Gentlemen... in the attached (which you have likely seen before) is a description of the cost to reconnect to DWSD. |
assume/hope no one is still seriously considering that option but if you need anything more give us a call.
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CITY OF FLINT
OFFICE OF THE EMERGENCY MANAGER
Gerald Ambrose
Emergency Manager
TO: Wayne Workman, Deputy Treasurer
Treasury Department
State of Michigan
FROM: féncy Manager
pos of
DATE: March 3,2015
As the Emergency Manager for the City of Flint, I 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 keen difficult. Taxes and fees have
been raised, services and workforce reduced, and ongoing costs, including legacy costs, have been
constrained,
The current controversy surrounding the provision of water, and the path for resolution, bas a
potentially significant impact on the progress that is being made. I 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 retum to DWSD, even for a short period of time,
would, in my judgment, have extremely negative financial consequences to the water system, and
consequently te 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.cityoffint.com + (810) 766-7346 « Fax: (810) 766-7218
xxxEND_PAGE:treasury01_b37_6553_6782_040
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:
Ons 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 finanoing, It was a reasonable decision because of
ur experience in using the river in a back-up capacity, incinding test runs on a quartnely bests for
several es.
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 damage 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 negative reactions to the new source of water. However, as scon 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 until 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
xxxEND_PAGE:treasury01_b37_6553_6782_041
Wayne Workman
March 3, 2015
Page 3
the quantity purchased, We estimate the actual water purchase cost to average more than $1 million
per month, for a grand total of approximately $22 million per year. Finally, the DWSD offer is
conditioned upon the as (or presumably the KWA) agreeing to negotiate a long 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 miflion, 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 rats 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. I
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
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.
xxxEND_PAGE:treasury01_b37_6553_6782_042
72 Rev. 449} Se
STATE OF MICHIGAN
RICK SNYDER DEPARTMENT OF TREASURY R. KEVIN CLINTON
OOVERNOR LANSING STATS TREASURER
DATE: February 11, 2015
TO; Tom Saxton, Chief Deputy Treasurer
FROM: Wayne Workman, Deputy Stato Ti oy’ it
SUBJECT: = City of Flint Water Rates
Attached and below is information regarding the increase in water and sewer rates for the City of Flint since 2010.
The data shows the significant deficit position of the water fund which was not rectified until 2013 when
water rates wore increased by 26%. The data also shows the lack of capital investment far a system as old
as Flint.
This condition is acknowledged in the City’s recently edopted Capital Improvements Plan which
identified approximately $50M in needed capital improvements over the next several years, This
deficiency was also noted in the rate study commissioned by the City of Flint in 2014.
EP AE TON slay eta a are cite Fctikeadl emporltaer alte Ware
Treatment Plent. Even with the elimination of future capital hnprovements, most of the additional cast
would need to be funded with an additional increase to existing rates. Such an increase could approach
30%.
The option of purchasing DWSD water from the County would be on parity with purchasing water
directly from DWSD.
pcb | htm ar Helene at Geena oe
now stated that weather con: is ig, the connection could be made as early as December 2015.
The $8M capital costs to upgrade the Water Treatment Plant was made to be able to treat both river water
and KWA water. This upgrade has been funded with the cost reduction in operating costs achieved by
not buying water from DWSD during the Interim period.
As you are sware, the City has retained Veolia as an outside water consultant to assist in maintaining the
safety and improving the quality of water produced by ity water system, and thelr initial analysis is dus to
be completed within the next two weeks. In addition, the City’s current budget includes $2M for
replscsimet of a 2-mile pipeline segment that is anticipated to significantly address some of the current
‘water issues,
430 WEST ALLEGAN STREET » LANSING, MICHIGAN 48922
were. michigen.govitraueury « (817) 373-3200
xxxEND_PAGE:treasury01_b37_6553_6782_043
Page 2
Average monthly bill in 2015 - note that water and sewer are not billed separately; the charges are Included within
the same bill regardless of water usage.
Water service charge $22.90
Sewer service charge $34.48
Total service charge $57.38
Por unit rate:
Water $ 7.92
Sewer $3.17
Total per unit $13.09
Average family of four uses 7 units per month.
Their bil] for usage would be: 7 x 13.09 = 91.63 + 57.38 service charge = $149.
If additional information is desired, please let me know.
430 WEST ALLEGAN STREET « LANSING, MICHIGAN 46922
‘rere michigan goviransury « (817) 373-3200
xxxEND_PAGE:treasury01_b37_6553_6782_044
xxxEND_PAGE:treasury01_b37_6553_6782_045
Workman, Wayne (TREASURY)