Water Customers Owe for the Past and Future

It’s easy to turn on the tap and take things for granted. Our drinking water is pumped, aerated, chemically processed, filtered and piped in the Biscayne Aquifer, a shallow layer of permeable limestone roughly 100 feet underground. Approximately 4,000 square miles beneath Biscayne Bay, the Atlantic Ocean and Miami-Dade, Broward and Palm Beach counties, it supplies almost all of southeast Florida’s drinking water.

Roughly 2,000 feet below, the brackish water of the 100,000-square-mile Floridan Aquifer – covering much of the Southeast – requires pricey reverse osmosis or desalination treatments to make it potable. North Miami Beach has such a plant; North Miami does not. But no matter where you live in Miami-Dade County, the water woes of these two municipalities demand your attention.

North Miami Beach and the City of North Miami represent northeast Miami-Dade’s two independent utilities. Together they serve nearly 270,000 residents, and for both, rates are going up.

That’s not news in North Miami Beach, where the city bumped up its base water rates 18.5% last year and an additional 4.5% annually through 2024. In North Miami, however, where a yet-to-be-finalized report recommends water and sewer rate hikes averaging roughly 7% a year through 2026, it’s front page-worthy.

A Tale of Two Utilities

North Miami’s city manager has warned the council that failing to raise rates by that amount risks not only the municipality’s ability to replace its nearly 60-year-old water plant, it could also jeopardize any outstanding utilities loans the city has with the state.

The reasons for the rate hikes differ and offer distinct lessons.

North Miami Beach is paying for continuing plant-improvement projects as it extricates itself from a three-year experiment in privatization. That story presents its own cautionary tale.

North Miami must further raise rates to pay for previous neglect and unfreeze the funds needed to expand its plant, which is at risk of losing its position in the utilities business. The city suffered by not raising rates between 2012 and 2020. Today, it has depleted reserves, high collectibles and is struggling to get out of deficits that stretch back years.

With their particular issues, both cities offer warnings of the importance of early detection and paying attention. North Miami’s reckoning came last year, when the state warned that its line of credit was in jeopardy. The North Miami Beach case is more subtle but still illustrative, showing the trouble that comes from not reading the fine print before committing to a 15-year, $190 million contract.

Water quality in northeast Miami-Dade is well within regulations; North Miami’s system has won awards. That comes at a cost.

Ongoing rate hikes in North Miami Beach are funding $106 million of work in progress for its system, including $43.9 million at the Norwood-Oeffler Water Treatment Plant at 19150 NW 8th Ave.

North Miami is in a position of greater risk.

At stake is the $29.3 million revamp and replacement of its 1962 Winson Water Treatment Plant at NW 11th Avenue and 120th Street in Sunkist Grove. Inaction by the city council invites further delay – and possibly worse – until the city proves it can make its loan payments and collect customers’ substantial debts, with accounts receivable averaging about $16 million a year since 2017.

The state has already held up the two-year project by a year, and City Manager Theresa Therilus has warned the council that failing to raise rates could put other outstanding loans from the state’s $42 million revolving utilities fund at risk.

But even with these rate hikes, there is some good news. Relative to other places, Miami-Dade County has plenty of water and its rates are among the nation’s cheapest for a large metro area. The median water-sewer residential customer using 5,236 gallons a month pays $50.50 a quarter, according to the county. It’s a bit higher within incorporated North Miami and North Miami Beach, before the 25% surcharge for customers outside those city limits. Even with those surcharges, though, the rate is at most on a rough par with Broward County at $71.25.

For more expensive examples, consider San Francisco ($176.77), Honolulu ($130.45), Atlanta ($128.87) or even St. Petersburg, Fla. ($95.79).

That’s one consolation in a summer fraught with water woes: deadly floods in Tennessee, drought and fires extending from California to Lake Superior, and rolling water emergencies from record-low Lake Powell and Lake Mead reservoirs imperiling water supplies in the seven states that depend on the Colorado River. The recent Aug. 9 United Nations climate report raises the curtain on a new global act, with fresh news of Gulf Stream shifts and melting Greenland ice and Antarctic icebergs that bring more unsettling news for sea rise in Miami.

Robbing Peter to Pay Paul

In this climate, utilities are working to prepare for a future of higher seas, swelling populations and more saltwater intrusion.

If anyone doubts the North Miami water plant needs an overhaul, a 40-minute tour of the facility dispels the notion quickly. With rusted tanks and systems, old pipes and cramped quarters, it’s begging for an upgrade. Plant operator Derron Lloyd and superintendent Pavel Vida are clearly proud of their work, and point out a wall filled with water quality certificates and awards.

The newest upgrade includes filtration and purification pipes and monitors, completed in 2019 and part of a $4.2 million loan extended by the state in 2017. Public Works director Wisler Pierre-Louis reports the city has in the last decade replaced the water system’s pumps and motors, rehabilitated all eight supply wells, repaired the storage tank and upgraded the fluoridation system.

The big rehab would include a new administration building with a hurricane-proof emergency center and the installation of two large tanks on newly acquired city land across the street, to replace the 60-year-old ones currently in use.

“We’re doing a lot with very little,” Lloyd said. “We’ve been dreaming of this rehab for years.”

Yet their best efforts can only go so far. The plant has fallen well short of its 9.3-million-gallon per day (gpd) capacity for a decade, largely because of needed repairs. It is now operating between 7 million and 8.5 million gpd but has been as low as 5 million. The city’s overall needs run just above 13 million gpd.

That is still not the half of it. The city is operating at a significant deficit, with reserves for its enterprise (water-utility) and general funds down to perilously low levels.

The state of Florida, as lender, noticed when North Miami, under previous management, transferred $9 million from its enterprise fund to its general fund, a book transfer relied upon as an asset in the latter to bring the budget in line. At best, this practice is frowned upon in the municipal finance and administration world, and it’s not viewed kindly by creditors.

The pain was evident in council members’ strained faces midway into a little-seen, two-hour virtual budget workshop on July 15, 2021, when Therilus told the council that rate hikes could not wait. She said low reserves, subpar income and dubious accounting practices have jeopardized the plant’s needed expansion and the aforementioned loan.

“We risk those loans for any of our projects, as well as not getting this one started,” Therilus said. “We borrowed $9 million from the water and sewer fund and, over the years, when we were having a deficit, we were [covering] it from those funds. So what happens is our fund balances there are not high enough for us to be considered a good pay, payee back for our loans through our infrastructure, and we also don’t have enough in those accounts to just pay for them ourselves.”

Her remarks were followed by 24 seconds of pursed-lip silence before the council changed the subject.

Politics Muddy the Waters

Those deficit borrowings occurred under the management of Larry Spring, whose deputy city manager, Arthur H. Sorey III, was hired as North Miami Beach’s city manager in April. Overseeing its utility now falls under his purview.

If the City of North Miami fails to bring water-sewer rates up to a level the state believes it can sustain, the city could just keep patching and fixing the system while buying more water from the county. But that, too, might not last indefinitely. North Miami could conceivably risk a state-ordered takeover of its plant by the county, which has been watching everything unfold very carefully.

Further, according to the most recent financial reports, the deficit-ridden city could itself be at risk of a state takeover if its policies fail to reverse its financial results, as happened in Opa-locka. For now, such a move does not appear imminent. North Miami’s salvation could lie in its rising overall taxable property values and a new wave of pending development. Infrastructure money from Washington, D.C., could conceivably help, too, but the city is under pressure from many directions to change its ways.

Whatever the case, the next two years will be critical for both the utility and the city.

These issues still do not fully address the challenges of old pipes or saltwater intrusion. Roughly a quarter of the water going through North Miami’s pipes is lost through leakage – the rate varies from 11-37% – and replacement veers far into the tens of millions. Switching to a reverse osmosis plant would be even costlier. One recently established in Hialeah, a joint project with the county, cost $100 million. That is money North Miami does not have and cannot get.

The story in North Miami Beach is different but instructive in its own way. The city has the rare, maybe singular, experience of taking its system private and then public again in just three years.

The last two decades have been turbulent for its utility. Scandal and controversy followed the 2008 plant upgrades. In 2011, former Public Works director Martin King was convicted of embezzling $2.2 million from the city. He was ultimately sentenced to 12 years in prison and five years of probation.

In evident frustration over the challenges of running the plant, on April 3, 2017, the city voted to outsource water-sewer management. Six weeks later, amid screaming, protests and insults, the city commission voted 4-2 in selecting CH2M Hill to take over. The company – which was subsumed into Jacobs Engineering Group later that year – had served as a plant consultant since 2014 and in late 2016 assumed most of the plant’s operations through a no-bid emergency contract.

CH2M Hill convinced the city it could provide safer, cleaner, more reliable water service and needed improvements to the plant, courtesy of its 15-year, $190 million contract. City management, then under Ana Garcia, asserted the price tag to upgrade the plant would save $56 million over the cost of repairs.

Improvements were indeed made, but the city suffered sticker shock over massive hourly consulting fees and encumbrances, which were hitting its enterprise fund. Then disenchantment settled in and politics swung events.

Sign in Haste, Repent at Leisure

North Miami Beach’s city attorney and Garcia, now city manager in Dania Beach, were ousted in July 2018, and last November’s elections landed new councilmembers Michael Joseph, McKenzie Fleurimond and Paule Villard. The appointments gave rise to a new majority alliance and heralded a top-to-bottom change of leadership, reflected in Storey’s hiring and the man he replaced.

From 2018 on, unwinding the utility’s privatization was left to City Manager Esmond Scott, a 19-year employee who replaced Garcia that year.

“The first thing I did was trim proposed construction-in-progress costs from $200 million to $106 million,” said Scott, now interim city manager of Miami Shores. “I trimmed project management significantly. I kept the city apprised every step of the way. Things were not moving as quickly as they wanted, or I wanted.”

Amid this tumult, the City of Miami Gardens sued North Miami Beach in 2019, demanding that it drop the 25% surcharge imposed on water-sewer customers outside the city limits. (North Miami bills a similar surcharge to customers outside its limits.) The lawsuit was dismissed on appeal in June 2020. The pandemic shutdown that kicked off in March 2020 complicated matters further.

Finally, in August 2020, the city commission voted to terminate rather than modify the contract with Jacobs and take the utility public. Scott said consultants projected that doing so would take a year to 18 months – he was given six.

“At the time, I said this would be a Herculean task,” Scott said. “So we worked. We got the system back in-house three days short of six months to ensure the city would continue to have water. I brought in Carollo Engineers in California as consultants and they helped with the systems and timeline. Two weeks before the end of the project, I still didn’t have all the water plant operators in place. Other municipalities were luring them away. We had to sit with the union and were able to bring some people back. But we got it done.”

Three weeks later, Joseph and Fleurimond signaled their intention to replace Scott with Sorey. Scott left with an eight-month consulting agreement and a city car.

Public Utilities Commission Chair Bruce Lamberto has been a steady, and sometimes bitter, critic of the private management experience and of Scott.

“We needed a Chevy and they insisted on a Rolls Royce,” he said of Jacobs.

He was also critical of Scott for using consultants excessively. Scott says those consultants were necessary for the city – and ultimately cheaper than going it alone.

“You ask about lessons learned? Look at contracts closely when you sign these things,” Scott said. “Get third-party consultants before outsourcing. Get peer reviewers. Check feasibility. What costs will be borne by the residents and how does this impact rates going forward?”

In the end, both North Miami and North Miami Beach have proven themselves to be cautionary tales about paying close attention, sooner rather than later.

Douglas Yoder, longtime deputy director of the Miami-Dade Water and Sewer Department who retired last year, put it this way:

“As they said in the commercial, you can pay now or pay later. But if you pay later it will probably be more. It is sometimes hard to persuade officials that rate increases occur to protect you from a critical failure.”