Mount Pulaski Mayor and council share findings about antiquated water/sewer system with the community
Working with Illinois American Water to sell city owned assets

 

[February 18, 2021] 

CHALLENGES

· Urgency – The City is aware that the Illinois Environmental Protection Agency and Illinois Attorney General intend to take legal action against the City regarding the City’s water quality, which may include significant fines. The solution to this problem is a new water treatment facility estimated at 4 Million Dollars.

· Rates: The existing system was operating at a financial disadvantage. Based on the existing rate structure, funds are not available to implement needed improvements without massive rate increases. The rates that have been in place, have not provided enough capital to complete our 10 year capital investment plan, let alone a 4 million dollar investment.

· Age: Our infrastructure dates back to 1895 and portions of it are failing due to aging, environmental factors, and maintenance. The costs to maintain this infrastructure and comply with ever increasing IEPA regulation will only continue to rise in the future.

SOLUTION

· An independent consultant with over 44 years of experience in the water and sewer systems transactions field, was retained and is assisting the city with figuring out the best solution to its water and sewer system challenges.

· The City chose to issue a Request for Proposals (RFP) to sell its assets and relieve their operational responsibilities. Through the RFP process, Illinois American Water was selected by the City as the best long-term solution provider for its residents. Currently we are in the negotiation process to determine specific details, this is a required process, and the sale is not final.

· This was not a rushed decision, the Mayor, City Council, our attorney, consultant, and members of the community have been working on this for over a year.

BENEFITS

• Illinois American Water’s rate increases are regulated and must be approved by the Illinois Commerce Commission, same as Ameren with their electrical rates.

• Financial: The City will receive fair market value for its sale of water assets upon regulatory approval of the acquisition. This financial gain will allow the City to invest budgeted funds into other much needed city projects.

• Water Quality: Illinois American Water has committed to investing over $12 million dollars into Mount Pulaski’s water and sewer systems within the first five years of ownership. This includes new water treatment facilities to address nitrates, iron and manganese impurities. This investment also includes a new sewer treatment plant.

• Illinois American Water is able to invest such a large amount of money into our systems without rates skyrocketing because they have a 1.3 million customer base in their operational region. This enables them to spread the cost, compared to the 840 Mount Pulaski water customers.

Water and Sewer System Update from Mayor Bobell and members of the City Council

At its December 8th, 2020 meeting, the Mt Pulaski City Council voted to move forward with the negotiation phase of selling the Mount Pulaski water and sewer systems. This decision was not a hasty one and was not taken lightly by Mayor Bobell and the City Council. This step is one of many in the due diligence process to get specific details of what such a sale would involve. We realize there are many rumors circulating throughout the community regarding this process. The restrictions placed on public gatherings during the COVID 19 pandemic have complicated the process of distributing and discussing factual information with community members. This document is intended to give background information on how we reached the decision that selling these systems is in the best interest of our residents.

Currently, the City of Mount Pulaski is in the middle of attempting to resolve a December 2019 violation issued by the Illinois Environmental Protection Agency (EPA). A boil order was issued, as required, due to a high nitrate result during routine testing. The Illinois EPA investigates all incidents in which a boil order is issued. Several meetings took place with the Illinois EPA, Mayor Bobell, the City Attorney, and Public Works Director attending. The Illinois EPA rejected the Public Works Director’s plan to demonstrate how Mount Pulaski would minimize or prevent further violations because they wanted a capital improvement plan from the City to address future water source impurity issues. The Illinois EPA has gone ahead and filed suit against the City through the Illinois Attorney General for the nitrate violation until the issue is resolved to their satisfaction. Following the Flint, Michigan water crisis, state EPA agencies have become stricter in enforcing water regulations. The Illinois EPA wants to prevent such a catastrophe from happening in Illinois.

The City Attorney recommended retaining a consultant to assist us with evaluating our systems and recommending a solution to the situation. We felt it was important to address both the options to address the current Illinois EPA issue and the overall condition of the water and sewer systems. After consulting several other communities and attorneys, the City Attorney was consistently referred to Hartman Consultants, LLC. Hartman Consultants have 44 years of experience in water and sewer system transactions which include providing expert witness testimony, writing over 50 papers on the subject, and many other citations. In July 2020, they issued their report, “City of Mount Pulaski Utility Review and Independent Consultation Concerning the Water and Wastewater Systems.” This report is available at City Hall for anyone wishing to read it. Hartman Consultants concluded that selling the systems was more advantageous than any of the other options available including continued ownership of the systems.

In Hartman Consultant’s Independent Utility Review report, they state Mount Pulaski would have to spend $4 million dollars to address the immediate needs of both systems. In addition to new water treatment facilities, the sewer treatment facilities would need to be upgraded from the original 1959-60 construction to current Illinois EPA requirements. The sewer lagoons would need to be cleaned now because they have not been thoroughly dredged in 40 years. In addition, the water distribution system dates back to 1895 and will need significant continual investment to bring it up to current standards. We concluded that the $4 million dollar investment would only be the beginning of many huge dollar expenditures needed to maintain the systems going forward with continued city ownership.

Where will the money be obtained for future expenses? The City currently has a maximum debt limitation of $1.6 million dollars. We are not in favor of maxing out the City’s debt at the expense of other City problems. This would severely limit the City from responding to any crisis that may happen in the future. The City can raise rates but needs a large amount of cash now to even begin urgently needed upgrades. We are concerned with the financial burden that would come from sharp significant increases to our citizens. Government grants were a possibility but are hard to come by in this economic environment caused in part by the COVID-19 pandemic. Consequently, a shortage of government funds may last for years to come. Hartman Consultants cited a Purdue University study that found grants caused a 28% cost increase due to higher costs related to grant compliance and a delay in program completion by at least one year.

If it were financially possible for the City to invest in and operate the current water and sewer systems, there would be additional costs. The City would have to hire additional skilled personnel who would require health insurance and pension benefits, etc. The lack of enough skilled staff is one of the reasons the City has not been able to address the problems we have today, including the condition of city streets. Consultant Gerry Hartman mentioned during his in-person visit last summer, that one of his recommendations would be hiring an engineering firm to oversee the current water and sewer operations. This process would involve a monthly visit to ensure everything was operating smoothly and making any necessary recommendations regarding maintenance of the systems. The selected firm is expected to charge approximately $20,000 a year for this service. This cost would be on top of the cost of hiring additional employees and the continued investment in the systems in the long term.

We concluded the hazards and risks from owning and operating the water/sewer systems in the long term are too high for the City. Liability risk and exposure to increasing regulatory compliance and legal/financial risks are hard to assign a dollar amount, but future costs will continue to rise. If the City satisfied the Illinois EPA with a solution for the current water treatment issue, the age of the system leaves the City at risk for future violations and repair expenses while trying to ensure that these systems are being maintained and operated reliably. It was concluded that the City would be unable to handle any emergency that may arise.

In Hartman Consultants Independent Utility Review report, they did a comparison of rates between the City making the capital improvements and keeping the systems against the rates expected if the City were to sell. The comparison was for a customer using 5,000 gallons a month (which would be close to the average resident’s usage). If the City were to make the minimum necessary improvements over the course of the next 5 years, their bill would be $112.67 while the same bill from a private company would be $99.87. This results in a bill that is $12.80 less than the City’s and makes the private company rates roughly 13% cheaper. Please keep in mind that the age of the systems and the likelihood of other issues needing attention is high. The City’s rates would have to be raised accordingly, on a continual basis to maintain those systems. If the City were to sell, this continued operating and investment cost would be spread across the buyer’s vastly larger customer base and would keep rate increases to a minimal amount. We felt that selling the water and sewer systems would keep rates at a more reasonable level.

After much discussion and consideration, we voted to proceed with the next step of the process in investigating the possible sale of the water and sewer systems. This step involved putting out a Request For Proposal (RFP) to potential buyers. A RFP is a formal request to provide detailed written proposals for the purchase of the water and sewer systems. The RFP was prepared and solicited by Hartman Consultants and the City Attorney. RFP is a common practice involving possible sales of capital assets. Proposals from potential buyers were received in October 2020. We voted for the creation of a committee made up of the Mayor, City Council members, and members of the public to review the proposals and make a recommendation to the full City Council.

The Request For Proposal (RFP) review committee’s recommendation was submitted to the full City Council in November 2020. The committee felt that one offer was clearly better than the others with regard to the purchase amount the City would receive for the water and sewer assets along with their investment plans for Mount Pulaski’s water and sewer systems. This conclusion was consistent with Hartman Consultants’ RFD Bid Evaluation and Recommendation provided to the committee and City Council.

At the December 8th, 2020, City Council meeting, we voted to move forward with the next step in the possible sale process. This step is to enter into negotiations to determine specific details that would be involved in a sale. The City is not obligated to sell, but the negotiation process must take place for details to be worked out such as: water and sewer rate schedules for the foreseeable future, what specific investments would the buyer make to Mount Pulaski’s systems, the final purchase amount, what (if any) surcharges can residents expect on their bills, and is the buyer’s logo going to be placed on the water tower instead of the town’s name? We need to know these details before committing to any sale and more importantly, to justify our decision in favor of the sale to our citizens. All these steps have been communicated to the Illinois EPA and Illinois Attorney General to demonstrate that we are serious about figuring out how to address problems with our water and sewer systems. This has not prevented the Illinois EPA from moving forward with a court filing for the violation and will not stop until the City has formally committed to a plan to address the system issues.

We believe that if you take the time to understand the Hartman Consultants Independent Utility Review report, all other documentation provided to the City, and its financial position, you will come to the same conclusion: Selling the water and sewer systems is the best way forward for the City in the long-term. Selling would ensure all system issues, maintenance issues, and compliance issues are taken care of and lessen the burden on the City. Potential buyers have the specialized resources such as dedicated system engineers, EPA compliance specialists, and management personnel to manage the day-to-day operations of the systems. If the City were to keep the systems, it would have to outsource most of these services at a much greater cost. Selling would also be the best way to ensure future water and sewer rates are kept within reason for residents. With the burden of operating the water and sewer systems being removed, the City will be able to refocus on the many other issues the City faces. Proceeds the City would receive from a sale will go far in addressing those issues.

We intend to send out periodic updates to keep residents informed as to the status of the water and sewer systems issue. Please feel free to contact any of us if you would like to discuss this issue further, or have any suggestions, or concerns regarding any other City issues. Our contact information is listed below.

[Mayor Matt Bobell & Members of the City Council}

Mayor Matt Bobell
[phone]
[e-mail]

City Council Members

Dan Smock
[phone]
[e-mail]

Darin Phillips
[phone]
[e-mail]

Willie Rentmeister, Jr.
[phone]
[e-mail]

Joyce Maxheimer
[phone]
[e-mail]

Tim Emrick
[phone]
[e-mail]

Kate Davis
[phone]
[e-mail]

City Website
https://cityofmtpulaski.com/

City Hall
113 S. Lafayette St.
Mount Pulaski, IL 62548
Ph. # 217-792-3222
Fax # [phone]