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MSD Exhibit No. MSD 115A
2015 Rate Change Proceeding
BRIAN L. HOELSCHER
Surrebuttal Testimony
Metropolitan St. Louis Sewer District
June 5, 2015
Page
Proposed Changes in Per Fixture Usage Volumes for Unmetered Customers 2
Use of Property taxes to Fund the Public Storm Sewer System 3
Integrated Planning 5
Surrebuttal Testimony of Brian L. Hoelscher, MSD June 5, 2015
1 PROPOSED CHANGES IN PER FIXTURE USAGE VALUES FOR UNMETERED
2 CUSTOMERS
3 Q1. On page 16 of Michael Gorman's Rebuttal Testimony, Exhibit MIEC 102,
4 Mr. Gorman proposes to maintain the per fixture usage values that are used to
5 calculate wastewater volumes for unmetered customers. Why did MSD review the
6 per fixture usage values used to calculate the monthly wastewater charges for non-
7 metered customers?
8 A. The per fixture water usage volumes used to calculate the monthly wastewater charges
9 for non -metered customers was the subject of the Missouri Growth Ass 'n v. MSD, 941
10 S. W.2d 615(Mo. App. E.D. 1997) whereby the Missouri Court of Appeals held "for non-
11 metered customers, the consumed volume charge is determined by using water
12 consumption figures based on the number of rooms and fixtures on their property...".
13 MSD has an obligation, pursuant to the MSD Charter Section 7.270(5) and Missouri's
14 Hancock Amendment, to review whether the water usage volume figures being applied to
15 rooms and plumbing fixtures were still accurate. The methodology provided in the Rate
16 Proposal provides an evaluation of the per fixture water usage volume figures, which
17 maintains compliance with the MSD Charter and the Missouri Growth Ass'n v. MSD,
18 941 S.W.2d 615(Mo. App. E.D. 1997) case. This evaluation results in a proposed 9%
19 decrease in the per fixture water usage volumes.
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2015 Rate Change Proceeding 2 Exhibit No. MSD 115A
Surrebuttal Testimony of Brian L. Hoelscher, MSD June 5, 2015
1 USE OF PROPERTY TAXES To FUND THE PUBLIC STORM SEWER SYSTEM
2 Q2. Both Mr. Gorman in his Rebuttal Testimony Exhibit MIEC 102 and Ms. Lemoine in
3 her Rebuttal Testimony Exhibit RC 101 recommend the use of an impervious fee to
4 recover the cost of the proposed stormwater services. Why does MSD recommend
5 the use of property taxes?
6 A. I had addressed this in my initial testimony (Exhibit No. MSD 3A), but would like to
7 expand on MSD's position in light of the rebuttal testimony. Discussions regarding how
8 the proposed stormwater property taxes are a fair and reasonable method of paying for
9 the operation and maintenance of the public stormwater system will be addressed in
10 surrebuttal testimony by Mr. William Stannard. Discussions regarding what those
11 revenues will fund and the cost to maintain and operate an impervious fee system will be
12 addressed in testimony by Mr. Rich Unverferth. I will address the cost of implementation
13 differences between MSD's proposed property tax method and an impervious fee method
14 as recommended by rebuttal testimony.
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16 Q3. What are those differences?
17 A. There are four main differences; how not for profit entities are treated under both
18 scenarios, the differences in costs of operating and maintaining the various systems, the
19 fact that the property taxes will be deductible for many taxpayers, and state regulations
20 that can reduce the number of residents who would be required to pay the impervious fee
21 charge. Keep in mind that the purpose of the proposed property taxes will be to raise less
22 than $25 million annually for the operation of the public stormwater system (manholes,
23 inlets, storm sewers, and concrete paved channels). The proposed tax is primarily an
24 attempt to establish a method to collect money on a District wide basis to address the
2015 Rate Change Proceeding 3 Exhibit No. MSD 115A
Surrebuttal Testimony of Brian L. Hoelscher, MSD June 5, 2015
1 operation of the public storm sewer system, not to resolve all stormwater issues. If the
2 rate payers eventually want to consider additional services, the District will address
3 additional funding at that time.
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5 1. First, one of the major advantages of an impervious fee method that appeared to exist
6 when MSD originally proposed an impervious fee method 8 years ago was that not-
7 for -profit entities that generated stormwater would be included in the fee. With the
8 recent ruling by the Missouri Supreme Court in Zweig v. MSD, 412 S.W.3d 223 (Mo.
9 Banc 2013) regarding MSD's proposed impervious fee , MSD is unsure that not -for -
10 profits entities would participate in a voted on impervious fee.
11 2. Second, as will be detailed in Mr. Rich Unverferth's surrebuttal testimony, the cost to
12 operate and maintain an impervious fee system is about $1 million/year more than a
13 property tax system, or 4% of the anticipated revenues.
14 3. Third, property taxes would be deductible for many of our tax payers at
15 approximately a rate of 20-30% considering State and Federal tax rates.
16 4. Finally, after the passage of the previous impervious fee, the Missouri General
17 Assembly passed a law, known as H.B.661 which exempted approximately 3500
18 customers from participating in the fee because they were residents not receiving
19 wastewater service and their stormwater run-off did not entered any part of MSD's
20 public storm sewer system. This law went into effect on August 28, 2009 and was
21 codified as R.S.Mo. Section 204.700. There is nothing to prevent future legislation
22 from being passed that exempts even more residents for similar reasons. The property
23 tax method would be protected from such legislation by the Missouri Constitution.
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2015 Rate Change Proceeding 4 Exhibit No. MSD 115A
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Surrebuttal Testimony of Brian L. Hoelscher, MSD June 5, 2015
In conclusion, taking all of these unknowns and factors into consideration I feel that
considering the amount of revenue being requested and the type of services being paid for
that the use of a property tax system in this instance is a correct policy choice by MSD.
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5 Q4. What type of revenue collection method do you see in the future?
6 A. If in the future MSD's ratepayers decide they wish to consider paying for additional
7 services beyond what is being considered in this rate cycle, I would consider it
8 appropriate at that time to consider all potential methods of raising the needed revenue.
9 When MSD originally proposed an impervious fee system 8 years ago, a total program
10 cost of approximately $80 million dollars was originally envisioned to pay for all kinds of
11 services; regulatory, operation and maintenance of the public stormwater system, and
12 mostly funding to resolve other stormwater issues such as flooding and erosion, as well
13 as other services. I believe that any future program that is larger in size and breadth of
14 services may be better funded by a revenue system other than property taxes.
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16 INTEGRATED PLANNING
17 Q5. In Question 26 on page 13 and 14 of Ms. Lemoine's rebuttal testimony Exhibit
18 RC 101, she suggests that MSD consider using an integrated planning framework to
19 seek relief in terms of schedule and/or program components. Has MSD done so?
20 A. The concept of prioritizing the cost of regulatory needs within MSD's financial capability
21 was considered during Consent Decree negotiations. As a result many Sanitary Sewer
22 Overflow (S SO) removal projects were allowed to be completed near the end of the
23 consent decree to allow MSD the opportunity to resolve these issues as cost-effectively as
24 possible, implementation of much of the Long Term Control Plan was delayed until later
2015 Rate Change Proceeding 5 Exhibit No. MSD 115A
Surrebuttal Testimony of Brian L. Hoelscher, MSD June 5, 2015
I in the program until much of the SSO Master Plan was completed, and MSD negotiated
2 the use of $100 million of green infrastructure to address Combined Sewer Overflows
3 (CSO) in lieu of an approximately $1.5 billion tunnel system along the Mississippi River.
4 Since the execution of the Consent decree, MSD has used the concept of Integrated
5 Planning in negotiating new stormwater regulatory requirements and plans. In short,
6 MSD has taken the position that we need to see the impact of our consent decree work on
7 the water quality of local creeks and streams before additional requirements are placed on
8 our current stormwater regulatory programs. MSD has coordinated with and included
9 affected stakeholder groups in our discussions with the Missouri Department of Natural
10 Resources (MDNR) on this issue. MSD plans to include the concept of Integrated
11 Planning in any future discussions regarding additional regulatory requirements from the
12 EPA or from MDNR.
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14 Q6. Does this conclude your surrebuttal testimony?
15 A. Yes it does.
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2015 Rate Change Proceeding
6 Exhibit No. MSD 115A