☆ Opinion: The iceberg of Bay Area Public Works deficits
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Your public works infrastructure is decaying without a fiscally sustainable plan to replenish it, says SHIFT-Bay Area's sustainability director Gregg Dieguez. Here, Dieguez argues that higher taxes could be coming. An Opp Now exclusive.
Allowing public works to fall into disrepair will lead to critical failures that will ultimately burden residents more when costly emergency remedies become necessary and when borrowing, at 70% additional cost, must be used to replenish exhausted assets. I'm not saying your Government is lying to you about this situation because most of them don't even realize it. (And that's another problem we're trying to fix…)
But what is coming to a ballot bond or tax measure near you soon is a request for a lot more of your money. And much of it does not deserve to be funded. And for the parts that are valid, we need effective Oversight. In addition, we need a new model of governance because continuing to fund what got us into this mess is just insanity.
In an analysis last year, I found $6.7 Billion in reserve deficits for SFPUC. Those are the folks who provide 3.5 Bay Area counties most of their water. SFPUC is not only "under water"; it has so much bond debt that it is cash flow negative. (Ratepayers should expect 20% rate increases for the next couple of years.) But that's just one example of infrastructure you fund that is economically failing; there will be many more. Here’s why…
Public Works Infrastructure is often "perpetual," meaning that the services provided are essential to our civilization, and must be funded as long as we live here. Even a memorial park bench, if it is truly perpetual, has an infinite cost—because it must be repainted; cracked boards must be replaced; rust must be sanded off; and eventually, the base must be replaced—over and over again. And at 3.5% inflation, every 40 years an asset quadruples in cost. So that $10 million sewer pump station will cost $40 million to replace after 40 years. What this means to us residents and taxpayers is that we have to be very careful about what infrastructure we build and how we plan to fund and sustain it.
We also need to tell the truth about the looming replacement cost of our infrastructure. Which is why I submitted a paper to the Government Accounting Standards Board (GASB) as they consider changes to Infrastructure Accounting. A video of my testimony is here. There is a way to estimate the Capital Reserve Adequacy of government entities (and condo associations, or any business, for that matter). An article on the methodology is here: The Iceberg of Public Works Deficits; and a 2022 survey of some San Mateo County public works entities is here: Public Works’ Capital Deficits – How Deep Is The Hole? Things are worse now, as we will observe in the coming months.
Our governments’ failure to anticipate and fund infrastructure replenishment is an Inter-generational Injustice. As we deplete our infrastructure to rust and dust, we're telling our descendants, "Here, now you can rebuild our civilization; and, oh, by the way, pay 70% more in bond interest because we undercharged ourselves as we exhausted it."
To quote a founder of our local water and sewer agency:
"In 1974, we got 7/8ths of the money from the Clean Water Act, and then we forgot we'd have to replace the plant."
My hope is that GASB will change accounting practices, as they did for Unfunded Pension Liabilities, to require disclosure of the future costs of infrastructure and of the variance between those costs and current reserves.
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