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Shanghaied Water Rates: What Palm Coast Has in Common With China’s Largest City

| June 16, 2013

Stormwaters over Shanghai. (Jakob Montrasio)

Stormwaters over Shanghai. (Jakob Montrasio)

Palm Coast residents might have smiled knowingly when they picked up their Friday issue of Shanghai Daily and read, on page 2, a familiar headline, but for the geography: “Shanghai plans 30% rise in tap water charges.” A few months ago the Palm Coast City Council approved a 16 percent water-rate increase over three years. Combined with a steeper stormwater rate increase, Palm Coast’s “adjustments” rival those of Shanghai, which folds its stormwater costs as part of its water bills.

China’s (and the world’s) largest city–with a population approaching 25 million–is increasing its water rates for much the same reasons and with the same rationales as Palm Coast, if not, on occasion, the same excuses compelled by similar pressures: over-development, over-extension, and regulatory demands. A seemingly outlandish comparison between the two cities turns out to be much less so–and much more instructive–when comparing the similarities of the two cities’ utility challenges, and the limited ways they can go about addressing them without, in the end, making the rate-payer pay.

The lesson: when it comes to managing a utility, no matter the setting, the bottom line generally has a lot less to do with conspiracies to stick it to the rate-payer and a lot more to do with the vagaries of the market, demographics, environmental expectations and unexpected turns in the economy.

“This is not a price adjustment meant to make money,” Chen Yuanming, the vice director of the Shanghai Water Authority, is quoted as saying. “While Shanghai continues to spend heavily to improve water supply and quality,” the article continues, “‘we have to ease water utilities’ financial strains,'” Chen says. In other words, Shanghai’s authority is facing the same pressures as Palm Coast’s utility: bond holders must be appeased.

The push behind Palm Coast’s water hike–16 percent over the next three years, starting with an 8 percent jump rate-payers saw last month, when they received their bills for April usage–was the result of several factors. The city overextended itself during the boom years by assuming that the boom would continue. Its high-end water plants and its well fields were expensive to develop. But as long as new residents kept moving in, the city could defray much of the cost by using development impact fees rather than rate hikes. Fee collection stopped after the crash in 2007. Financing the system, which borrowed heavily, did not.

The Shanghai Daily's item on Fin its Friday edition. Click on the image for larger view.

The Shanghai Daily’s item on Fin its Friday edition. Click on the image for larger view.

Bond holders always come before rate payers, otherwise they tend to break cities’ legs: a municipality that doesn’t make good on its debts sees its bond rating crumble and its financing costs climb, and could theoretically face bankruptcy. Originally the city planned a 22 percent water-rate increase over three years. Residents howled. The city council adopted a 16 percent increase, but with no promises that the increases further down the road will not be steeper than the current pledge to just go up in line with inflation. The city is again making a bet that in three years, development will pick up where rate-payers would have for the next two. It’s the same bet the city made in the previous decade, and lost.

The comparison with Shanghai is not en exaggeration, except in terms of scale: Shanghai is the largest city in the world, but it’s under the very same pressures a city like Palm Coast–and innumerable cities across the globe–are facing when it comes to utility management. The recent history of Shanghai’s utilities makes the point. In 2008, Shanghai was estimated to have 18.9 million residents, according to a United Nations report, with a population growing to 25 million by 2020–a Flagler County-like growth rate on a much larger scale.

In 1992, the city created the Urban Development Investment Company to finance and manage development authorized by the city government. (The city itself could not directly sell bonds until 2011.) Its main sources of financing, according to a UN report, are “loans from commercial banks and [international financial institutions] such as the World Bank and the Asia Development Bank; funds raised from the capital markets by the listed subsidiary company; and the issuance of bonds.” The authority oversees a group of utilities within the city, but those water suppliers reported a $44 million loss last year, according to the Shanghai Daily article (268 million yuan), and are facing higher costs this year “because of higher raw water prices, operation costs, depreciation of fixed assets and rising interest costs.”

Why those rising interest costs? Here’s a hint: in mid-April, Moody’s, which also rates Palm Coast, lowered the bond rating of China’s government, an unhappy signs for borrowers in the country’s largest local government. Five months earlier, the Shanghai Water Authority had announced a five-year, $16 billion investment to upgrade its water utilities, including, ironically, its stormwater system (what they call flood control and “riverbank administration” over there), what has also been a huge financial (and bond-holder-driven) challenge for Palm Coast: stormwater rates have also jumped 46 percent this year.

Shanghai’s push has as much to do with modernization as with water quality–and conservation. “As with fuel, power and natural gas,” the Shanghai Daily article concludes, “water is another commodity for which the Chinese government is pursuing price reform to better reflect the scarcity of resources and to encourage conservation.”

The Palm Coast City Council and administration have used a few different euphemisms to describe their price increases, but they have never gone so far as to call them “price reform.”

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7 Responses for “Shanghaied Water Rates: What Palm Coast Has in Common With China’s Largest City”

  1. Pete says:

    The way this City, County and School System is run better be careful or we will all be bankrupt?

  2. PCOG says:

    They over water the grass in the medians to the point the water is running in streams down the gutters and they want to raise our rates. Idiots.

  3. Magnolia says:

    I wonder if they were lending millions to developers out of the water fund in Shanghai and now find themselves short because of that?

    Palm Coast is.

  4. Dennis McDonald says:

    Putting aside the scale of these two cities the comparison is not even close. You have not mentioned Mayor Netts and City manager of the year Landon’s Irresponsibility in lending OUR cash reserves to Old Kings Rd so that selected parties could cash in for $5,900,000 on the Walmart land sale.
    Yes we needed to upgrade Water Plant #2 to ZLD and Netts/Landon had a letter from FLDEP in Feb 2007 REQUIRING it be done, but they spent OUR $$ on OKR in Feb 2009.
    That’s right TWO years later ! Their actions go beyond irresponsible and many hold the opinion criminal. Let’s also remember that Frank [I love taxes] Meeker was right at the table too. With $8M short Meeker tried to jamb the 6% electric tax on us early 2012, public response NO SALE !
    Shanghai has a more direct and permanent way to deal with officials that abuse the public trust. We in Palm Coast must be more civil and can work to collect 2700 signatures for Recall or wait for the FL Ethics Commission to act on a filed complaint. Either way the best we can hope for is time served and a bus ticket to NJ and one to TX.

    • Magnolia says:

      @ Mr. McDonald: YIKES, it’s much worse than I thought. I’m ready to sign that petition. These guys are stealing out money faster than Congress.

  5. Shirley says:

    New electric meters so they can WATCH what you do in your house. Next they will install (at taxpayers expense) New water meters that will tell them when we shower or get a drink. Camera’s on EVERY intersection to “rob you” thru unjust fines……I don’t like this place anymore !!!!

  6. r&r says:

    If you drive down Belle Terre on Tuesdays or Fridays around 6, or 6:30 A.M you’ll see the biggest waist of water in the area.. It’s like going through a car wash.. 90% of water being used for the medium ends up in the street and runs off.. Anyone who takes pride in driving a clean car should avoid this street.. The problem goes from Palm Coast pkwy to 100.. The city is finding another way to rip off the people and add to their perks.. Landon, Adams and all of them must go..

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