Tim Steller's column: Water rate plan would make more money flow to Tucson

It’s a city of Tucson dream that won’t die.

Somehow the city of Tucson must be able to get more money out of the wealthier Tucson Water customers in the unincorporated Catalina Foothills and Northwest Side.

The city failed in a 2021 effort. That money grab was too flimsily based — a Maricopa County Superior Court judge threw it out in 2023.

But the dream goes on, and now Tucson officials think they may have the formula to get more out of those thick wallets.

Their justification is new. The city hired outside experts and calculated a “recommended return on equity” for customers in incorporated cities versus those outside. Turns out those in the unincorporated area have a lower return than recommended.

It’s a complicated calculation, but the upshot is that, depending on Tucson Water’s debt load, water bills would go up by an average of $5 to $7 per month for the one third of the utility’s customers who live in the unincorporated county. As the proposal stands, that increased revenue would go to reducing the bills slightly in incorporated cities like Tucson.

Unsurprisingly, Pima County Board of Supervisors Chair Rex Scott, who represents a lot of those Tucson Water customers in the unincorporated county, opposes the city’s latest move. It was the county who fought the city after the 2021 effort and mostly prevailed in the courts, with one major exception — getting refunds for the customers.

“They began with an end in mind,” Scott said of city officials. “They wanted to do this and were upset that the court wouldn’t allow them to do it the first time.

“When you begin with an end in mind, you’re going to focus on the means that help you achieve that end,” he said.

Supporting Scott’s premise

In my reading, a March 28 email from assistant city attorney Chris Avery to City Council Member Kevin Dahl supports Scott’s argument that the city was looking for a way to avoid another adverse court opinion.

“Following the ruling, we discussed it with the Mayor and Council in Executive Session,” Avery wrote, in an email first reported Sunday by my colleague Tony Davis. “Then, with my advice, Tucson Water staff proceeded to work on developing a new rate, based solely on cost-of-service principles, and hired four experts.

“Three recommended a method to develop the rate using state-of-the-art cost of service principles, namely, the cost of capital assets owned by City residents, and the one additional expert was hired to develop the return rate on the cost of capital, based on this recommendation.”

I’m a city resident, but what I see in Avery’s email and other city memos is an effort to justify charging county residents more. They arrived at this.

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One peculiarity of the city’s analysis is that they lump together all the Tucson Water customers in all the incorporated areas, including Tucson, South Tucson, Marana and Oro Valley. About 10% of the customers in incorporated areas actually live outside Tucson in these other jurisdictions, Tucson Water spokeswoman Natalie DeRoock said by email.

So, it is possible that the Tucson Water customers in Marana, South Tucson and Oro Valley also have a lower return on equity, as with those in unincorporated Pima County. But their impact on the calculations may be offset by the 90 percent of customers in incorporated cities who live in Tucson.

We don’t know because they tried to isolate the cost of serving people in the unincorporated area only. They didn’t produce a broader assessment of costs based on, say, distance from the city core or other measures.

Incorporation or annexation

This brings up another subtext to the whole proposal. It is, once again, an implicit argument for annexation or incorporation.

In the 2021 effort, city officials made this idea an overt part of their argument in favor of charging more to customers in the unincorporated county. This time, it goes unsaid.

But of course it stands to reason that if these customers in the unincorporated areas of the county were to incorporate their own cities, or be annexed into Tucson or another city, they would no longer be charged these higher rates.

It is bad that there are around 380,000 residents of the Tucson metro area who live in unincorporated areas: They don’t bring in as much state shared revenue as they would if in an incorporated jurisdiction. We miss out on millions a year in metro Tucson because those people don’t live in towns or cities.

By and large those people don’t want to be annexed into the city of Tucson, especially now after their targeting by Tucson Water. The city should encourage them, though, to incorporate on their own. We all lose when they don’t.

No refunds issued

Then there’s the matter of their refunds. Tucson Water charged millions in additional dollars to customers in the unincorporated county during the years when the 2021 differential rate was in effect.

When the judge threw out that rate increase, he didn’t order that money repaid. That’s because the county, which was the plaintiff, didn’t ask for it until late in the case. An appeals court upheld that decision, as did the state Supreme Court on April 1.

It doesn’t mean they aren’t owed the money back — just that the county didn’t correctly ask for it.

Any effort to charge Tucson Water customers in the unincorporated county more should account for the fact that they are already holding millions of dollars charged to those people through an illegal rate increase.