Infrastructure Outlook: “Train Wreck”

With revenues declining on several fronts and investments cut as a result, the infrastructure of southeast Michigan – its transit, water and sewer systems – is facing a “train wreck,” Washtenaw County commissioners were told at a recent working session.

A report from the Southeast Michigan Council of Governments, drafted by a task force on infrastructure led by county board chair Rolland Sizemore Jr., laid out steps that SEMCOG hopes to take to address the situation – including, most immediately, lobbying Lansing lawmakers to raise the state’s gas tax, which funds road construction and upkeep. The briefing prompted commissioner Jeff Irwin to express frustration at SEMCOG’s approach, which he indicated wasn’t bold enough to tackle the underlying problems that have fostered sprawl.

At their May 20 session, commissioners also got an update on what’s known as the Chevron project – a multi-year, multimillion-dollar effort to cut energy usage in county facilities. And staff of the county’s energy and economic development office asked for feedback from commissioners about what type of pilot project the county should pursue, as part of a recent federal energy grant. Some commissioners are leaning toward a solar photovoltaic installation.

The meeting also included a presentation by county administrator Verna McDaniel on a request for more funds to complete the county jail expansion and new 14A-1 District Court facility. The Chronicle covered that topic in a previous report.

SEMCOG: Regional Infrastructure Needs

Paul Tait, SEMCOG’s executive director, began the presentation with a grim statement about the region’s infrastructure: “We’re really headed for a train wreck.” The goal of SEMCOG’s infrastructure task force was to try to get ahead of the challenges, he said, and to figure out potential solutions.

Chuck Hersey, manager of SEMCOG’s environment department, described their first step, which was to assess the current situation, and it didn’t look good. The revenue base is declining on several fronts: Gasoline sales, which provide gas tax revenues, are falling. Travel is decreasing, and with new fuel economy standards, gasoline sales are expected to decline even more, Hersey said. Property values – and thus taxable values – are also falling, which impacts revenues for local governments. Water usage is down as well, which means revenues from water usage fees are also falling.

Bottom line: Current revenues are insufficient to maintain the infrastructure that’s in place – as revenues fall, investment in infrastructure is cut. Hersey noted that some believe cutting investments in infrastructure saves money. But underinvestment doesn’t save in the long-term, he said – it actually leads to increased costs, especially in the case of infrastructure like roads, and water and sewer systems.

Another problem: funding formulas and policies are outdated, he said, inasmuch as they depend on increased consumption. Yet increased consumption conflicts with newer “green” policy goals that push for less use of gasoline, water and electricity. These conflicting approaches are on a collision course, Hersey said.

The region’s shrinking population is another challenge, and it’s expected to drop even more in the coming years. As a result, the region has more capacity than it needs – and though it might offend some people to say this, Hersey added, the region needs to “right-size.” These changes aren’t something that are going to blow over in six months or a year, he said.

There are also fewer jobs, and per-capita income is falling – which means people’s ability to pay is falling, too, Hersey said.

He discussed how a consumer’s needs and expectations of service drive costs. Under the current paradigm, consumers expect a full level of service at all times. Service providers, like water plants, design systems that can deliver that expectation. This results in high fixed costs, Hersey said. For example, when people turn on their faucet to water the lawn, they expect water to flow at the same level of pressure – even if it’s been dry and hot for several days or weeks. So water systems are designed to meet that expectation. For roads, the expectation is that there will be little or no congestion at any time – so roads are designed to meet peak rush-hour needs.

The model is unsustainable, Hersey said.

There are several components to a solution, he said: 1) restructuring revenue-collection systems, 2) taking a holistic view of needs and outcomes, rather than just looking at silos of interest, like transportation or water, 3) pushing for service providers to collaborate, 4) reducing costs, 5) strategically investing funds, focused on where infrastructure currently exists, and 6) developing a legislative strategy.

Hersey passed out a nine-page draft of action steps in these categories, developed by SEMCOG’s infrastructure task force but not yet approved by its executive committee. When approval is given, they’ll start working to implement these steps, he said. [.pdf of draft action steps]

SEMCOG: Commissioner Questions, Comments

Rolland Sizemore Jr. said he’d like to see Washtenaw County become a pilot program for implementing some of these changes. He said he thought that Janis Bobrin, the county’s water resources commissioner, would be willing to help (she attended the May 20 working session, but did not address the board), as would the road commission and the board of commissioners. If they’re successful, they might be able to leverage their work to get more funding from the state, he said.

Leah Gunn pointed out that the county has a patchwork of delivery for infrastructure services, which makes it difficult to coordinate. There are 28 jurisdictions in the county, and many of those local governments deliver services. There are also privately owned utilities for electricity and natural gas. As for the tension between relying on gas tax revenues while at the same time discouraging consumption, she wondered what SEMCOG would advise the state legislature to do.

SEMCOG’s Paul Tait said a gas tax increase is needed in the short term, but ultimately there needs to be a different mechanism for raising revenue, such as a tax on vehicle miles driven. Chuck Hersey said that utilities like DTE Energy are willing to work with the public sector – in many cases, better communication is a place to start. For example, DTE officials aren’t always aware of road projects undertaken by state or local governments. That would be one place to start collaborating for efficiency and reduced costs, so that DTE could do utility upgrades and repairs while the roads are already torn up for construction.

Ultimately, Gunn noted, the government needs more revenues for infrastructure projects. Citing an anti-tax sentiment in Michigan, she said, “I wish you well!”

Wes Prater said he didn’t see anything about performance or management in the SEMCOG report – that’s a key factor in reducing costs, he noted. He hoped the information they were compiling would be distributed to people who could make a difference.

Barbara Bergman said she worried about taxes that were regressive, putting an unfair burden on the poorest residents. Raising the sales tax would be “grossly unfair,” she said. Bergman hoped the current situation hurt enough so that state legislators would risk their careers to set things right. She also expressed concern for the environment, noting that the funding priorities needed to be the basics of food, clothing and shelter – making environmentalism “a luxury.”

Mark Ouimet pointed out that the data were snapshots, and they really needed something more like a movie – especially projecting into the future as much as possible. He said that because the revenue pressures and needs are so great, he imagined it would prompt entities like DTE to recognize the need to partner.

Kristin Judge commented that SEMCOG could serve an important role, as a place for entities in the region to work together. She suggested that SEMCOG make sure to coordinate its efforts with the Michigan Association of Counties and Governmental Consultant Services Inc., the Lansing-based firm led by Kirk Profit that Washtenaw County and other local governments pay to lobby for their interests at the state level.

Tait replied that their biggest effort at the moment was working to increase the gas tax, and that they “haven’t been able to turn the corner” on that.

Ken Schwartz noted that the economy has been declining for a decade, and that governments need to control their costs. He also spoke about the need to find small things that people can do to help the situation. Almost every storm drain is clogged, he said – somehow, they need to find ways to urge people to get out and take care of things like that in front of their own house. He cited the example of how putting a sign on the storm drains – stating that the drains lead directly to the river – dramatically reduced the amount of motor oil that people dumped. It takes political leadership, he said. They need to look at their history – when they’d been in economic difficulty before, what did they do? How can they learn from the past?

Jeff Irwin raised the issue of “right-sizing,” which Hersey had mentioned in his presentation. Irwin said it was unfortunate that Hersey backed off his statement, because the region does need to face reality. Thirty to forty years ago, the population was roughly the same, Irwin said, but now it’s spread out over a vast area of sprawl. “It’s just insane,” he said, destroying our communities and leading to financial and environmental disaster. How is the region going to focus the investment of transportation dollars on its core communities? Irwin asked.

Irwin noted that there was no mention of public transportation in the SEMCOG presentation, but it needs to be discussed. He described the public transportation network as a joke – other regions are ahead in that regard, and they’re “eating our lunch.” He cited his frustration at the delay in the commuter rail project between Ann Arbor and Detroit, which SEMCOG is spearheading. He asked whether they were going to talk about actually reducing infrastructure.

Hersey pointed to an editorial in the May 9, 2010 Detroit Free Press with the headline “Too Much Stuff, Too Few Dollars,” which he indicated was prompted by SEMCOG. It made the same point, he said – the region can’t support, and doesn’t need, the infrastructure that’s currently in place. He said SEMCOG talks about the need to invest strategically, and to collaborate.

Irwin asked whether it was reasonable for SEMCOG to draw circles around the region’s six largest urban cores, and to say that they’ll focus their efforts only on those areas. Or will the organization continue down the same path, he wondered, trying to make everyone happy, which he said ends in failure. [Irwin had earlier noted that SEMCOG is a member-organization, getting its financial support primarily from the local governments that join.]

When Irwin said he didn’t feel that these issues were being addressed seriously, Tait said, “We hear you.”

Wes Prater questioned how collaboration can be accomplished when the state constitution requires home rule. It’s impossible, he said, unless the constitution changes and you can form a continuous district, rather than having so many government jurisdictions.

Jessica Ping asked how SEMCOG was spreading the word about this infrastructure report. Tait replied that the task force had just signed off on it earlier that week, and the next step was to have it approved by SEMCOG’s executive committee in July. After that, they could start working to implement it – including reaching out to government leaders as well as getting a grassroots effort to push for these changes.

County Energy Use & Investment

Later in the meeting, staff from the county’s energy and economic development office gave an update on what’s known as the Chevron project – a multi-year, multimillion-dollar effort to cut energy usage in county facilities. They also asked for feedback from commissioners about what type of pilot project the county should pursue, as part of a recent federal energy grant.

Chevron Project Results

In the summer of 2004, the county board authorized a $6.088 million long-term contract with Chevron Energy Solutions. The company’s efforts under the contract, financed by a 20-year bond, consisted of 26 energy-efficiency projects at 18 county facilities. The projects included replacing boilers and chillers, installing new controls for HVAC equipment, replacing air handlers and rooftop units, upgrading lighting and adding insulation, among other things. They also agreed to track energy usage for four years after their work was completed – that tracking period ends this July.

At the board’s May 20, 2010 working session, Anya Dale – a specialist with the county’s office of economic development and energy – described the impact of the Chevron project.

Energy savings were tracked by Chevron at only five of the 18 buildings where improvements were made, Dale noted – the five buildings where the most extensive work was done. Tracking began in August 2006, with the first year running through July 2007. In that period, Chevron had guaranteed $215,158 worth of total savings, and reported that actual savings reached $265,114 for the five buildings they tracked. Of that, $144,187 was in energy savings and $120,927 was an estimate of avoided maintenance or replacement costs, Dale said.

For the following years, Chevron said savings reached $264,290 in 2007-08, $416,974 in 2008-09, and $73,380 through February of this year.

Actual reductions in electricity and natural gas usage were also tracked for the five buildings: the administration building at 220 N. Main and the courthouse building at 101 E. Huron (both in downtown Ann Arbor), the Eastern County Government Center at 415 W. Michigan Ave. in Ypsilanti, the Dept. of Human Services building at 22 Center St. in Ypsilanti, and the county building on Towner Street in Ypsilanti.

Using data collected by the county between 2003 and 2007, Dale said, all but the administration building saw double-digit reductions in electricity usage. For natural gas usage, three of the buildings saw double-digit reductions in usage. An increase in natural gas usage at the Eastern County Government Center is possibly due to poor insulation, she said.

Energy Usage 2003-2007
Building         % change       % change
                 electricity    natural gas
Admin                0            -57
Courthouse         -14            -23
Eastern County     -32             +9
Human Services     -14            -20
Towner             -35            -26

-

Dale said there hasn’t been consistent data collection for other buildings that aren’t being tracked by the Chevron contract. She presented a general snapshot from 2007 to 2009, looking at electricity usage in 28 buildings and natural gas usage in 22 buildings. (The Washtenaw County Parks Commission covers utility bills in its facilities, and those figures weren’t included in the analysis.)

Of those county buildings examined between 2007 and 2009, overall energy usage appears to have declined, Dale said – though she cautioned that incomplete data in 2009 for natural gas likely means that the usage was likely higher. The staff estimates that from 2007 to 2009, the number of kilowatt hours used has dropped 15%, while therms (natural gas) have declined 26%.

The county needs to do a better job of tracking this data, Dale said. To do that, they plan to streamline the utility-tracking process and gather data in a more consistent format. After initially focusing on quantitative data, they’ll then focus on gathering qualitative data – like outside temperatures and space usage – with help from a new Southeast Michigan Regional Energy Office, which the county is paying $76,690 to help fund.

Chevron Project: Commissioner Questions, Comments

Some commissioners questioned the data provided by Chevron. Wes Prater said he’d like more information about how Chevron arrived at its amounts in the “other savings” category – he wanted to pin them down on that data. The company made over $1 million in profits off this job, Prater said, and part of it was a guarantee of savings. The county should make sure those savings are real. [In a follow-up conversation with The Chronicle, Dale said that Chevron made a $450,000 profit on the project, or a 7.4% profit margin. She said Prater's reference to a $1 million profit might have included the firm's charges for general administrative overhead.]

Ken Schwartz asked whether the staff was auditing the numbers that Chevron provided, or whether that data was simply being accepted at face value. Dale reported that the staff tracked utility bills, and those direct savings as stated by Chevron are accurate. Schwartz followed up, asking if weather conditions had been factored in. If it was a particularly warm winter, then energy usage would be lower anyway and wouldn’t necessary reflect energy efficiency efforts. Dale said that temperatures hadn’t been tracked.

Schwartz noted that the county was paying $420,000 a year for the project – those costs needed to be part of the calculation of savings. After those payments are made, is the county still saving money? he asked. Brett Lenart – also on the staff of the county’s office of energy and economic development – pointed out that new equipment had been put in place that the county would have needed to buy anyway. He also reminded commissioners that the data from Chevron included just five buildings, but that many more facilities had been part of the project.

Energy Efficiency and Conservation Project

Brett Lenart made a presentation describing efforts that are funded by a $766,900 three-year Energy Efficiency and Conservation Block Grant from the U.S. Dept. of Energy. There are four projects, including retrofitting county facilities and upgrading energy efficiency, developing energy policies for the county, and establishing a revolving loan fund for energy-related efforts. But Lenart’s presentation on May 20 focused on the fourth effort: developing a renewable energy demonstration project.

He told commissioners that the staff was looking for feedback on what type of project they should pursue. He laid out four options to consider:

1. A rebate program for solar hot water systems. Lenart said the advantages to this project include dispersing grant dollars into the community, creating jobs for the workers who install these systems, and making the systems more competitive with solar photovoltaic systems that are currently cheaper because of available incentives. Disadvantages, he said, would be that it wouldn’t directly benefit the county government, and would require more overhead to administer the program, process applications and gather data.
2. A grant to one or more nonprofit housing organizations for solar hot water installation. Lenart described several advantages to this project: It would provide grant dollars to local nonprofits, create jobs, and result in energy savings for the county’s low-income residents. However, there would be no direct energy savings to county government facilities, and it would require a certain amount of administrative overhead to select the nonprofit for the project.
3. A solar hot water system on a county facility. This project would provide a direct energy savings benefit to the county, Lenert said. It also presents an educational opportunity, showing the payback for using a solar hot water system. The county would have direct access to data to track these savings. On the downside, there would be less job creation than in the first two options, Lenart said.
4. A solar photovoltaic demo on a county facility. Currently, financial incentives are available (through DTE Energy’s Solar Currents program) for photovoltaic systems that generate electricity – having a demo project with this technology would highlight the availability of those incentives for local residents. There are also federal tax incentives available as well. Without incentives, he noted, the payback period for solar photovoltaic is much longer than for solar hot water systems. This project would also yield direct energy savings to the county, Lenart said. [The county has already installed a photovoltaic demo system at its Zeeb Road facility.]

In rating these projects, staff saw more advantages in installing a solar hot water system or solar photovoltaic system on a county facility, Lenart said. But they were hoping for feedback and direction from the board.

Energy Projects: Commissioner Questions, Comments

Leah Gunn said that given the county’s financial situation, she thought they should look at their own costs first when considering which option to pursue.

Wes Prater supported the solar hot water project, saying it fit well with the county’s existing weatherization program for low-income residents. He noted that the plumbers and pipefitters union Local 190 is interested in solar hot water systems, and has built a model in their training facility on Jackson Road. It was important to provide savings to the area’s residents who need it most, he said.

Ken Schwartz suggested that residents should provide the direction – if solar photovoltaic systems are more popular, then perhaps that should guide the county. Tony VanDerworp, who leads the county’s office of energy and economic development, pointed out that solar photovoltaic systems are more popular now because there are financial incentives to install them. It’s not clear how long those incentives will last. [The incentives are designed to help DTE reach its mandated Renewable Portfolio Standard (RPS), which requires that utilities get 10% of their electricity from renewable sources by 2015.]

There was no clear concensus from the board – Barbara Bergman asked whether commissioners could email the staff with their thoughts. VanDerworp urged commissioners to provide feedback as soon as they can, and Lenart noted that the staff is under a fall deadline to submit its proposal to the U.S. Dept. of Energy, as part of the grant funding.