By Matthew Hirsch

San Francisco's aging and underfunded sewer system buckled under a torrential downpour four months ago, flooding city streets in a river of human excrement.

Residents from the Mission and Excelsior Districts who saw raw sewage float through their neighborhoods and into their homes responded with outrage, crowding San Francisco Public Utilities Commission meetings to demand some accountability.

This surging interest in city sewers came just as PUC staff proposed a substantial sewer-rate increase, the first since 1998, when voters imposed a freeze on sewer and water rates (which voters then removed in 2002).

PUC commissioners were twice deadlocked over the 11 percent increase before approving it at a June 15 special meeting. But the issue may not be gone for long: a powerful group of dissidents is now gathering signatures for a voter initiative that will limit future rate increases to the rate of inflation.

Popular frustrations over paying for a sewer system that's desperately in need of repairs are understandable. Yet what's harder to fathom is how the extensive media coverage of the sewer flap failed to identify those most responsible for the problem.

Wealthy individuals have enjoyed the lowest rates, and large corporations have been able to evade basic fees most California cities change to use the sewer system, leaving residents of the Mission and other low-lying areas to pay the price when it breaks down.

The PUC took a step forward this month by establishing a legitimate low-income discount on sewer rates after years of giving the city's richest residents the "lifeline" discount. But then it chose to continue the huge giveaway to developers, one that costs the beleaguered sewer operation millions of dollars a year.

Corporate welfare

State law allows public utilities to charge developers a fee for the added strain new construction creates on the local sewer system. This one-time charge, known as a capacity fee, should roughly equal the estimated cost of providing sewer service to new development, or it can be even more if approved by voters.

Yet San Francisco doesn't even charge developers the basic capacity fee, let alone the higher one that might help city finances or bring the sewer system up to date.

A 2004 statewide survey produced by consulting firm Black and Veatch showed that the average capacity fee in California is $2,601. The amount varies significantly by city, according to the survey, and has increased steadily over the past 12 years.

Black and Veatch, reporting last October on San Francisco's sewer rates, made numerous recommendations for restoring the wastewater operation to financial health, including a $1,012 capacity fee for new development. The fee would be applied in proportion to the size of the development so that small homes and apartments pay the least and skyscrapers pay the most.

The goal of the capacity fee, according to Black and Veatch, "is to ensure that growth pays its own way."

The consulting firm also proposed boosting rates 30 percent this year, which the PUC revised to three consecutive 11 percent increases, and it discussed revising rates to include a discount for low-income users. In other words, rich people, like developers, should pay their own way.

The existing "lifeline" rate, sometimes confused with a low-income discount, applies to the first three units of wastewater billed a month (one unit equals 748 gallons), and it's credited to every residential customer in the city regardless of income.

As PUC commissioner Adam Werbach noted May 25, this means the "lifeline" discount applies to billionaires in addition to poor and working-class families. In approving the rate hike June 15, the PUC also voted for a real, 15 percent low-income discount, but staff has yet to figure out how to get the deduction to customers in multiunit apartments where landlords usually pay the bill and factor the cost of sewer service into the rent.

Pro-development policy

PUC staff also supported the idea of a capacity fee but held off on recommending it for commission approval until the end of the year. There were too many questions that needed to be resolved, according to Jean Mariani, acting PUC assistant director for business services. The Rate Fairness Board, which advises the PUC on sewer rates, didn't object to the delay.

In a June 4 memo to the Rate Fairness Board, Mariani questioned the PUC's authority to adopt a capacity fee, even though most other California cities charge them. She also wondered in writing whether it's consistent with citywide development policies that are designed to promote growth.

If approved, who will pay, Mariani asked, and will developers be granted sewer access permits they can then sell on the open market?

"Since capacity fees are intended to compensate the utility for investment in capital assets, revenues from such fees are customarily dedicated to capital investment activities, rather than operating expenses," Mariani wrote in the memo.

Basically, Mariani laid out every reason not to think of capacity fees as a way to soften the blow of a rate increase. And she's partially right. Money raised from capacity fees shouldn't be spent the year they're collected, but they could pay for future projects the PUC would otherwise have to issue bonds to build.

PUC staff estimate the proposed $1,012 capacity fee would generate about $2 million in annual revenue, based on development data from the past decade. Had the PUC been charging the fee over that time period – even at a rate well below the state average – it may never have had to expend reserves to fund operations and maintenance.

Joan Girardot, former president of the Coalition for San Francisco Neighborhoods and chair of the group's water task force, is a huge believer in capacity fees. She recently voted with the water task force in favor of two types of capacity fees and expects the coalition to add its support next month. To Girardot, the proposed $1,012 fee seems too low.

"Existing ratepayers should not have to pay for expansion and improvements to the system to handle new development that's coming in. It's an issue of fairness," Girardot told the Bay Guardian.

Girardot wants the PUC to look at all the construction that went on during the Willie Brown administration to see how much money the city squandered by not charging capacity fees. Girardot described the one time Brown charged a developer for use of the sewer system – a $5 million deal with Mission Bay developers to send waste to the southeast wastewater treatment plant – as a giveaway.

The rate revolt

It's important to grasp some history of San Francisco's wastewater system to understand the upward pressure on sewer rates, which were about $25 a month for single-family residential customers before the rate hike and are just over $28 now.

Prior to 1976, revenues from the General Fund covered all the costs of wastewater collection, treatment, and disposal. There were no sewer rates as we now know them, but the system was also much less effective, with a lot more pollution reaching the Pacific Ocean and the San Francisco Bay.

The San Francisco Board of Supervisors in 1976 approved separate sewer service charges to secure financing for a massive overhaul of the system. The investments would bring San Francisco in compliance with the rigorous federal Clean Water Act of 1972.

Any way you cut it, the benefits of a modern wastewater system have been undeniable. Residents got a system that can handle as much as 465 million gallons of wastewater a day for less than the price of parking.

"Sure, it's cheaper to dump raw sewage into the bay. That's what we used to do, and we learned it was a bad idea," Dr. Peter Gleick, president of the Oakland-based Pacific Institute, told us.

Gleick's views on pollution control are commonly shared in San Francisco, but not everyone is as upbeat about letting the PUC manage its finances.

Several opponents of the rate increase expressed deep concern about PUC audits due out next year that may point to waste in the agency's budget. Others, including people of all political persuasions, wanted to see a master plan for the sewer system.

"To ask for a rate increase without a long-term strategic plan is asinine, because you give them the money and they blow it," Richard Bodisco, author of the 1998 rate freeze, told us.

The rate freeze came after the PUC had raised rates 13 times during the previous 19 years. But Bodisco said it had nothing to do with the rates themselves. Instead, he attributed it to voter outrage over the constant stream of large money transfers flowing from the PUC to the city's General Fund.

"It was a stop sign," Bodisco told us. "What we were telling them was, 'Stop giving the money away. Fix the problem with the money you've got.' "

Sup. Gerardo Sandoval, chair of the Board of Supervisors' Budget Committee, saw firsthand the disastrous effects of a faulty sewer system. It was his district that was hit hardest by the February flooding.

Even so, Sandoval isn't calling for cuts to the PUC budget or limits on future rate hikes. He wants accountability and oversight – and to know that all customers, including developers, are paying their fair share.

"There's certainly no shortage of infrastructure improvements that need to be paid for," Sandoval told us, "and it would add a certain sort of elegance to impose a tax on developers for infrastructure in working-class neighborhoods."

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