Hello Randy,
| have finished reviewing the follow-up questions that you sent to me, and after reviewing all of our documents, here are
my responses:
Timeline questions follow-up
Response
1. Most of these dates involve DEP et al in which we/Treasury did not play a role i.e., someone else [DEQ]
would need to confirm their accuracy
2. Just quickly, items we would question from the document or need to investigate further...
3. 12/20/12 (p.1) — we don’t have the notification that is referenced
“The City of Flint notifies the Treasury that it is no longer considering using the Flint River as a water supply”
- Cannot find documentation that this occurred.
- During that time period, the Treasury was analyzing the report from Tucker and Young study, and had not
even received a proposal from DWSD.
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4. 3/29/13 (p.2) — we are not aware of any veto by Kurtz
“EM Kurtz Vetoes Flint City Council’s changes to the KWA resolution, and signs an executive order to join
KWA”
- We were able to confirm that the City Council voted to connect to water from KWA
- No Executive Order was filed with the Treasury overriding the City Council’s changes to the KWA
agreement, nor was there an Executive Order filed with the Treasury to join the KWA
5. The early offers by DWSD to reconnect were rejected because of the add’! cost, they were long term and
the fact the city had executed a contract with KWA. On Jan 12 715 they walved the reconnect fee but were
still issues re length/term of commitment.
- Per Jerry Ambrose’s memo dated 3/3/15 (attached), the water from DWSD would still cost the city an
additional estimated $12M annually, which would have raised water rates by an additional 30%. As such,
he strongly disagreed with restoring the water to DWSD at the time.
6. 3/12/15 — The Veolia report did mention corrosion control but the focus was on TTHM which was
chlorination issue not related to the lead problem. | believe Treasury funded the study.
- No documentation was found to conclude that this study was funded by the Treasury.
Alexandr Heimann
Municipal Analyst
Local Government Financial Services Division
Michigan Department of Treasury
Office (517) 335-2434
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CITY OF FLINT
OFFICE OF THE EMERGENCY MANAGER
Gara 4 wifrose
Fanergensy Manigei
TO: Wayne Workman, Deputy Treasurer
Treasury Department
State of Michigan
FROM: | JerryA g, Enfefgéncy Manager
DATE: March 3,2015
As the Emergency Manager for the City of Flint, 1 am charged with restoring the City government
to financial solvency, and working to assure that the City moves forward on a financially
sustainable basis. The steps taken over the past three years have been difficult. Taxes and fees have
been raised, services and workforce reduced, and ongoing casts, including legacy costs, have been
constrained.
The current controversy surrounding the provision of water, and the path for resolution, has a
potentially significant impact on the progress that is being made. J am satisfied that the water
provided to Flint users today is within all MDEQ and EPA guidelines, as evidenced by the most
recent water quality results conducted for MDEQ. We have a continuing commitment to maintain
water safety and to improve water quality, and have dedicated resources to assure this commitment
will be made.
The oft-repeated suggestion that the City should return to DWSD, even for a short period of time,
would, in my judgment, have extremely negative financial consequences to the water system, and
consequently to the rate payers. By the most conservative estimates, such a move would increase
costs by at least $12 million annually, with that amount achieved only by eliminating virtually all
budgeted improvements in the system. For a system with Unrestricted Assets of only $740,745.
according to the June 30, 2014 audited financial statements, the only recourse within the City’s
control would be to increase revenues significantly. And in my judgment, that would come from
raising rates for water by 30% or more . Further, changing the source of the city’s water would
not necessarily change any of the aesthetics of the water, including odor and discoloration, since
those appear to be directly related to the aging pipes and other infrastructure that carry water from
the treatment facility to our customers.
City of Flint « 1101 S. Saginaw Street * Flint, Michigan 48502
www.cityofilint.com © (810) 766-7346 ¢ Fax: (810) 766-7218
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Wayne Workman
March 3, 2015
Page 2
This direction of discussion also deviates from what, in my judgment, should be the focus: How
can we not only operate and maintain a system to assure the delivery of safe and quality water
dependably, but significantly reduce the cost of water and sewer to the users? At an average of
$149 per month for water and sewer service for a residential user, the cost is extremely high in
comparison to surrounding areas, as well as most areas across the state, and creates a significant
financial burden for many users. In my judgment, we should all be concentrating on how to reduce
rates by 50% or more, Unfortunately, there are no easy or evident answers, and continuation of
the status will be an impediment to the sustainable recovery of the City of Flint, It is a conversation
that I expect we will have with the recently created Water Quality Advisory Committee.
My reasoning for this conclusion is as follows:
One of the decisions made in the context of beginning to eliminate deficits and to restore financial
stability to the City of Flint was to increase water and sewer rates significantly — the only choice
available to financially stabilize a system that as of June 30, 2012, had a deficit of $8,758,091.
Another was to leave DWDS for the KWA because it offered the opportunity to lower future rate
increases, A third decision was to utilize the Flint River on an interim basis when DWSD
unilaterally terminated the City’s contract for water purchase, That decision was made because it
also offered an immediate cost savings opportunity which translated into the ability to upgrade the
Water Treatment Plant without having to seek financing, [t was a reasonable decision because of
our experience in using the river in a back-up capacity, including test runs on a quarterly basis for
several decades.
Unfortunately, the switch to the river as a primary source was more challenging than anticipated,
and the harsh winter of 2013-2014 resulted in much more dainage to the aging water infrastructure
than in previous years. The result was the issuance of required notices that water exceeded
established guidelines for safety as it could affect certain vulnerable populations, and some users
of the system experienced unpleasant odors and discoloration. Some users also appeared to have
had some nepative reactions to the new source of water. However, as soon as the test results were
known, City staff took immediate actions to address the concerns. These actions are evidenced
today by the fact that MDEQ has certified that our most recent testing shows water from all testing
sites to be well within acceptable guidelines. Additionally, the City is continuing to taking the
necessary actions to assure that the water supply remains safe and that water quality continues to
improve.
As the City has moved to address the situation, the suggestion continues to be made that the City
should re-engage with DWSD and purchase water at least unti] the KWA pipeline is supplying
water. As evidenced by the most recent letter from DWSD, such a decision would immediately
increase the City’s cost by $846,700 per month, or $10,160,400 per year, just for the fixed cost
portion of the price. The actual purchase of water would be an additional fee, and dependent upon
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Wayne Workman
March 3, 2015
Page 3
the quantity purchased. We estimate the actual water purchase cost to average more than $] million
per month, for a grand total of approximately $22 million per year. Finally, the DWSD offer is
conditioned upon the City (or presumably the KWA) agreeing to negotiate a Jong term contract
(30 years) for back-up.
The $22 million annual estimate of increased costs to purchase water from DWSD would be
minimally offset by an approximate $3 million in reduced operating costs, and could be further
offset by an additional $9 million, but only if all funding for capital improvements to the system
are eliminated. To eliminate all funding dedicated to repairing, stabilizing, and improving the
system would be totally irresponsible and would have long term negative consequences to the City
and to future rate payers.
As you are aware we have recently brought in outside expert assistance to evaluate the steps we
have taken to assure that the water is safe and to continue to improve water quality. We are
expecting specific recommendations within the next few weeks, and are committed to
implementing those recommendations in a timely manner. Many steps have already been taken. |
am confident that implementing their recommendations will assure a continuing supply of safe
water as well as improved quality, and at far less cost than re-engaging DWSD.
We have also created a 40-member Water Advisory Committee and a 13-member Technical
Advisory Committee to assure two-way communication with the public and users of the system.
Those committees will begin to meet this week, and we look forward to answering their questions
and receiving their input.
It is unfortunate that problems and concerns with quality have arisen, and we are working every
day to address the issues that caused them. Maintaining safe water and improving quality is a top
priority as we work to make the City of Flint an attractive place to live, work, study, and play,
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Byrne, Randall (T reasury)