Correspondence among

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. xxxEND_PAGE:treasury01_b37_6553_6782_039 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)