As you know I have been a stalwart opponent of MSD and their debt structure. MSD is bankrupting and will continue to bankrupt us if we do not get control soon. They are so far out of financial control that State House Reps like Linda Belcher, and others, are trying to force HB 221 through the House and the bill has already been prefiled for next session.
You can read more here on HB 221: Louisville News and Politics: ABRAMSON AND SCHARDEIN PULLING THE WOOL OVER KENTUCKIANS EYES
Wonder why they need this regionalization? Just follow the money. Abramson running with Beshear for Lt Gov is so that he can abuse State money now to cover his incompetent losses in Louisville.
Recently, the Future Fund requested an audit from State Auditor Crit LuAllen that I touched on here: Louisville News and Politics: MSD AND THE CJ: LET THE SPIN BEGIN!
Since then I received the entire report from Future Fund. You can write me here at firstname.lastname@example.org for a copy.
Though there are some bloggers who prefer to downgrade the facts of Future Fund's arguments because of a personal vendetta against Steve Henry in this case I will let the facts speak for themselves.
Future Fund has done an excellent job laying out exactly the same things folks like Ray Pierce and Paul Holliger of STOP I.T., the guys with the current lawsuit against MSD for illegal rate increases, and myself who have been fighting this fight for many years now.
Future Fund welcome aboard. This fight is too crucial for Louisville's future to allow politics to be the thrust of the argument. So while there are some who refuse facts because of personal bias this article will give you an insight into Future Fund's allegations.
I warn you now it is long because I decided to post lengthy segments instead of opting for a pdf file. Enjoy.....
A Tale of Two Cities, from 10,000 feet
From Louisville, from a couple miles up on a clear night you can see the glow of
Lexington on the eastern horizon. Both are big cities in the same state with very different long views that carry very different bottom lines and very different approaches to planning and paying for what they do.
Forget for a moment everything but the money.
Forget good governance, forget integrated planning, forget plan first then build smart, forget federal consent decrees and guilt and fines, forget 4000 acre gifts of Parklands on Floyds Fork, forget the long view– focus on just the money.
Forget mission and metrics and lean and green and triple bottom line. Forget the realities on the ground; forget to listen to the neighborhoods and the neighbors and every expert that’s looked at Floyds Fork since Mitch McConnell and The Mayor were political pups.
Forget the Floyds Fork DRO, who came first, forget health warnings on our streams focus on the money – all 3.7 billion dollars of it.
We have. It scared the hell out of us. We thought the least we could do was try to make the story engaging.
Louisville, according to its 2009 CAFR, has around 713,000 citizens. Louisville Metro
and its component units in Jefferson County apparently owe in long term debt and
interest $ 3,691,892,000. That’s $3.69 billion or $ 5177.97 for every man, woman or
child in the county. Something point something billion, remember? It’s a big number and you can’t find it rolled up in Louisville’s financials anywhere, you have to calculate it.
That rolled up dollar figure of debt for every man woman and child - Lexington has used it as a public measuring stick for years. If you don’t measure it, you can’t change it.
Lexington’s 2009 CAFR spells it out its debt load clearly, $1665 (with interest) we
estimate for each of its 279,044 citizens. Without interest they estimate it will be about $1175 or 2.2% of its citizen’s personal income. Year before it was $ 816 per capita. They really beefed up the fireman’s pension fund last year along with integrated bonding for everything else Lexington does.
Lexington does integrated planned, it set an urban services boundary years ago, spends millions to purchase development rights, has a greenway plan, not because it’s touchy feely, they do it because it’s smart and it pays. It protects the budget and what makes Lexington Lexington – horse farms, prime agricultural lands, downtown, developers, and the environment. They bond roads and sewers and parks and fire and police all at once.
They focus on the urban core, and pay outlying landowners to protect the land that
Lexington wants to protect. They set bond reserves and have one financial point of focus on debt. They actually manage it. By and large they get it. We, in Louisville, apparently
We added interest when we ran the numbers. Interest is interesting. Our banks and your creditors look at principal and interest loads when they look at our financial stability.
Governments carry interest on the books as a cost of doing business, in the back of their financial statements. Principal is carried up front, top line. Component units of government do too. Makes us wish somebody added this all up a long time ago – half billion here, a billion over there – pretty soon we’re talking “real money”.
Component Units of Government.
There’s a phrase for ya. It would make one think the components are but one part of one government, under one leader, with a common vision and a common set of goals. The
sum of the parts is greater than the whole and all that. In large measure Lexington is run that way. The citizens are at the top of the organization chart, and the financials and press releases have an integrated community feel. All of Lexington’s component units combined comprise less than 30% of Lexington’s total debt.
Louisville has a component unit whose debt dwarfs that of Metro Louisville, it’s MSD,
and they run really expensive bonding schemes. In Louisville it turns out that the
principal debt load of one component unit of Louisville government – MSD – is 66.5% of Louisville total debt. Its debt load is 3.4 times that of Louisville Metro, without interest.
With interest, MSD’s debt is 8 times that of Metro’s. We told you interest was
It’s all hidden in Plain Sight – If you’ve got a good internet connection, a spreadsheet and a months worth of nights to add it all up.
Financial statements are interesting too. At 100-175 pages each the trust waded thru 20 years of MSD’s finances and the last decades’ for Louisville and Lexington.
Financial statements are actually incredibly interesting. What they tell you is where the money goes, and at what cost, and where a cities or an agency’s actual priorities lie – where they actually send the money they raise and borrow and what and how and how much they pay for it. One can gauge - No, One can actually measure philosophy, intent, frugality, prescience, planning and commitment and a host of other insights from financial statements, as well as measure the money. They tell us where our government puts our money.
As far as we know this is the first look per capita in a long time of the impact of the entirety of Louisville’s borrowing and what it costs Louisvillians, maybe ever. It makes farmers and businessmen and bottom line and long view thinkers wonder why.
The Future Fund, Inc. prefers to spend it’s time and resources on land – looking at maps, deeds and the the like. For a decade and a half we have been ably helping assemble what the consultants say is the largest urban park and open space network in America.
We have also kept a watchful eye on process and planning and the present situation. We have made a series of coordinated decisions to publically advocate for thoughtful
integrated design for the Floyds Fork corridor, to defend our property interests, and as an unexpected consequence of our investigations and due diligence on sewer concerns and in keeping with our charter to plan for perpituity we are issuing this call for coordinated planning, fiscal restraint and clarification.
MSD has and continues in its annual reports since the ~ $ 850 million in federal consent decrees for Jefferson County, KY to state:
• MSD 2005 CAFR “In the opinion of MSD, the resolution of any violations [related to Consent Decree] will not result in material adverse affect on the operation, property or finances of MSD.”
• MSD 2009 CAFR “In the opinion of MSD, the resolution of any violations will not result in material adverse affect on the operation, property or finances of MSD.”
MSD has added $2.4 billion dollars worth of bond debt to the rate payers doorsteps since 1990, and, the trust believes that it has and will continue to have a “material affect”…
Add to that another $½ to ¾ Billion in pending consent decree costs and MSD believes it too when chief engineer Mark Johnson states at a recent open house that MSD won’t be able to afford to build sewers until 2024. Mr. Johnson apparently missed the date by 15 years. MSD’s current debt (our debt) is leveraged until 2039. There’s another half or ¾ billion dollars in principal coming, with interest on top.
What Louisville doesn’t say, any where near as clearly and on the record as Lexington is what the consent decree will really mean to Louisville. Lexington does, right up front, under contingent liabilities along with all the other lawsuits and legal actions pending.
Lexington’s CAFR will also tell you that next year they will spend $40.65 million of a $506.381 million dollar budget on the consent decree, or about 8%, on top of business as usual.
Lexington also reacted swiftly to the consent decree to realign government and
governance. “The Department of Environmental Quality was established as a new
department in the July 1, 2007 reorganization, in part as a reaction to the impending
Consent Decree with the U.S. Environmental Protection Agency (EPA) (to be discussed
later in this document). The Department was created by reassigning select employees
from existing divisions including Engineering, Planning, Risk Management, and
Environmental and Emergency Management to the new department as well as all of the
employees in the Divisions of Sanitary Sewers and Solid Waste. The department
consolidates environmental functions together under one umbrella, allowing LFUCG to
take a more streamlined, focused and effective approach to protecting the environment.
The Divisions in the new department are Environmental Policy (new), Water and Air
Quality (formerly Sanitary Sewers) and Waste Management (formerly Solid Waste).”
Lexington gets it – The mayors response to their consent decree was a refreshingly honest emergency address to explain where Lexington broke the law and how they were going to pay for it.
There is a risk management specialist on Lexington’s new environmental quality board.
¼ or ¾ billion dollar hits to governments’ budgets due to regulatory noncompliance and apparent inattention are really big risks. It pays, big time, to manage them. Taking fractional billion dollar hits and then essentially doubling them thru expensive borrowing ought to get a risk manager and the public utility commission assigned to the case as well.
Don’t believe us – believe MSD,
Between 1985 and 1995, for example, the Louisville and Jefferson County (KY)
Metropolitan Sewer District spent more than $500 Million “addressing infrastructure
deficiencies related to poor or misaligned planning and zoning policies,” and has
continued to spend more public funds correcting those same problems since then.
Add to this the ¾ Billion dollars or so of current consent decree mandates that MSD has begun running up on their rate payers credit cards and we trust the public begins to get a sense of our concern and call for an integrated approach to Floyds Fork and environs.
It was MSD’s potential condemnation action that caused the trust to take a close look at how MSD’s and metro’s actions have and might continue to impact Louisville and the decade and a half’s worth of park and open space land holdings the trust and its partners have assembled.
We too want to avoid the mistakes of the past due to “deficiencies related to poor or misaligned planning and zoning policies”, and one debt saddled agency planning court ordered infrastructure in an apparent vacuum.
The Component Unit that ate the City
MSD – Jefferson Co KY now has on the books $1.4 Billion of debt and they carry
interest off the top lines, as an accepted cost of doing business. To get a clear picture of the projected impact of MSD’s debt load, with interest, one is forced to the back pages of financial reports and the like. That 1.4 billion dollars of principal actually translates in payment obligations of $2.72 billion burdening the organization, this community and MSD’s ratepayers until 2039.
Every five years, from now until 2034, MSD is on the hook to send a half billion dollars ($470,000,000) to the bond houses. From 2010 to 2014 three-fourths of it is interest.
MSD Bond/Debt Payment Schedule
Louisville in 2009 was estimated to have 713,000 or so residents, with MSD carrying
226, 711 service connections or customers. Ya’ll do the math – we have, and its telling:
• MSD accounts for 66.5% of metro’s total debt load,
• No other independantly bonded unit of Louisville government, including Metro,
breaks 10% of the total
• Every dollar of principal that MSD borrows apparently turns into $1.93 of
Principal and Interest, mortgaged out to 2039
• MSD’s current principal and interest expense translates into:
o $3826 in debt for every man, woman, and child in Jefferson County
o $12,034 for every customer in MSD’s system
o Over 3.4 times all the rest of Metro’s debt load combined
• Debt service for MSD in 1990 took $ 0.08 of every dollar they brought in, today it
is flirting with half of every dollar.
When you back up and look at all of Metro Louisville debt loads and how they are
handled the numbers are compelling. Finance 101 and fairness would dictate comparing
each component unit of Metro governments cost of borrowing to see how they compare,
so we did:
• MSD turns a dollars worth of debt into $1.93 in Principal and Interest
• The Riverport Authority - $1.09 per dollar
• Louisville Metro - $1.23 per dollar
• Louisville Water Co - $1.488 per dollar
• PARC - $1.712 per dollar
• Lexington in 2009 turned a dollar of bond debt into a $1.42
• All of Louisville, without MSD is $1.27 per dollar borrowed
• With MSD’s impact figured in Louisvilles average cost of credit jumps 2.5 times
to a $1.675 dollar paid per dollar borrowed.
Makes one wonder who authorized the biggest debt load in Louisville history to be
amortized at 3.4 times the average cost of debt for the rest of Louisville Metro.
Why the difference?
We’re willing to bet it’s got a lot to do with the amount of debt, those credit swaps, and Moody’s and swap agents and the like. When you roll it all up with principal and interest the aggregate debt load per citizen in Jefferson County KY is well over $5100 for every man woman and child in the metro… with MSD’s share of the burden at 2/3rds of the total.
Let us put it another way. If MSD had financed their $1.4 billion dollar debt at the same markup as the rest of Louisville Metro they, err we, would have saved, among friends, almost a Billion US dollars. ($929,573,711.10).
Adjust to a per capita basis and plot just MSD’s debt load repayment schedule against
Lexington’s’ entire Debt Load. We did. A picture really is a worth a thousand words…or maybe $929,573,711.10.
A Take of Two Counties: Don’t believe us – Believe Jefferson County - Alabama.
Source: http://springston.blogspot.com, for Jefferson County Alabama/Jefferson County Kentucky comparison concept, our take follows…
“Birmingham Sewer construction and bond swap controversy” – Source:www.wikipedia.org
“Jefferson County (Alabama) is one of the most indebted municipal governments in United States history, with a current debt of approximately $7,000 for each man, woman and child residing in the county.
Two extremely controversial undertakings by the county account for the majority of this debt.
First was a massive overhaul of the county-owned sewer system and second was a series of risky bond-swap agreements. Both have been scrutinized by federal prosecutors with several former county officials convicted of bribery and corruption.
In 1995, Jefferson County entered into a consent decree with the Environmental Protection Agency regarding sewer overflows into the Cahaba River watershed. A total of $3.2 billion of new construction was subsequently contracted, both to comply with the consent decree and to expand the system to newly-developing areas and increase the number of ratepayers financing the construction. Much of this work was awarded to inexperienced companies, many of which have since been convicted of bribery along with several county officials.
A series of controversial interest rate swaps, initiated in 2002 and 2003 by former Commission President Larry Langford (removed as the mayor of Birmingham after his conviction), were intended to lower interest payments, but have, in fact, had the opposite effect, increasing the county's indebtedness to the point that officials have issued formal statements doubting the county's ability to meet its financial obligations. The bond swaps are at the center of an investigation by the United States Securities and Exchange Commission.
In late February 2008 Standard & Poor's lowered their rating of Jefferson County bonds to "junk" status. The likelihood of the county filing for Chapter 9 bankruptcy protection has been debated in the press. In early March 2008, Moody's followed suit and indicated that it would also review the county's ability to meet other bond obligations.
On March 7, 2008, Jefferson County failed to post $184 million collateral as required under its sewer bond agreements, thereby moving into technical default.
County Commissioners have recently stated that they will not raise sewer rates beyond scheduled increases, that no new taxes will be levied to alleviate sewer debt, and that no personnel cuts will be made. Rather, they have demanded bond holders reduce the amount of required loan payments. If those negotiations are unsuccessful, it is likely the county would enter into bankruptcy, which would result in one of the larger municipal bankruptcies in American history.”
Remember Jefferson County – Alabama, and then think really hard about Jefferson
County – Kentucky, and then act. We have.
For the record, Jefferson County, KY is now over three fourths of the way to
Birminghams per capita debt load and MSD is set to continue to bond hundreds of
millions of dollars more to satisfy the requirements of the courts – anybody else
interested in what it costs ‘em to do it or what our share of the pie chart is going to be?
MSD’s Mission is: “We, at MSD, build, maintain and operate quality wastewater and
stormwater facilities for the people of our community.”
MSD, according to its actions and its chief engineer, can’t afford to build waste water facilities – put plainly - they can’t afford their mission. In the 20 years we have reviewed MSD’s books their asset value and their debt load have paralleled one another. In other words they borrow nearly every dollar they use to build, with interest.
At the same time their ability to service their debt and the percentage of debt service have changed dramatically over 20 years.
According to a 2004 paper titled “Moody’s Approach to Analyzing Municipal Long-
Term Debt,” “Debt service as a percent of operating expenditures can vary, and
frequently ranges from 5 percent to 15 percent.” MSD’s debt service is nearly 50% of its income and 58% of its outlays. MSD in 2009 spent 140% more on debt service than it did on operating sewer, stormwater and flood control.
Working backwards from MSD’s financials and writing that mission statement it could
read something like this….
We, an appointed and staff directed board:
• insulated and accountable only to ourselves,
• operating in a water quality regulatory and land planning vacuum,
• without oversight or a coordinated fiscal or growth mandate from Louisville Metro
Will and have:
• Run up the credit cards to the max to
• Pass it off and onto the backs of the next generation,
• All while financially insuring that we can’t afford to pay for our mission, today.
If there was a kinder gentler way to put it we would.
Maybe Harry Truman said it best: “I never give them hell. I just tell the truth and they think its hell."
On top of their billings and fees MSD is now forcing the costs of sewering, some say
sprawling, Louisville onto its developers, cities and citizens, thru recapture agreements.
That’s another story - Not to mention thru borrowing at 2.5 to 3.4 times the average cost of debt of either Lexington or the rest of Louisville, respectively.
Lexington in 2008 after its Federal Consent Decree for violations of the Clean Water Act announced that the next year rates would go from $10 to $15 and the year after increase another $5 to $20 a residential customer. MSD’s Rate history after the consent decree was sub 10% increases until the bond houses squawked…. Then came an increase of a third or so, with rates now set to increase ~ 7% each year. The rule of 7’s confirms your sewer bills will double each seven years with 7% increases.
Interest in this case is, well, interesting. What MSD did with interest is over $900 million more dollars than necessary worth of interesting. It’s hard to ignore $900 million worth of excess bonding cost, unless you’re not watching. You don’t plan to fail financially – you fail to plan. Ask your insurance agent.
It’s hard to miss a billion dollars when you roll up all the numbers. Louisville apparently doesn’t roll up and manage by the numbers. Louisville doesn’t tell you what its combined debt load per citizen is.
Moody’s rating of MSD’s debt is A2 with a stable outlook after being assigned a negative outlook earlier last year, Louisville’s last offering is ranked Aa2. Lexington’s General obligation bonds are Rated Aa2 from Moody’s, their sewer bonds are Rated Aa3 from Moody’s.
Generally MSD bonds are being ranked at 1 to 3 ratings below comparable Metro
Louisville and Lexington bond issues. Bond Ratings are municipal equivalent of credit
scores for individuals – they drive the cost and availability of capital.
While bond ratings help set the rates, the borrowers set the term and terms. If Lexington took on no new debt they would retire essentially all their debt in 20 years. Interest on Lexington’s payments this year is under 30% of the total payment. MSD’s payments for the next 5 years are 75 % interest. In layman’s terms MSD took an expensive 30 year mortgage cause that’s either all they could afford or they took it by choice. Either way it will cost us all a lot, until 2039.
MSD is a utility that doesn’t look like a utility – no PSC oversight, No Metro Oversight, and a budget and debt load that dwarfs the budget and debt load of the city it is supposed to serve. It’s the component unit of government that ate the budget of all of government, and it binds every citizen in Louisville with over $3800 in debt.
MSD costs Louisville over three times per citizen what Lexington costs Lexingtonians – for nearly everything Lexington does.
In short folks MSD is bankrupting us as I have outlined in previous articles. Regardless of what some think of the players at Future Fund the facts speak for themselves.
I personally am glad someone spent some time and resources verifying what many of us already knew.
We need to get control of this train wreck called MSD and by proxy its leader Jerry Abramson. For those Counties in the surrounding area throughout the Commonwealth pay attention.
HB 221 they are trying to cram down your throats will bankrupt you as well. The numbers don't lie and you can count on it.
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