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HomeMy WebLinkAboutMinutes - 05/11/2015 - Committee of the WholeCOMMITTEE OF THE WHOLE MEETING May 11, 2015 Mayor Low called the Committee of the Whole meeting of May 11, 2015 to order at 7:00 p.m. In attendance were Mayor Low and the following Aldermen: Santi, Glab, Schaefer, Curry, Peterson and Condon. Absent: Wimmer. Also in attendance: City Administrator Morefield, Deputy City Administrator Hobson, Director of Economic Development Martin, City Engineer Pieper, Director of Public Works Schmitt, Director of Finance lynch, Chief of Police Jones, City Attorney McArdle, City Engineer Pieper and City Clerk Jones. Also in Attendance: .Andrew Lemke, HR Green, Inc.; Mike Palmer, Superintendent, Water Division; Russell Ruzicka, Superintendent, Sewer Division; and Steve Wirch, Assistant Superintendent, Water Division. CITY OF MCHENRY MISSION STATEMENT Mayor Low read aloud the Mission Statement of the City of McHenry. PUBLIC INPUT SESSION No one spoke at the Public Input Session. DISCUSSION REGARDING PROCEEDING WITH THE CENTRAL WASTEWATER TREATMENT PLANT (CWWTP) DECOMMISSIONING AND ADJUSTING WATER AND SEWER RATES Mayor Low announced the reason for tonight's meeting is to discuss two important projects: • The decommissioning of the Central Wastewater Treatment Plant decommissioning; and, • Adjustment of the water and sewer rates, in order to sufficiently fund water and sewer operating and maintenance costs and fund capital improvements. Mayor Low introduced City Administrator Morefield. City Administrator Morefield provided Council with a breakdown of the PowerPoint presentation as follows: • Meeting Objectives; • CWWTP Decommissioning; • Water &Sewer Rates; • Water Rate Analysis; • Sewer Rate Analysis; • Current &Proposed Rate Structure for Residential Users; • Recap/Conclusion Committee of the Whole Meeting Page 2 May 11, 2015 City Administrator Morefield informed Council that the City of McHenry began the decommissioning of the Central Wastewater Treatment Plant (CWWTP) approximately 10 years ago. In 2005 the CWWTP was found to be in violation of its National Pollutant Discharge Elimination System (NPDES) Permit and several of the Plant's mechanical processes were reaching the end of their serviceable life. Following several meetings and negotiations with the Illinois Environmental Protection Agency (IEPA) the City was able to avoid costly fines. Measures were put in place to bring the Plant into compliance through emergency upgrades to the facility. The upgrades were completed in 2006. In addition to the upgrades, the IEPA required assurances from the City for future operation and the eventual decommissioning of the CWWTP. As a result, in 2008 the Council approved a long-term plan for wastewater services that included the decommissioning of the CWWTP, the upgrading of the South Wastewater Treatment Plant (SWWTP) and consolidation of the two facilities at the SWWTP location. City Administrator Morefield noted that importantly, the plan identified that consolidation would occur over a 10-year period, which ends in 2018, allowing for necessary repairs to the CWWTP to keep it operational until consolidation occurs. In return, the IEPA identified that since steps were being taken to decommission the CWWTP no sanctions would be imposed during the period from 2008 to 2018. On March 16, 2009, the Council directed Staff to begin the process of consolidating the City's two wastewater treatment plants to the SWWTP location. The first phase of the decommissioning process was completed in 2011. This phase was in response to the failing solids handling system at the CWWTP. Rather than use the City's funds to make the repairs at the CWWTP, only to subsequently remove the repaired system during decommissioning of the plant, $6.4 million was borrowed and invested to move the handling system to its ultimate final location at the SWWTP. Debt service for this project resulted in the implementation of a bi-monthly debt service charge of $6 per utility user. With the completion of the first phase, attention turned to the task of completing the decommissioning of the CWWTP. The original estimated cost was more than $20 million. The 2018 deadline was approaching and no financial plan was identified to move the project forward until early 2014 when HR Green, Inc. (the City of McHenry Engineer) made the City aware of low interest financing through the State of Illinois. At the February 17, 2014 Council meeting, Staff and HR Green, Inc. presented Council with a funding opportunity for completing the project through the Illinois State Revolving Fund (SRF) Program. The Program, administered by the IEPA offers 20-year low interest loans for the completion of important public infrastructure projects. With the current interest rate of just under 2.2%, it was the recommendation of Staff and HR Green that this offered the best opportunity for completing the decommissioning/consolidation project prior to or within the 2018 deadline. At the February 17, 2014 Council meeting, Council recommended that a Professional Services Committee of the Whole Meeting Page 3 May 11, 2015 Agreement (PSA) be requested from HR Green, Inc. for the engineering design of consolidating the CWWTP and the SWWTP. On March 3, 2014 Council approved the PSA with HR Green, Inc., in the amount of $1,386,458, bringing the total expenditures of decommissioning and consolidation to approximately $7.8 million (when added to the $6.4 spent on phase one). Upon completion of the engineering design for decommissioning/consolidation, it was identified that the actual cost for the final decommissioning/consolidation project had increased to approximately $29 million. This change in cost is due primarily in requirements and technologies since the original estimates, nearly 7 years prior, were completed. With the engineering design complete, it is now time to decide whether or not to move forward with obtaining the State Revolving Fund Loan financing; implementation of a methodology for repaying the loan; obtaining the funding; and, implementing the project. City Administrator Morefield stated that time of the essence. In order for the project to be substantially completed to meet the 2018 deadline imposed by the IEPA, and agreed to by the City of McHenry, the City must obtain funding to begin the project prior to the end of calendar year 2015. Two significant considerations should be weighed by Council in making a decision to move forward: 1. Required project need/cost; and 2. Methodology for project funding. City Administrator Morefield introduced Chad Pieper, HR Green, Inc., to provide Council with a breakdown of the required need/cost of the project. Mr. Pieper addressed Council, stating that if decommissioning and consolidation does not occur prior to the 2018 deadline, the City of McHenry must request an extension for decommissioning from the IEPA. This will, no doubt, require the City to make substantial improvements to the CWWTP in order to meet the IEPA's compliance standards. An approximate cost for the improvements to the CWWTP, based on 2014 estimates, would be $9,720,000. More importantly, Mr. Pieper pointed out that the expenditure of the $9.72 million would not eliminate the need to decommission the CWWTP, but would simply be delaying the project to some new future deadline. Additionally, the City would still be required to identify a financing mechanism for funding the improvements, which would likely come from the issuance of bonds requiring repayment by utility system users. The current water and sewer rate structure does not support the repayment of the potential SRF loan amount of $29 million. Therefore, in order to finance the debt service it is proposed that an "SRF Loan Debt Service Charge" be added to the water/sewer bills of all users of the system. It is estimated that in order to fund the $29 million loan over a period of 20 Committee of the Whole Meeting Page 4 May 11, 2015 years, each user of the system would need to contribute approximately $27 per bi-monthly billing period, or $162 per year in addition to their regular water and sewer bill. Based on approximately 8,000 system users, this would generate nearly $1.3 million per year to fund debt service on the loan. This would be in addition to any adjustments to existing or proposed water and sewer rates or capital charges. The final amounts required for debt service would be based on the approved loan amount and debt service calculations. Staff believes that implementing the SRF Loan Debt Service Charge may be done incrementally in order for the increase to be more gradually introduced to the system users. The City's ability to secure SRF loan financing to move forward with the CWWTP decommissioning project is also contingent upon the ability of the City to demonstrate that water and sewer rates and sewer capital charges are sufficient to fund the operation, maintenance and capital improvement costs of the "existing" system. This requirement is in place to ensure that the City does not apply SRF financing towards operating, maintenance and capital costs other than for the specifically funded project. Mr. Pieper broke down the following dates and steps required for the CWWTP decommissioning project: • May 18,2015 o Approve new water sewer rates • May 22, 2015 o Advertise for Public Hearing in local paper for Preliminary Environmental Impact Determination (PEID) • June 1, 2015 (Council Meeting) o Approve Debt Service Ordinance o Approve HR Green, Inc. Construction Contract o Public Hearing for PEID • June 2, 2015 (Advertise for Bids) o The advertisement needs to be to the newspaper three (3) days before publication (May 29, 2015) o 45-day bid advertisement period to follow o Financial Informational Checklist to be completed and submitted to IEPA during 45-day period • July 17, 2015 (Bid Opening) o Bid review will occur after opening • Week of July 20, 2015 and July 27, 2015 completing Bid Certification form and submitting form to IEPA • July 24, 2015 (HR Green, Inc. letter of recommendation for Intent to Award to the City • August 3, 2015 (Council Meeting) o Approve Intent to Award Committee of the Whole Meeting Page 5 May 11, 2015 o Approve Notice of Award and Notice to Proceed pending the City obtaining the SRF Loan • August 2, 2015 to September 30, 2015 o IEPA loan documentation review by [EPA o Loan completed and signed by IEPA on or before September 30, 2015 • Week of October 5, 2015 o City signs SRF Loan o Notice to Award, Notice to Proceed, and Preconstruction Meeting City Administrator Morefield summarized the Water and Sewer Rates, Sewer Capital Charge. McHenry's Water and Sewer Fund, not unlike that of other municipalities, has historically not produced sufficient revenues to be able to maintain operating and maintenance (O&M) and capital improvement funding. At the January 6, 2014 Council meeting, Council approved retaining HR Green, Inc. to undertake a comprehensive water and sewer rate study and cost of service analysis. The results of the analysis were presented to the Council at the August 11, 2014 Committee of the Whole meeting. The analysis identified the following: • The City is not receiving sufficient revenues from any customer classes under the existing rate structure to meet operational and maintenance expenses for the water system; • The City is receiving sufficient revenue from all customer classes to meet minimum service charges but not volume/treatment costs for the sewer system; and • The City has, and will continue to, deplete its cash reserve to offset the shortfalls of the above. As a result of these finding, by consensus Council directed Staff to develop a proposed water and sewer rate structure that resulted in the implementation of rate charges by various customer types based on usage, that would ensure sufficient operating and maintenance revenues as well as provide for the generation of sufficient revenues for the implementation of water and sewer capital projects. As a result of this direction from Council, and with an understanding that adjustments of water and sewer rates are also required as part of the CWWTP decommissioning project, Staff and HR Green, Inc. have conducted further analysis of water and water operating, maintenance and capital costs in an effort to devise a new water and sewer rate structure that meets the following goals: 1. Ensure that annual operating and maintenance expenditures are covered by water and sewer rates; 2. Ensure adequate revenue surplus to fund planned water and sewer capital improvements; and 3. Demonstrate that adequate water and sewer revenues exist to fund operating, maintenance and capital expenses for the existing system to satisfy the requirements of the State Revolving Fund (SRF). Committee of the Whole Meeting Page 6 May 11, 2015 City Administrator Morefield noted that the need to adjust water and sewer rates for operating and maintenance costs, and implementation of a sewer base charge exists even without the existence of the CWWTP project. Staff recognizes that any discussion regarding the potential for increased costs for services to City residents is difficult. However, the provision of water and wastewater services and the planning and implementation of projects that ensure that water is treated and conveyed and wastewater removed and treated are among the most basic services that a municipality can provide. City Administrator Morefield provided Council with a summary of Water Rate and Sewer Rate recommendations. City Administrator Morefield stated that should Council wish to proceed with the implementation of the revised water and sewer rates, Staff would present a Utility Rate Ordinance for consideration at the May 18, 2015 City Council meeting. Responding to an inquiry from Council regarding the increase in costs, Mr. Pieper stated that prices have fluctuated with time, vendor prices were off and construction and contractor prices have gone up. Mr. Pieper reiterated that the City is currently in the cycle for the SRF Loan. The schedule, as presented, is in the later portion of the cycle. He noted that the IEPA is awaiting the City's approval of the project to proceed. City Attorney McArdle emphasized that the details need to be finalized in order to meet the required deadline of 2018. Responding to an inquiry from Alderman Glab, Director of Public Works Schmitt stated that maintenance costs are high because the equipment is old. Responding to an inquiry from Alderman Condon regarding the "base" fee for water and not for sewage, City Administrator Morefield stated that sewage is more costly to treat. Superintendent Ruzicka, responding to an inquiry from Alderman Santi regarding how the CWWTP is currently functioning, stated that it is still operationally functioning but approximately 400,000 gal/day is currently going to SWWTP to take some of the pressure off of the CWWTP. Committee of the Whole Meeting Page 7 May 11, 2015 Mayor Low indicated that the City is under some time constraints. She stated that she understands the concerns verbalized, but there is never going to be an ideal situation. Staff requires a consensus immediately in order to take advantage of the SRF Loan. Alderman Condon opined that it is necessary that the City move forward and proceed with the project. The City must be able to collect the necessary costs of operation and maintenance. Alderman Condon suggested that Staff break down the individual rates prior to Council approval. Alderman Condon stated that she supports moving forward. Alderman Santi inquired whether all other sources of funding have been exhausted; Mr. Pieper responded that as far as he is aware, yes. Responding to Alderman Santi's inquiry regarding the definition of "user," Director of Finance Lynch stated that a "user" is defined by meter. Mayor Low asked if Staff had consensus from Council to move forward. Alderman Peterson, Alderman Condon, Alderman Schaefer, Alderman Santi responded affirmatively. Alderman Curry stated that he would like to see the residential, condominium, and apartment usage fees tightened up and that he would prefer smaller rates. He also suggested informing the community regarding the rate increase. Alderman Glab opined he would like to see the residential rates as one fee, rather than broken down. It was the consensus of Council that Staff should proceed with the implementation of revised water and sewer rates and present the Utility Rate Ordinance for consideration at.the May 18, 2015 Council meeting. ADJOURNMENT Motion by Santi, seconded by Schaefer, to adjourn the Committee of the Whole meeting at 8:42 pm. Voting Aye: Santi, Glab, Schaefer, Curry, Peterson, Condon. Voting Nay: None. Absent: Wimmer. Motion carried. The Committee of the Whole meeting adjourned at 8:42 pm. Mayor \ City Clerk