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HomeMy WebLinkAbout1993 - Updates and ReportsOctober 6, 1993 Utilities Department Report Since the Last Staff Meeting on September 29, 1993 1. The City Council, at its September 29th meeting, authorized the signing of the Purchase and Sale Agreement between the City and General Development Utilities (GDU) for the Sebastian Highland Water and Sewer Systems once the details of the agreement are resolved. The Task Force met with GDU at Attorney Nash's office on Friday for a 6 hour meeting. Unfortunately, not all details are resolved at this time and our Attorney is on vacation, in-the--R-o�ky--gountains- 2. I completed a detailed quantity takeoff for the water and sewer systems in Palm Lake Club and Park Place since I was not able to obtain the information from any of the County Utilities files. I cannot understand how the County valued the Park Place/Palm Lake Club system when actual quantities and costs were not documented. 3. I wrote a letter which was reviewed by Attorney Tom Cloud in, regard to $18,596.12 for which the County owes the City a refund. The County is charging us for delinquent accounts that it turned over to the City for which we are not-,-Ir-T,;. responsible for under the City -County Interlocal Agreement. 4. I met with Kevin McAdams of Kimley-Horn Associates, Inc. in dal regard to constructing a lift station and force main for Cumberland Farms at County Road 512. The drainfield is leaking and is in violation of Health Department rules. 5. I concluded my research and completed a Resolution for Council on requiring THM control for all public water systems in the State of Florida which violate the maximum contaminant level. 6. I have had a water production vs. water consumption comparison sheet prepared which shows that we have a sizable percentage of water at Park Place/Palm Lake Club which is unaccounted for. Bob has borrowed hydrophones from the City of Vero Beach and went to Park Place to check for a suspected major leak on West Lakeview Drive. 7. I have drafted a report on water demand by prospective customers along the north U.S. 1 corridor to give to the City Manager for transmittal to the Indian River County Board of County Commissioners. Ppare $y� Richard B. Votapka, P.E. Utilities Director City of Sebastian POST OFFICE BOX 780127 ❑ SEBASTIAN, FLORIDA 32978 TELEPHONE (407) 589-5330 ❑ FAX (407) 589-5570 MEMORANDUM DATE: November 29, 1993 T0: Kay O'Halloran, Interim City Manager FROM: Richard Votapka, Utilities Director SUBJECT: Report on the City of Sebastian's Negotiations and Purchase of the General Development Utilities On October 25, 1993, I had a meeting with you, Vice Mayor Oberbeck, and Marilyn Swichkow to develop an outline for the above report. Based on the three (3) page outline, I completed a seven (7) page typed written report. The delay in completing the report was primarily due to the urgency to respond to the on-going GDU acquisition and revenue bond procurement process. In addition, I had to research the files for verification of events and dates for accuracy and for structuring the report in chronological order. The report is still timely inasmuch as the acquisition and bond procurement is still in progress. Please review the draft copy, make any changes you feel apropos, and return your comments to me as soon as possible. CC: Vice Mayor Oberbeck Marilyn Swichkow, Finance Director Hal Schmidt, Hartman & Associates REPORT ON T H E C STY OF S E BA ST T A N' S N E GOT T AT T O N S A N D P U RC H A S E OF -1-HE GENERAL DEVELOPMENT UTTLTTTES (GDU) S EBASTIAN H T G H L A N D S WAT E R A N D WASTE WAT E R SYSTEMS November 24, 1993 By: Richard B. Votapka, P.E. Utilities Director, City of Sebastian It is my intent, as Utilities Director, to try to summarize events which led to a purchase agreement for the GDU Sebastian Highlands water and wastewater systems between the City of Sebastian and General Development Utilities over a three year period. Since March 5, 1991, when the City received an offer from Indian River County to relinquish its franchise rights within the City, the City has pursued its goal of acquiring the General Development Utilities (GDU) Sebastian Highlands water and wastewater systems. Once acquired, the system will ultimately be expanded throughout the entire City. Throughout the lengthy process of negotiations, several dollar amounts relating to the purchase price of the GDU system were publicly revealed. Negotiations at times moved rapidly, then stalled; then proceeded to an initial offer. Negotiations were terminated by the City after the initial offer was rejected by GDU; then resumed. Finally, an agreement was reached between the City and GDU; the required Chapter 180.301 Public Hearing was held; a purchase and sale agreement was executed; and closing was scheduled for December 16, 1993 for the acquisition of the GDU systems. The general feeling expressed by many of the residents of Sebastian was that they were not properly informed of the status of negotiations during the entire process; that they only learned about the conclusion of the negotiations after a purchase price had been determined. In March, 1991, the City of Sebastian selected and hired the consulting engineering firm of Hartman & Associates, Inc. and the law firm of Gray, Harris & Robinson to provide technical and legal assistance for the City's negotiations with GDU. In their preliminary analysis to determine a relative cost value of the GDU Sebastian Highlands Water and Wastewater System, Hartman & Associates performed a comparison study. 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OL MIS A ,r' _swr c? 1111:_,'( 1'69r JF 9d 1 ?-'1a . 'S.Se lun n.ir 16' 1 ' -port 16,101 10 b92.1 J In April 1992, GDU offered a package sale of both the GDU Palm Bay and Sebastian systems for a total price of $50 million. The GDU Palm Bay System was offered at $47.5 million, the GDU Sebastian Highlands system for $2.5 million. The City of Palm Bay rejected this offer in favor of having the purchase price determined through court ordered arbitration which had been previously scheduled for May, 1992. From May, 1992 through October, 1992, GDU did not negotiate with the City of Sebastian. During that period, GDU was intensely involved with the Palm Bay and North Port Utility Systems arbitration rulings. Both Palm Bay and North Port were large systems in comparison to the Sebastian Highlands system. Together their arbitrated value was determined to be $48.4 million, $31.9 million for Palm Bay, and $16.5 million for North Port. From November, 1992 through March 1993, Hartman & Associates and Robb McClary, City Manager, had several discussions with GDU officials. As a result, a purchase price of $2.75 million was agreed upon with Charles Fancher, President of GDU. On April 14, 1993, the purchase price was reviewed independently with each of the City Council members by the City Manager, Utilities Director, and officials from Hartman and Associates, Inc. After it was approved by the City Council, Charles Fancher brought the purchase price before the governing board of GDU for approval. The GDU Board of Directors countered with an offer of $3.25 million. The City maintained its position to offer $2.75 million and broke off negotiations on June 16, 1993 after GDU filed for a rate increase on May 1, 1993. Negotiations between the City and GDU were conducted in accordance with Florida Statutes, Chapter 166.045. This Chapter of the Florida Statutes provides for negotiations between the two parties to be conducted in private, so that the City's negotiating strategy was not revealed to the seller through the news media. Otherwise, the City's every move in determining an offering price would be exposed to the seller. Chapter 166.045 also provides for private negotiations during collective bargaining with labor unions for the very same reason. It is only after a purchase price or a contract is successfully concluded and agreed upon, that the details of the negotiations are publicly released. Unfortunately, members of the public feel frustrated during negotiations because of the lack of information which is released. The rate increase that GDU filed on May 1, 1993, originally was intended to be filed in 1992, but was delayed because of negotiations in progress during that time. Once the rate increase was filed by GDU in May, 1993, the City was obligated to review the application in 60 days and take action within 30 days. This timetable is set forth in City Ordinance 0-92-15 in reference to utility franchises and in the GDU Water and Wastewater Franchise Ordinances. It is only through a mutual agreement between the City K and GDU that the City can extend the time frames as set forth in the Ordinances. The City nor GDU alone can not extend any deadlines in regard to the implementation of rates. When GDU did not want to extend the deadline of September 17 for implementation of rates prior to negotiations, the City was powerless to extend the deadline. GDU did so only at the request of Council. When the public hearing on rates was held on August 18, 1993, Rachlin and Cohen, CPA's, presented its analysis of GDU's proposed rates and recommended a slight reduction of rates in comparison. Unfortunately, the rates recommended by Rachlin and Cohen were approximately double the existing GDU rates. Since the "Income Approach" analysis used by Rachlin and Cohen was a commonly accepted method of rate analysis, no one materially challenged it at the Public Hearing. Therefore, on September 17, thirty days from the August 18, 1993 Public Hearing, the new rates would have gone into effect. Meanwhile, through telephone calls and personal contacts whom the Finance Director and Utilities Director had with people in the business community, the City staff was informed that GDU was actively marketing its five small remaining utility systems, including the Sebastian Highlands systems. Just a few days prior to the Public Hearing, the City staff learned that a large utility firm in Minnesota was approached by GDU for the purpose of buying all five remaining systems as a package. Also, a firm in London, England had been approached and was considering the purchase. Purchase of the GDU Sebastian Highlands system by others would prohibit the City of Sebastian from providing water to Units 1 - 17 of Sebastian Highlands for the remaining 1S years of GDU's 30 year franchise. Units 1 - 17 constitute about 13,000 lots of the approximate 14,170 commercial and residential lots within the City. Staff learned that GDU was mandated by the Courts to divest its utility holdings by 1995 under the Chapter 11 reorganization plan for the bankrupt General Development Corporation (GDC). GDC was the sole shareholder of General Development Utilities. By filing an application for a substantial rate increase and having the majority of the increase materially unaltered at the conclusion of the Public Hearing, GDU maneuvered into an excellent position to market the Sebastian Highlands system as a financially viable product. The small Sebastian Highlands system most likely was used by GDU as a tax write off against the much larger systems such as North Port, Port St. Lucie, and Palm Bay. Rates for the Sebastian Highlands systems were not increased for extended periods of time. Furthermore, GDU never implemented an incremental increase to adjust for inflation. However, once the larger GDU utility systems were acquired by the various municipal and county governments, the smaller systems (including Sebastian Highlands) were no longer a tax write off for GDU but an economic drain on GDU's financial balance sheet. 3 Following the Public Hearing on rates, the GDU Sebastian Highlands customers were faced with the dim prospect that their utility bills would nearly double in 30 days. Also, the City was confronted with the looming prospect of GDU selling the GDU Sebastian utility system in the near future to another small utility company as a package deal. The City Finance Director had personally been involved in eleven (11) utility acquisitions in Brevard County. When GDU officials hinted at the possibility of reopening negotiations the day after the August 18, 1993 public hearing, she seized the opportunity to have a City task force talk to GDU officials. The task force consisted of the Mayor, Acting City Manager, Finance Director, Utilities Director, and City Attorney. They met with GDU officials for several hours during the next day in the City's Attorney's office. The outcome was that GDU would be receptive to negotiations by the City. However, negotiations would have to be speedy since GDU had several prospects to purchase the system. It was stated that conditions had changed following the public hearing on rates, so that even the counteroffer of $3.25 million that GDU had previously offered the City was no longer on the table. The City would have to renegotiate a new figure. The Indian River County Property Appraiser valued the system at $4.3 million. However, when the new rates went into effect the value of the system would be considerably higher. Charles Fancher, GDU President, had also stated that in 1986, the rate base approved by the City (unadjusted for used and useful) had a net book value of $3.7 million for water and $1.8 million for sewer, for a total of $5.5 million. When presented with the fact that GDU was willing to negotiate with the City, the Sebastian City Council authorized the Task Force to proceed with negotiations. After looking at alternatives and a preliminary analysis of expenses vs. rates to support the required bond, an offer of $3.65 million was made by the City and accepted by GDU. Per customer, the unit price cost was approximately $2,938.81 based on 1242 customers. Indian River County purchased the GDU-Vero Highlands Water and Sewer System in October for a cost of $3 million. The system served 1274 water customers and 1185 sewer customers. However, Indian River County was already serving the water customers with treated water from its South County Water Treatment plant. GDU abandoned its Vero Highlands Water Treatment Plant on March 2, 1986. Once the majority of the City Council approved the purchase price, the Task Force met with GDU officials for six (6) hours on October 1 to formulate a substantive, complex "Purchase and Sale Agreement" for the Sebastian Highlands system. The agreement was predicated on compromised language of both the GDU purchase and sales agreement presented to the City and one prepared by the law firm of Gray, Harris, and Robinson. The final language of the agreement was concluded by both the City Attorney and GDU Attorney G! on October 8, a week later. The agreement was ratified by both parties with the final signatures affixed to the document on October 12, 1993. Immediately, bond financing had to be procured to finance the purchase of the system. The Finance Director assembled a bond procurement team of Raymond James & Associates, as bond underwriter; Nabors, Giblon & Nickerson, P.A., as bond counsel; Hartman and Associates, as engineers; Rachlin and Cohen, as rate analysts; and Hoyman, Dobson & Co., P.A., as Certified Public Accounts. Because a timely commitment by Rachlin and Cohen was not submitted, the Financial Management section of Hartman & Associates was selected to substitute as rate analysts. A schedule was formulated for procuring the bond and closing the purchase of the GDU system on November 30, 1993. However, the closing has been extended to December 16 to allow the bond insurers more time for their review. The bonds to be issued are 30 year Utilities System Revenue Bonds, not to exceed $5 million aggregate principal which will be financed solely by the water and sewer rates for the system. Should an additional guarantee be necessary to finance the bond, the unencumbered 1/2 cent sales tax can be pledged to avoid any increase in ad valorem tax. This is stated in the Bond Resolution. The total amount of the bond will cover the purchase of the GDU - Sebastian Highlands Water and Sewer System, costs of issuance, bond insurance premium, a deposit to the debt service reserve fun, cost of various projects as stated in the engineer's report, and a small contingency. During the bond procurement process, GDU officials agreed to hold the rate increase in abeyance. If they had chosen, the increase in rates could have been lawfully implemented as early as September 17, 1993. Had the Sebastian Highlands system been sold to a private utility company, it could have applied for a rate increase twice each year in accordance with Section 102-4 "Utilities" in Sebastian's Code of Ordinances. Also, the private company could have sold the system to another utility company at any time it chose. Once the City acquires the GDU system, the City plans to do the following: 1) Immediately start preparation of a Water and Wastewater System Master Plan, the primary concern of which is to supply water to the US Highway 1 and Indian River Drive business district. 2) Design and install a trihalomethane (THM) control system for the Filbert Street water treatment plant. 5 3) Design and construct a water main to connect the Park Place/Palm Lake Club System with the GDU system after the THM control system is operational at the water plant. 4) Design and construct two force mains and a lift station to divert wastewater flow from Park Place/Palm Lake Club, which is currently discharged to Indian River County's system, to the City's (GDU) wastewater system. The water distribution system will be expanded first because of the following reasons: 1) There is a much greater reserve capacity in the water plant than the wastewater plant. 2) Construction and expansion of a pressure water main system is more easily accomplished than a gravity sewer system with associated lift stations and force mains. 3) Installation of a water system is less costly than a sewer system. 4) A water system provides for fire protection as well as providing treated water. Policies for expansion will have to be set in the future. Basically, the City will finance expansion through impact fees and special assessments. Impact fees would be used toward the capital expenses for water and wastewater, and for repayment of debt for Initial Capital Outlay. Impact fees should be paid at the time of building permit application for new construction but the City Council may wish to look at a deferred payment plan for existing homes of buildings of possibly 10 years. Connection of the sewer system will be mandatory as decreed by Florida law. Connections to the water system will be required of all new residential and commercial structures. However, all existing residential and commercial structures within areas where water mains are to be installed should be strongly encouraged to connect. Where special assessment projects are required for expansion of the water and sewer systems, impact fees will be required as well as the cost of actual main, water and wastewater services, and hydrant installations. It is hopeful that a well field and water treatment plant will be constructed on the east side of the airport property and that a wastewater plant be constructed on the west side. Reuse water generated from the wastewater treatment plant will be used for irrigation of the Sebastian Municipal Golf Course. Events related to the acquisition of the GDU Sebastian Highlands Utility System have moved very rapidly from the August 15 Chapter 180 Public Hearing to thwart an effort by GDU to sell the system to a private utility company. Unfortunately, the momentum of events has caused numerous items to be placed before the City 0 Council for their consideration and much stress upon the staff to achieve the ultimate goal of the GDU system acquisition. Through the spirit of co-operation and understanding between Council members, City staff, the public, and the media, it is hopeful that all will harmoniously proceed through the succession of rapidly occurring events to a successful conclusion. Hopefully, this document will provide the public with a sufficient explanation as to their "right -to -know". If anyone has any questions, or needs further information, the staff in both the Utilities Department and Finance Department will be able to provide additional information upon request. 7