Author: Glen Nethercut

Income inequality is defined as the disproportionate allocation of household or individual income to a proportion of the population. Thus, the nonpartisan Congressional Budget Office (CBO) reported in 2013 that the top 10% of U.S. families held 70% of the nation’s wealth while the bottom 50% of families held 1%–and that this unequal distribution had worsened from 1989 to 2013.  As Robert Reich has said, income inequality is the defining issue in America.  Income inequality can be made much worse by a regressive tax code, such as is contained inthe Tax Cuts and Jobs Act that Trump signed into law in December, 2017.

The Tax Policy Center in Washington, DC expects the Act to decrease federal revenue by $7.2 trillion over the next 10 years and another $8.9 trillion in the following decade.  Three-quarters of this decline results from reductions in business taxes.  We will thus experience higher deficits, expected to dampen the economy and not produce job growth.

In its December, 2017 report, the CBO describes the Trump tax plan as providing more tax benefits to higher income individuals and businesses. For businesses, the Act lowers the maximum corporate tax rate from 33 percent to 21 percent, the lowest since 1939–and it is estimated that corporation tax deductions further lower this to an effective rate of about 18 percent.  The business tax cut is permanent (it does not sunset in 2025, unlike individual rates). The Act eliminates the corporate AMT (Alternative Minimum Tax), adding an estimated $40B to the deficit. And the Act raises the standard deduction to 20 percent for pass-through businesses (i.e. S corps, LLCs, sole proprietorships, partnerships) including real estate companies, private equity funds and hedge funds.

For higher income families, the Act doubles the estate tax exemption to $11.2M for individuals and $22.4M for couples, benefiting the top 1%.  It keeps the AMT, but phases it out at $500,000 for individuals and $1M for couples. It provides a tax deduction for $10,000/year contributions to 529 plans for tuition at private and religious K-12 schools.

Overall, the Act keeps seven personal income tax brackets, but lowers tax rates (only until 2026). But the Act uses a chained consumer price index, which means that over time, people will move into higher tax brackets. It doubles the standard deduction, but eliminates personal exemptions and most itemized deductions, limiting the mortgage interest deduction to $750K and deduction for state and local taxes to $10K.  Significantly, the Act’s doubling of the standard deduction will cause an estimated 21 million Americans to lose the tax benefit of itemized charitable deductions–and nonprofits are projecting serious declines in charitable giving that provides a real safety net for the poor in every community.

The Act expands the deduction for medical expenses (dropping the deduction threshold from 10% to 7.5% of income), but only for 2017 and 2018.  Meanwhile, the Act ends the Affordable Care Act mandate for health insurance, which is estimated to cause more than 10 million people to drop their plans, thereby increasing healthcare plan costs for lower-income Americans and reducing the number of healthcare plan providers in every state.

Passive activity bonds, that are utilized by developers of affordable housing, are continued.  However, lower corporate tax rates are anticipated to reduce developer interest in affordable housing tax credits.

One big unknown:  will the GOP continue to believe in supply-side economics (where tax cuts to businesses and the wealthy lead to economic growth) or, with rising deficits, will they resort to the Reagan-era cuts in social services — and go beyond those cuts to threaten Social Security and Medicare/Medicaid?

Stay tuned and keep resisting!

Where Your Water Comes From & Water/Sewer Policy Issues

Two guest speakers drew a crowd: Paul Gilbert-Snyder, EBMUD engineer (and Stege Sanitary District Board member) and Rex Delizo, Stege Sanitary District Manager.

EBMUD Overview

Paul Gilbert-Snyder indicated that Mokelumne Reservoir supplies 90% of EBMUD water, with the remaining 10% coming from the local watersheds– and all of the water is stored in five nearby reservoirs (Briones, Chabot, East Bay, San Pablo and Upper San Leandro) before treatment and delivery to customers. Two other reservoirs (Lafayette and Orinda) provide an emergency water supply. EBMUD also maintains: the Pardee and Camanche dams/reservoirs on the Mokelumne River; over 90 miles of gravity-flow aqueduct pipes, 65″ and larger in diameter, bringing water to about 1.4M customers; about 478 square miles of watershed, and 6 water treatment plants. EBMUD has an aggressive water recycling program, handling 9M gal/day, with a goal of 20M gal/day for potable use. EBMUD currently creates enough hydropower to fill the needs of 18,000 homes. We are a producer of net energy; in treating waste sources such as food waste, we capture the gas, feed it into turbines and produce electricity.

Issues

EBMUD has large-dollar fixed costs for facilities, maintenance of infrastructure, and staff. Yet despite population increases, water use has decreased from an average of 220M gal/day in 1972 to 180M gal/day in 2012 to 162M gal/day in 2015. In times of drought, residents have been ready and able to reduce their water usage — but this means that as district infrastructure costs have increased, revenue has decreased. EBMUD has a contract with the US Bureau of Reclamation to secure water in a drought, but this is expensive and the district would only utilize the source–called the Freeport project–in extreme circumstances. About 15 miles of pipe cross the delta below sea level. If the levees fail, our aqueducts could have real problems.

Stege Sanitary District Overview

Rex Delizo indicated that Stege is a sewer district governed by a 5-person board (elected at large for 4-year terms) serving ~ 35,000 customers (in El Cerrito, Kensington, and Richmond Annex) covering ~5 1/2 square miles with 2 small pumping stations. Stege does not provide storm drainage or sewage treatment (both are handled by EBMUD) and does not pick up garbage (that’s East Bay Sanitary for El Cerrito). Homeowners are responsible for the part of the sewer pipe from their house to the main. If a homeowner has a sewer problem, Stege urges you to call them first at 510-524-4667, and to call them also if you see any manhole covers overflowing. Stege’s sewer service is billed via property taxes at ~ $242/year — the next-to-lowest sewer district rate in the East Bay. Rex noted that people should not flush wipes, “disposable” or not, or FOG (fat, oil, grease) down the toilet.

Issues

Stege is replacing ~ 2 miles of pipes per year (using a sleeving technique that inserts a new pipe into the old one.

Q and A session

Q. What is EBMUD’s policy regarding water hogs during droughts? And doesn’t your revenue depend on consumption when what people want is water conservation?

A. EBMUD has an ordinance that requires a violation and fine to be assessed on high water consumption –and the names of those violators were publicized via Freedom of Information Act requests. You can use as much water as you want, but you will pay for it. We have a tiered rate structure (it used to be 5 tiers and now there are 3), so as you use more, you pay for it. That means that the largest users subsidize the smallest users. But our business model does not mean we are trying to force household conservation. Water use is our revenue source. The tiered price structure should drive behavior.

Q. How are EBMUD and Stege trying to lower costs of operation?

A. For EBMUD, we focus on good management and proper maintenance of our infrastructure. For Stege, our board of directors has placed emphasis on achieving a Certificate of Transparency (to users based on newsletters and website information) and we have been named a California sewer District of Distinction.

Q. Can recycled EBMUD water be made available to El Cerrito for irrigation?

A. Recycled water is used in Emeryville and downtown Oakland, but it is very expensive to install purple pipes in the ground and a low value to use water for irrigation. We will achieve a better outcome if we aim for more potable water.

Q. Other jurisdictions have a warranty or insurance program (for a monthly fee), so when a sewer line breaks, they can come out and do the repairs.

A. A sewer industry concern is that companies would be motivated to fix only smaller segments of the sewer line to minimize their costs- and some homeowners would wait until the entire sewer line is bad and then end the contract–and let the sewer district fix the problem. Stege mentioned that users can check the Stege website for a list of ~ 20 plumbing contractors in the area who have worked on sewer lines.

Q. What did Stege decide to do about fees to developers who will be building along the San Pablo Avenue (SPA) corridor? And does EBMUD have any infrastructure costs associated with this development?

A. El Cerrito hired a contractor to determine the sewer infrastructure upgrades needed to serve this corridor. The estimate is ~ $50M. The Stege board voted to charge an impact fee to any new development on SPA at $200/per fixture unit (toilet). So, no existing ratepayer’s bills will be affected. And Stege will revisit the plan every 5 years. For EBMUD, there was no infrastructure issue. EBMUD added that new apartment and condo buildings are not individually metered. (Thus, building owners would pass on water use costs to their tenants via rent increases.)

Q. Our house’s water smelled funny, so we bought a water filter. How do we know the water is fine?

A. Algae, occurring in water in drought years, is described by our reservoir workers as smelling musty or moldy. You can certainly use carbon filters — or put lemon in your water.

Q. Is lead a problem in residential water?

A. Generally, lead is not a problem in the East Bay, but it depends on the age of individual pipes. EBMUD has a voucher for a free lead test. You would fill out the voucher (that’s online). We will then mail you a test kit and you would send it back to us (postage free) and let you know the results.

Q. Is EBMUD planning to use Smart Meters? Otherwise, how do users know when they have a serious leak?

A. Great question. Yes, EBMUD is working on Smart Meters that send users a message when usage suddenly increases. Stege meanwhile constantly inspects sewer lines remotely. If there’s an issue, you will get a message.

Q. Is Stege working with local public schools in 2018 on watershed education issues? We heard that the district might consider using public funds on outreach to private schools.

A. Yes, we will continue our partnership with local schools through the nonprofit Kids for the Bay that runs a watershed program. We’ve done that for 12 years. The school district chooses the school. We think that the next school that the program will work with is Harding Elementary.

Q. What is EBMUD’s opinion on the Twin Tunnels projects to move water to southern California?

A. EBMUD has filed a lawsuit that focuses on the harm to EBMUD and its ratepayers potentially done by the tunnels project. First, the project has not identified how they will operate the tunnels and not adversely affect fish likely to get drawn into the pumps. Second, the project’s intake could reverse flows on the Sacramento River and shut down our Freeport collaboration with the US Bureau of Reclamation, ending that emergency source of water. And third, the project would put its 40-ft diameter tunnels beneath our pipes in the delta — and damage our operation. Our biggest concern is that EBMUD would be hit with costs that we would have to pay and pass on to ratepayers.