This afternoon, King County Council Members shot back at State Auditor Brian Sonntag's report, released this morning, that said the county was wasting tens of millions of dollars running its water and solid-waste treatment facilities. In a joint statement, Larry Gossett, Larry Phillips and Julia Patterson say the report's findings do not "fully grasp the realities of running a landfill." The council members pledge to examine the report and hold a public hearing, but say the state audit fails to recognize cost saving mechanisms the county has already identified. Their detailed statement, including accusation that Sonntag's recommendation for solid waste mangement is "not environmentally responsible," is after the jump.

UPDATE: Interim King County Executive Kurt Triplett has just issued his own sharply worded rebuttal, claiming that the auditor exaggerates potential county savings. "[W]e don’t believe the auditor followed his own published protocols for compiling and presenting these findings to the county nor did they fully incorporate clarifications to this audit....” He adds that, "While many of the auditor’s recommendations already reinforce areas where the County is focused on savings and generating additional revenues—extending the life of the Cedar Hills landfill and increasing revenues from biogas operations and biosolids management—the report lacks practical considerations that must be taken into account to achieve the additional savings and revenues."

County Council Members' statement:

Performance audits are a valuable tool to identify savings and efficiencies, and the King County Council is completing one of its own that found $105 million in Metro fleet replacement reserves that can be safely used to keep bus service on the streets.

The document released today on King County utilities recommends some efficiencies that we will pursue with the Executive branch. Other findings do not appear to acknowledge savings already identified by the County or fully grasp the realities of running a landfill.

We share the desire to keep utility rates as low as possible for our customers. King County solid waste disposal rates are among the lowest in the region — lower than in Seattle and Snohomish County — and we have kept them below the rate of inflation over the past decade. Our sewer rates have reflected growth in the cost of the tremendous amounts of electricity needed to run treatment plants, the start of new secondary treatment operations at West Point, and the expansion of regional capacity with the new Brightwater plant.

We appreciate the Auditor's commendations in 22 areas where he recognizes that King County employs leading practices in the management of the utilities. We also thank the Auditor for the courtesy of individual briefings before release to the public. We will hold an immediate public hearing on our response to the audit findings at our Committee of the Whole meeting in Council chambers this morning, Wednesday, September 16, with a continuation of the public hearing next Monday, September 21, at 9:30 a.m.

Accounting study already requested to document cost allocation

The allocation of central services and governance costs to departments and utilities is a practice that required by the state Accountancy Act, which says that one fund cannot benefit another. It is consistent with the recommendations of outside consultants including Deloitte Touche, who conducted an independent assessment of King County in 1994.

The Council already called last June for an equitable and transparent means of allocating the costs of governance to departments, when we adopted a motion directing the Executive to achieve “best practices” in developing a cost allocation model for the 2010 budget proposal he will deliver on September 28.

The Auditor’s concern is about record-keeping, not the merits of the allocated costs.
It’s essentially a disagreement between accountants over how to document the true value of the management and oversight provided by publicly-elected officials and their staff. The new accounting study will address this concern.

The public is paying less now for the governance of its county utilities than it did under the old federated Municipality of Metropolitan Seattle (METRO) that used to oversee transit and wastewater. Under the old METRO, the inflation-adjusted overhead costs for Water Quality were $14.8 million and $34.9 million for Transit. Under the Council-Executive form of governance that voters approved when they merged King County and METRO in 1993, those costs are now $2.4 million for Wastewater Treatment and $15.4 million for Transit.

We find it extremely inappropriate for the Auditor to make the value judgment that utilities are “overcharged” or that they “pay more of these costs than they should,” especially when the Auditor acknowledges in our meetings with his staff and in the audit summary itself that the value of the services provided by the Council and Executive may be found to equal or exceed those costs that were allocated to utilities.

In fact, the Auditor’s recommendations would lead to money from the general fund, supported by the property tax, improperly subsidizing the utilities, which should be supported only by ratepayers. Under this scenario, for example, property taxes from a homeowner in King County would be underwriting ratepayers in Snohomish County, who are among those whose wastewater will be treated by the Brightwater plant.

Finally, we find the aggregate figure of $60 million offered in the audit to be highly misleading to the public. Instead of presenting an annual figure that can be compared to other annual figures, the audit publishes an arbitrary number that rolls up five years for dramatic effect. When we challenged the auditors directly on this, we were disappointed at their reply that “this is just the way they do business.” The number even includes figures for King County Metro Transit, which was outside the scope of the audit.

Plans are already in place to save even more money than the audit suggests at the Cedar Hills landfill

While the Auditor recommends taking action on potential cost savings at the Cedar Hills Regional Landfill, it’s worth noting that the consultant who actually conducted the audit recommends only conducting some engineering analysis. The proposed benefit also does not include the real costs of achieving it.

The suggestion that we extend the life of Cedar Hills in order to save the annual costs of exporting garbage is in itself a good one. That’s why the Council two years ago adopted a plan directing the Solid Waste Division to look for ways to expand landfill capacity.

The audit suggests $31.1 million over five years in savings can be had through what’s known as leachate recirculation. The alternatives in the Solid Waste plan now under review could save ratepayers up to $113 million and extend the life of the landfill 15 years past its formerly forecast closure date of 2016. The County’s plan would accomplish this by exploiting the natural breakdown of garbage and packing it in tighter up to permitted heights, and building new disposal areas within the existing space.

The action recommended by the audit is one that is not environmentally responsible. The Auditor calls for making garbage decompose faster through the industry practice of capturing the contaminated water that trickles down through the refuse and recirculating it back up over the top. What the audit does not recognized is the reality all landfill operators must face: the balance between potential savings and the impacts to their neighbors. As you might imagine, this so-called leachate water carries a distinctive odor, and recirculating it might work if the landfill were located in a remote rural area. But Cedar Hills is located on three sides by residential homes in Maple Valley, taxpayers have already paid to settle a lawsuit relating to landfill odor, and Solid Waste has made a commitment to neighbors to keep the air clear.

The audit recommendation wouldn’t save money either. To install leachate recirculation pipes would require ripping off the cap that covers a closed area of the landfill that cost $24.7 million to build, then pay another $24.7 million to install another cap — plus the millions in costs for the recirculation system itself. Cedar Hills does not need extra water; it receives five feet of rainfall every year, far more than in the other states on which the leachate studies were made.

The Auditor’s recommendation to relocate the fleet maintenance shop at Cedar Hills is one that Solid Waste gave to him — for two years the division has been exploring the idea of making room for more garbage by moving the maintenance facility for garbage trucks and bulldozers to the buffer zone on the south end of the landfill.

However, the claim that $25 million can be saved by moving the maintenance shop is misleading because it wouldn’t be realized for 16 years — the land on which the shop now sits won’t be needed to bury garbage until the year 2028. Even then, the savings claimed fails to include the corresponding cost of moving the shop and building a new one.

An audit of the Auditor

Given some of the questions we have about this particular audit, we are calling on the King County Auditor to conduct a study of the process and substance of this performance audit, and report back to the Council.

Areas in which Council will monitor Executive follow-through

On other issues raised by the audit, the Council has set policy direction in the past for the Executive, and we will be monitoring the Executive closely to ensure follow-through, especially on those recommendations on the control of overtime, preventive maintenance for fleet vehicles, the use of biogas to generate electricity, the sale of biosolids for fertilizer, and protection of the integrity of electronic data.

King County Executive Statement:

An audit released by the Washington State Auditor on Wednesday highlights nearly two dozen instances of industry standard best practices being used by King County to reduce taxpayer costs for utility services.

The report recognized the county’s utilities for implementing 22 leading, cost-effective practices that save taxpayer dollars. While many of the auditor’s recommendations already reinforce areas where the County is focused on savings and generating additional revenues—extending the life of the Cedar Hills landfill and increasing revenues from biogas operations and biosolids management—the report lacks practical considerations that must be taken into account to achieve the additional savings and revenues.

The Auditor’s estimate of annual savings for the utilities is $17.3 million, compared to the county’s estimate of $1.6 million when implementation considerations are taken into account because the audit overestimates potential savings from recommended changes in other areas and failed to consider current management best practices when assessing expenditures and revenue sources for King County administered utilities.

Among the county’s utilities’ 22 leading practices mentioned in Appendix B of the audit report:

1. Selling biogas as a commodity at the South Treatment Plant (Wastewater)
2. Achieving 100 percent compliance with national pollution discharge standards over the last three years (Wastewater)
3. Publishing real-time operational information to the public regarding any overflow site conditions (Wastewater)
4. Collecting and selling landfill gas as a commodity (Solid Waste)
5. Applying leading practices to maximize the life of the Cedar Hills landfill (Solid Waste)
6. Using performance measures to monitor operations and plan fleet replacements (Solid Waste)

“The findings highlight King County’s utilities’ innovative and industry-leading practices in several areas and validate the county’s stewardship of taxpayer resources,” said King County Executive Kurt Triplett. “However, we don’t believe the auditor followed his own published protocols for compiling and presenting these findings to the county nor did they fully incorporate clarifications to this audit, which would have resulted in a much better and more accurate outcome and a better understanding of these complex issues for the public.”

For example, the audit questions the documentation used to allocate the overhead costs of elected officials , implying that eliminating charges supporting the offices of the County Executive and the County Council would save the utilities $9.7 million over five years, and it would save Transit $27.3 million over five years.

County finance staff found the figures to be grossly exaggerated because they assume the utilities are not receiving a direct benefit from the oversight and leadership provided by the governing elected officials. In addition, not allocating any general government costs to the utilities, as the audit suggested as a savings, would actually violate state law; specifically the state accountancy act, which requires that each government department must pay for the fair value of services it receives from other departments.

The county also took issue with the auditor’s findings that overtime costs should be reduced. The findings do not take into account that overtime costs by King County utilities are controlled and cut overall costs by reducing the need to hire additional employees. The findings also did not factor in that most overtime expenses result from running 24-hour facilities, which pose unique challenges for staffing round-the-clock shifts.

The Audit’s concerns about King County’s information technology use do not acknowledge the server move project to the new King County new data center, which effectively addresses the Auditor’s physical environment concerns. The auditors were provided information on the move project during their fieldwork, and made the decision not to include this efficiency in their analysis.

In several cases, the audit identified potential cost savings and/or revenues, but ignored the costs to achieve those savings and/or revenues. In some cases, this means that the recommendations are not, in fact, cost effective.

For example, the auditor’s recommendation to add additional water to already constructed areas of the Cedar Hills landfill does not make economic sense. Any cost savings are eliminated when accounting for the added costs of removing permanent soil caps and re-installing the facility infrastructure. Under this scenario, King County would need to spend $24.7 million dollars to install the infrastructure, which would be roughly equivalent to the presumed savings. However, the anticipated savings is included in the audit as a potential savings point, without consideration for cost.

Another example is that the audit report recommends relocating Solid Waste’s fleet operations to create more space in the landfill, resulting in savings of $25 million. The associated savings would not be realized until 2026 or later. This cost savings estimate does not account for the cost of relocating maintenance facilities or operational disruptions and is premature based on environmental studies underway. The County will be issuing a draft environmental review document in October that explores five options for extending the life of the landfill.

Despite these concerns, the audit provides some useful insights and recommendations. Executive Triplett pledged to continue work with the County Council and department staff to further evaluate the auditor’s findings and undertake any elements that will result in savings for taxpayers or efficiencies for operations.