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Melcher seeks ways to make Utilities' cash flow for stormwater

Bach is seeking a loophole in Issue 300 — one that would allow Utilities to pay for $687 million in stormwater projects



In November 2009, nearly 55 percent of city voters approved Issue 300. Authored by anti-tax activist Douglas Bruce, the initiative was intended to cut off nearly all money exchanges between the city and its enterprises, or city-owned businesses.

At the time, Bruce claimed the city was using enterprise fees to pay for city needs, slyly skirting Colorado law that requires voter approval for tax increases. He noted that Colorado Springs Utilities gave the city millions each year "in lieu" of taxes, and that City Council had created an enterprise to pay for city stormwater needs, sans voter approval.

After the election, Council did away with the Stormwater Enterprise and its hated "fees," but quickly found a loophole that allowed Utilities to continue paying the city about $31 million a year.

Now, Mayor Steve Bach is seeking an even bigger loophole in Issue 300 — one that would allow Utilities to foot the bill for $687 million in needed city stormwater projects. That funding is especially crucial after the Waldo Canyon Fire, because flooding off the burn scar this spring is expected to be catastrophic.

In a recent interview with the Independent, City Attorney Chris Melcher said he had brainstormed several ways to get the money on Bach's behalf, including: charging Utilities for the use of city land and water rights; reducing Utilities' overhead costs and passing the savings on to the city; and creating an entirely new utilities service with its own charges (much like water or electric).

Echoing Bach, Melcher said he believes Utilities can fork over the money without increasing rates.

Yet Utilities spokespeople and City Council President Scott Hente — both of whom are also supposed to be represented by the city attorney — say it's virtually impossible.

"[Bach and Melcher] think there's this pot at the end of the rainbow laden with money, and it's there for the taking," Hente says. "It shows their complete lack of experience in dealing with large organizations that have large business and large obligations."

During his campaign for mayor in 2011, Bach pledged not to raise taxes while in office. But the right thing to do for stormwater, Hente argues, is to ask for an increase.

"If you know there's insufficient revenue, make a case to voters," Hente says. "Don't do an end run around Utilities, and basically extract it from voters anyway."

Uncharted waters

Of all Melcher's ideas for making Utilities pay, the most intriguing involves water and property ownership.

"Remember, the city owns the water," Melcher says. "The city provides — all the water rights of the entire city are held in the name of the city, so the city provides the water to the utility company. The city also provides free access to all the right-of-ways in the city to the utility.

"For example, if you have a private utility, they pay taxes, [a] right-of-way fee, [a] franchise fee. So there's a number of different things that need to be examined and researched to see if there are funds or monies that could be available for other purposes, such as stormwater."

Of course, Utilities already pays the aforementioned $31 million to the city annually to cover some of these costs; Melcher just believes more may be justified.

But asking a municipally owned utility to pay for the use of city water rights appears to be unusual. The Independent contacted four Colorado water attorneys on the issue to see if such a scenario was legal, or had been used before. Two said they didn't know the answer and wouldn't comment anyway, because their work was connected to Utilities. The other two did not call back. Utilities' own lawyers could not comment objectively on the issue because Melcher is their boss.

The Independent also called water service offices in Pueblo, Aurora and Denver. Each utility owns its own water rights.

The Colorado Municipal League says it doesn't know enough about its member cities to comment on such an issue. The American Water Works Association did not return phone calls.

Only Aurora Water offers any guidance. Spokesperson Greg Baker says that leaders in his organization aren't sure about the legality of charging for water rights, but they think such a scenario could run into problems with the Taxpayer's Bill of Rights and the state constitution, given language about the separation of municipalities and their enterprises.

While it's unlikely that Colorado Springs Utilities would sue the city — again, they share the same attorney — if the city started charging for its water rights, a ratepayer could challenge the issue in court.

Melcher's other ideas might have less traction. Creating efficiencies and passing the money on to the city violates Issue 300. Creating a separate utility for stormwater, while a common practice in other cities, would likely be complex, and might require voter approval.

Where's the money?

Utilities spokespeople roundly object to the notion that the business is a cash cow ripe for the slaughter.

Nor do they buy into the notion that they haven't done enough for their hometown. Spokesperson Steve Berry notes that Utilities already performs city stormwater projects, because they often protect pipes from damage. Those projects also incidentally benefit bridges, roads and neighborhoods. This year alone, Utilities will spend $12.8 million on such projects.

As for extra money, Utilities is about $30 million short in funding for its own capital projects this year, due to a sagging economy. That means fewer upgrades and less maintenance to the system, and a greater risk of costly failures.

If Utilities were suddenly saddled with paying for all the city's stormwater issues, Berry says, rates would have to increase to cover those bills. And Utilities could be hit in another way, too, through higher interest rates on its billions in debt.

"The more you start bringing in another function, what then does that do to your ability to borrow at a low interest rate?" Berry asks. "Because that's considered increased risk."

But Berry says the most important consideration is this: Would forcing Utilities to pay fix the problem? The answer, he says, is "no." By nature, stormwater is a regional issue, he says, and addressing it on a city level won't work.

"You could fix something here and you could do your best to protect it," Berry says. "... [But] upstream, if those flows are unmanaged and they're still being channeled at 100-miles-an-hour via concrete channels, then that poses risk to all those investments that we made downstream ... It puts hundreds of millions of dollars of taxpayer dollars and ratepayer dollars at risk."

Berry isn't alone in his opinion. The Pikes Peak Regional Stormwater Task Force has been examining stormwater issues for months, and plans to look for a regional funding source in the future.

Senior reporter Pam Zubeck contributed to this story.

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