Journal Sentinel Story Doesn’t Hold Water

The headline suggested some kind of scam: “Milwaukee siphons water revenue to general fund.” The Milwaukee Journal Sentinel story went on to tell us a study of water utilities by the state Public Service Commission found “A large portion of a customer’s water bill is actually being paid to support local government operations rather than water production and distribution.” Readers were left with the impression the study had concentrated on Milwaukee’s utility, which appeared to be doing some very sneaky stuff.

In fact, this was a state-wide study which spent little time discussing Milwaukee and found that 61 other water utilities in the state are also doing exactly what Milwaukee does. The reality is that Milwaukee actually has lower rates than other water utilities in southeastern Wisconsin and that it “siphons” off a lower percentage of water utility revenues than others in the region.

Milwaukee, by the way, has been doing this for more than a century, and state law allows municipalities to collect a payment in lieu of taxes from their water utilities, the theory being that the utility pays no property tax but benefits from city services like police, fire, garbage pick-up and snow plowing. In 2011, Milwaukee charged its water utility 13.9 percent of its revenues.

That seems pretty hefty but it’s far less than other utilities pay, as the PSC study shows: Germantown’s water utility pays 25.9 percent of revenues, Brookfield’s pays 24.4 percent, Franklin’s pays 21.3 percent and the Menomonee Falls and Oak Creek pay more than 18 percent. There are 13 municipalities in the region “siphoning off” more water utility revenue than Milwaukee. And if you go beyond the region, you could write about the Ironton Water Utility in Sauk County, which pays 66 percent of revenues as a payment in lieu of taxes.

Why then, is Milwaukee the only municipality discussed in this story? I can only speculate. The reporter, Don Behm, has always struck me as a straight arrow who I can’t recall ever betraying any anti-Milwaukee bias. My guess is this was a call by the editors. Many suburbs — where the newspapers’s editors mostly live — buy water from Milwaukee and periodically complain about Milwaukee’s water rates. And Milwaukee intends to ask the PSC for permission to raise its rates. This story helps undermine the credibility of the city’s request.

Precisely why the PSC study was done now is unclear. It probably reflects the fact that its board membership has changed since Gov. Scott Walker began making appointments, and has different priorities. It’s certainly a legitimate issue.

The study presents evidence that these payments exceed what a private utility might pay in property taxes. As the Wisconsin Industrial Energy Group noted in its comments in the study’s appendix, the payment in lieu of taxes increases costs for local businesses, and in particular “has harmful impacts on those Wisconsin businesses that rely the most on municipal water service.”

On the other hand, the League of Municipalities in its comments noted several reasons why the current system makes sense. Among those are that these payments, by raising the cost of water, give municipalities a way to charge something to tax-exempt properties — non-profits that pay nothing for city services.

As it happens, no municipality has more tax exempt properties than Milwaukee. As of 2008, city tax assessor Mary Reavey estimated that 20 percent of all non-government property value in Milwaukee was tax-exempt and if you added in government property — like schools, first stations and parks — that figure rose to 33 percent of all property value in the city. The state legislature has historically been easy to lobby for permission to become tax exempt and Milwaukee gets stuck with a loss of property taxes. The water bill at least gives Milwaukee a chance to charge all these tax exempt entities something for the city services received.

The League of Municipalities also noted that local governments have seen big reductions in state shared revenue in the last decade, which has made them even more dependent on other sources of revenue. Here, too, Milwaukee is a textbook case, having seen its state shared revenue drop by 36 percent since 1995 in real dollars, as I’ve reported.

The PSC study points to a potential problem with the payments in lieu of taxes made by utilities, that this may cause them to divert money needed to repair and maintain their pipes and infrastructure. The study presents no evidence to prove this is happening, but the JS story attempts to prove there is a problem in Milwaukee.

Thus, Behm presents evidence that that city spent less to repair water mains in 2010 to 2012, and fell short of its usual goal of repairing 10 miles of water mains per year.  However, Behm focused on a period that the city was experienced a lower level of broken mains; the five-year average for broken mains had dropped from 709 in 2003 to 517 in 2012. Hence its repair needs had declined.

Moreover, you again have to ask, why was Milwaukees’s the only utility examined in this regard? The story never looks at the rate at which water utility infrastructure is being repaired in municipalities like Germantown, Brookfield or Franklin, which grab a much higher percentage of their utility’s revenue. In a letter to the Journal Sentinel, Mayor Tom Barrett and Ald. Michael Murphy accused the newspaper of “unbalanced and biased reporting… You have to ask, was the intent of the story and the headline only to make the City of Milwaukee look bad?”

It certainly looks that way.