utility rates as low as possible for our customers. King County solid waste disposal rates are among the lowest in the region – lower than in Seattle and Snohomish County – and we have kept them below the rate of inflation over the past decade. Our sewer rates have reflected growth in the cost of the tremendous amounts of electricity needed to run treatment plants, the start of new secondary treatment operations at West Point, and the expansion of regional capacity with the new Brightwater plant.

We appreciate the Auditor's commendations in 22 areas where he recognizes that King County employs leading practices in the management of the utilities. We also thank the Auditor for the courtesy of individual briefings before release to the public. We held an immediate public hearing on our response to the audit findings at our Committee of the Whole meeting in Council chambers this morning, Wednesday, September 16, with a continuation of the public hearing next Monday, September 21, at 9:30 a.m.

Accounting study already requested to document cost allocation

The allocation of central services and governance costs to departments and utilities is a practice that required by the state Accountancy Act, which says that one fund cannot benefit another. It is consistent with the recommendations of outside consultants including Deloitte Touche, who conducted an independent assessment of King County in 1994.

The Council already called last June for an equitable and transparent means of allocating the costs of governance to departments, when we adopted a motion directing the Executive to achieve “best practices” in developing a cost allocation model for the 2010 budget proposal he will deliver on September 28.

The Auditor’s concern is about record-keeping, not the merits of the allocated costs. It’s essentially a disagreement between accountants over how to document the true value of the management and oversight provided by publicly-elected officials and their staff. The new accounting study will address this concern.

The public is paying less now for the governance of its county utilities than it did under the old federated Municipality of Metropolitan Seattle (METRO) that used to oversee transit and wastewater. Under the old METRO, the inflation-adjusted overhead costs for Water Quality were $14.8 million and $34.9 million for Transit. Under the Council-Executive form of governance that voters approved when they merged King County and METRO in 1993, those costs are now $2.4 million for Wastewater Treatment and $15.4 million for Transit.

We find it extremely inappropriate for the Auditor to make the value judgment that utilities are “overcharged” or that they “pay more of these costs than they should,” especially when the Auditor acknowledges in our meetings with his staff and in the audit summary itself that the value of the services provided by the Council and Executive may be found to equal or exceed those costs that were allocated to utilities.

In fact, the Auditor’s recommendations would lead to money from the general fund, supported by the property tax, improperly subsidizing the utilities, which should be supported only by ratepayers. Under this scenario, for example, property taxes from a homeowner in King County would be underwriting ratepayers in Snohomish County, who are among those whose wastewater will be treated by the Brightwater plant.

Finally, we find the aggregate figure of $60 million offered in the audit to be highly misleading to the public. Instead of presenting an annual figure that can be compared to other annual figures, the audit publishes an arbitrary number that rolls up five years for dramatic effect. When we challenged the auditors directly on this, we were disappointed at their reply that “this is just the way they do business.” The number even includes figures for King County Metro Transit, which was outside the scope of the audit.

Plans are already in place to save even more money than the audit suggests at the Cedar Hills landfill

While the Auditor recommends taking action on potential cost savings at the Cedar Hills Regional Landfill, it’s worth noting that the consultant who actually conducted the audit recommends only conducting some engineering analysis. The proposed benefit also does not include the real costs of achieving it.

The suggestion that we extend the life of Cedar Hills in order to save the annual costs of exporting garbage is in itself a good one. That’s why the Council two years ago adopted a plan directing the Solid Waste Division to look for ways to expand landfill capacity.

The audit suggests $31.1 million over five years in savings can be had through what’s known as leachate recirculation. The alternatives in the Solid Waste plan now under review could save ratepayers up to $113 million and extend the life of the landfill 15 years past its formerly forecast closure date of 2016. The County’s plan would accomplish this by exploiting the natural breakdown of garbage and packing it in tighter up to permitted heights, and building new disposal areas within the existing space.

The action recommended by the audit is one that is not environmentally responsible. The Auditor calls for making garbage decompose faster through the industry practice of capturing the contaminated water that trickles down through the refuse and recirculating it back up over the top. What the audit does not recognize is the reality all landfill operators must face: the balance between potential savings and the impacts to their neighbors. As you might imagine, this so-called leachate water carries a distinctive odor, and recirculating it might work if the landfill were located in a remote rural area. But Cedar Hills is located on three sides by residential homes in Maple Valley, taxpayers have already paid to settle a lawsuit relating to landfill odor, and Solid Waste has made a commitment to neighbors to keep the air clear.

The audit recommendation wouldn’t save money either. To install leachate recirculation pipes would require ripping off the cap that covers a closed area of the landfill that cost $24.7 million to build, then pay another $24.7 million to install another cap – plus the millions in costs for the recirculation system itself. Cedar Hills does not need extra water; it receives five feet of rainfall every year, far more than in the other states on which the leachate studies relied upon by the Auditor were made.

The Auditor’s recommendation to relocate the fleet maintenance shop at Cedar Hills is one that Solid Waste gave to him – for two years the division has been exploring the idea of making room for more garbage by moving the maintenance facility for garbage trucks and bulldozers to the buffer zone on the south end of the landfill.

However, the claim that $25 million can be saved by moving the maintenance shop is misleading because it wouldn’t be realized for 16 years – the land on which the shop now sits won’t be needed to bury garbage until the year 2028. Even then, the savings claimed fails to include the corresponding cost of moving the shop and building a new one.

An audit of the Auditor

Given some of the questions we have about this particular audit, we are calling on the King County Auditor to conduct a study of the process and substance of this performance audit, and report back to the Council.

Areas in which Council will monitor Executive follow-through

On other issues raised by the audit, the Council has set policy direction in the past for the Executive, and we will be monitoring the Executive closely to ensure follow-through, especially on those recommendations on the control of overtime, preventive maintenance for fleet vehicles, the use of biogas to generate electricity, the sale of biosolids for fertilizer, and protection of the integrity of electronic data.

View the PowerPoint presentation given in response to the State Audit