Good Afternoon Randy:
As discussed. Please contact me with any questions.
Darnell Earley, ICMA-CM, MPA
Emergency Manager
Flint, MI
xxxEND_PAGE:treasury01_b20_2634_2931_155
CITY OF FLINT
OFFICE OF THE EMERGFNCY MANAGER
Darnell Earley, ICMA-CM. MPA
Emergency Manager
TO:
MEMORANDUM
Randall Byrne, State Administrative Manager
FROM: Darnell Earley, Emergency Manager
RE:
Date:
cc:
Proceeds From the Sale of the City of Flint Water Main
May 28, 2014
Gerald Ambrose, Daugherty Johnson, Howard Croft, Peter Bade
During our regular meeting this morning you mentioned that there was an inquiry
regarding the possible use of a portion of the $3.9 million proceeds that the City of
Flint will receive from Genesee County, to supplement the cost for maintaining sworn
positions in the Flint Police Department. As you know, in order to produce a
balanced biennial budget as required by PA 436, my proposed budget eliminates 36
sworn officer positions for fiscal years 2014/15 and 2015/16.
I have discussed this matter with staff, and as a practical matter will not be
recommending the use of these proceeds for any purpose other than reinvestment into
the City’s water system for the following reasons:
1.
3.
The pipeline is clearly part of the infrastructure of the water and sewer system,
paid for with water and sewer fees. Thus, the proceeds should in normal
circumstances be returned to the water and sewer system.
In addition, the current state of the water and sewer infrastructure clearly
demonstrates that significant reinvestment in that infrastructure is needed, in
the amount of approximately $15 million annually. The recent analysis by the
Raftelis Group substantiates this need, as does the number of repairs necessary
to the infrastructure this past winter, and the demonstrated increase in the
amount of unbilled water. By focusing the proceeds on the systems water loss
issues such as metering and infrastructure, the City stands to receive a quick
return on the reinvestment through the capture of lost revenue.
The City of Flint Water Reliability Study commissioned in 2013 projects that
increased accuracy in metering and reducing the number of main breaks
through infrastructure repairs could result in recovering as much as $3
million
City of Flint « 1101 S. Saginaw Street « Flint, Michigan 48502
wwew.cityofllint.com * (810) 766-7346 « Fax: (810) 766-7218
xxxEND_PAGE:treasury01_b20_2634_2931_156
annually to the Water and Sewer Fund. This is an initiative that we are
pursuing in hopes of further stabilizing water and sewer rates.
4. Also, the decision to move to KWA, as well as the opportunity to discontinue
the purchase of water from DWSD, required an immediate and unplanned $6
million - $8 million upgrade to the Water Treatment Plant in this fiscal year.
Doing so, while financially beneficial to the system over the next few years,
required postponing other needed capital improvements. The sale of the
pipeline offsets the unexpected cost by half.
5. Finally, the use of one-time proceeds for ongoing operational purposes,
whether for the water and sewer system, or for non- utility purposes (such as
police), only works for one year. Use of one-time proceeds is not a sustainable
revenue source, and does not address the long term funding needs for police.
While these factors in and of themselves present a compelling argument to place the
proceeds in the Water Fund to reduce the cost of expanding the Water Treatment
Plant and to meet the our new supply and distribution obligations going forward, just
as important is the outcome of the data-driven, comprehensive public safety study
currently underway. The study will be used to design a public safety model for police
and fire services into the future. This will put the City in a better position to identify
long-term solutions rather than short-term, as the suggestion for the use of these funds
for public safety services would indicate, based upon the factors stated above.
Should you have any questions or would like to discuss this matter in greater detail,
please don’t hesitate to contact me.
Due Egy.
xxxEND_PAGE:treasury01_b20_2634_2931_157
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xxxEND_PAGE:treasury01_b20_2634_2931_158
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xxxEND_PAGE:treasury01_b20_2634_2931_159
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xxxEND_PAGE:treasury01_b20_2634_2931_160
STATE OF MICHIGAN CONTRACT NO. 271N3200089
CITY OF FLINT WATER SUPPLY ASSESSMENT
February 2013
For Submittal to:
State of Michigan, Department of Treasury
Submitted by:
ww | TUCKER, YOUNG,
UG JACKSON, TULL INC.
CONSULTING ENGINEERS-PLANNERS
816 Griswold Suite 600
in 48228
{313)863-0812 FAX (313)863-2168
xxxEND_PAGE:treasury01_b20_2634_2931_161
Table of Contents
Table Of CORTENES cnn i
Fight! OS a ii
Tables...
li
[1ds010 [6 (mio) rere rrerrrrrr rere ererrenrTree Terrrererer creer eerenerrrir ee Terre vTrTeeerr reer 1
Report Organization... 1
Z. Flint Water Supply Options 2
Karegnondi Water Authority (KWA) Lake Huron Water Supply «0.0.0.0... 2
DWSD Water Syste im 3
3. Data: Collection 6
4. CoSt OF
DWSD Water Supply .
KWA Water Supply...
FIRE WIP 11
5. (Capital Requirement 12
KWA'SUPDIY guy ipseeekerasiaesaea axon nea tenn ENE iEE NENTS 12
Lake Intake vonassasunsnstaa vans 12
POIPVIPIINE SEQUINS sssssssa ccs cap AAR SAON NAGI WATAAGEAAUA wiih N AAA 13
TRANSMISSION Ma ith scan aateaiainasuaiemaeeas ieee 13
Other KWA Costs
Flin WTP. Improvements 15
DWSD. Imlay Station Supply: Options. 15
FINANCING nnn a5
Gs FINS ent AR ARIE RBA RUN IIS i7
Fe \OUNGY CONSID ST ALIGNS spanaSes iaasieaseeauanienaONses 19
Redundancy/Reliability 19
Additional Cost 20
FELINE 5 AGQONOINY 20
xxxEND_PAGE:treasury01_b20_2634_2931_162
Figures
Figure 2-1: KWA Raw Water System 5
Figure 2-2: DWSD Water SYStemm sneveseunaee® 4
Figure 6-1: Flint Water Supply Options through 2042 ......
Tables
Table 2-1: DWSD Supply Options ......
Table 4-1: Cost of DWSD Supply Options eensenteess 8
Table 4-2: Recent DWSD Water Rate 9
Table 4-3: O&M Inflation Rates of Other Large Water Systems 10
Table 4-4: O&M Inflation Rates of Other Comparable Systems to KWA 11
Table 4-5: FY 13 O&M Costs for Year-round Operations
Table 5-1: KWA Intake Cost Estimate 12
Table 5-2: Pumping Stations Cost Estimate ....
Table 5-3: Transmission Pipeline Cost Estimate ee 14
Table, Sa4> Other Costs coussscoascepey stil tustusact acon asbcgnbsseneus ana 14
Table 5-5: Total Cost Comparison 15
Table 6-1: Total Cost of Options through 2042 17
Appendices
Appendices A — Meeting Minutes
Appendix B — Cost Worksheets
xxxEND_PAGE:treasury01_b20_2634_2931_163
1. INTRODUCTION
Tucker, Young, Jackson, Tull, Inc. (TYJT), at the request of the State Treasurer performed an analysis of
the water supply options being considered by the City of Flint. The City of Flint is presently supplied
potable water from the Detroit Water and Sewerage Department (DWSD). This supply is from a single
72-inch water main that terminates at a master meter located at Potter and Baxter. Additionally,
downstream of the DWSD master meter, Flint supplies its customer Genesee County. The City of Flint
also operates a water treatment plant that uses the Flint River as its source of supply to provide back up
and redundancy to the DWSD supply as required by MDEQ
The Karegnondi Water Authority (KWA) is planning on constructing a raw water supply system that
could provide Lake Huron water to the Flint Water Treatment Plant. Flint’s existing plant would be
upgraded to treat the new raw water source.
The State Treasurer has appointed an emergency financial manager for the City of Flint. As such the
Treasurer has requested TYIJT to provide an analysis of the water supply options to assist the Treasurer
in determining any potential risk and the best course going forward for supplying potable water to the
City of Flint.
Report Organization
The following sections of this report are described below:
Section 2 — The basis of the analysis is described in this section. The options include the KWA option and
several options offered by DWSD.
Section 3 — A significant amount of information and data was collected including memorandums,
reports, drawings, financial reports, and other documents. This section summarizes the information
used in the analysis.
Section 4 — This section describes the evaluation of the cost of supply for the Flint options. The costs are
comprised of the initial cost of operations plus the annual rate of escalation/inflation.
Section 5 — The evaluation process used to analyze the construction costs associated with the KWA
supply system is described in this section. Additionally, the cost of financing the capital requirements is
described.
Section 6 — This section presents the financial review of the options considered to supply potable water
to Flint. A summary of these options is also provided.
Section 7 — In addition to the financial analysis other considerations were identified that should be
considered in understanding the risks and determining the best option to supply Flint. They include
items related to cost, redundancy and reliability, and Flint’s ability to control their future cost of water
supply.
xxxEND_PAGE:treasury01_b20_2634_2931_164
2. FLINT WATER SUPPLY OPTIONS
Two water purveyor options were evaluated; the KWA water supply system and continued supply from
DWSD. Both suppliers would provide water from Lake Huron as the source. The KWA system is a raw
water supply, which means that the water would have to be treated by Flint before distributing the
potable water to its customers. The DWSD supply is potable or “finished” water and would not need
additional treatment.
Additionally, an option for the Flint WTP to supply the City of Flint without being supplied from either
DWSD or KWA was initially considered. The preliminary investigation evaluated the cost associated with
the required improvements to the plant and to the Flint River dam system. Although it appeared that
this was a viable option, Flint in a meeting on December 20, 2012 with the Treasury, stated that the City
did not want to pursue the option and it is no longer being considered.
Karegnondi Water Authority (KWA) Lake Huron Water Supply
The KWA water supply system schematic is shown in Figure 2-1. The system is comprised of an intake in
Lake Huron that supplies water to the Lake Huron Pump Station (LHPS). The LHPS lifts the water and
pumps it through an approximately 22 mile long 60-inch pipeline. The pipeline terminates at a 5 MG
reservoir and is then pumped from the Intermediate Pump Station (IPS) through approximately 26 miles
of 60-inch and 18 miles of 30-inch pipeline to the existing Flint WTP. Downstream of the IPS,
approximately half way to the Flint WTP, the 60-inch line would also supply a new Genesee County WTP.
The raw water transmission system has a 60 MGD capacity and is sized to deliver a maximum of 18 MGD
to the Flint WTP with an average day supply of 12 MGD. Improvements at the Flint WTP would also be
required to treat the lake water as the plant is currently designed to treat the Flint River water.
The term of the KWA contract for Flint is 40 years.
xxxEND_PAGE:treasury01_b20_2634_2931_165
KAREGNONDI WATER AUTHORITY
LAKE HURON WATER SUPPLY
ROUTE SCHEMATIC
Figure 2-1: KWA Raw Water System
DWSD Water System
The DWSD system schematic is shown in Figure 2-2. Flint is currently supplied by DWSD at Master
Meter FL-1, located at Potter and Baxter. Flint typically gets its water from the Lake Huron WTP, located
in Fort Gratiot, Michigan; near the Lake Huron shoreline. Water is treated and pumped at the Lake
Huron WTP and supplied through a 120-inch pipeline to an intermediate pump station called the Imlay
Pump Station. The Imlay Pump Station has 20 MG of reservoir capacity. Depending on the time of year
and the DWSD system demand, water is either bypassed directly to Flint or it is re-pumped at Imlay. It
should be noted that the DWSD supply to Flint is part of a very large water system and during
emergencies or outages water can be supplied from the south up to Flint in lieu of the Lake Huron
facility.
xxxEND_PAGE:treasury01_b20_2634_2931_166
og
Aon c
see
Lore
ae
Figure 2-2: DWSD Water System
The pipeline from Imlay to FL-1 is a 72-inch pipeline. It has been estimated that the 72-inch line serving
Flint has a capacity in excess of 90 MGD.
DWSD has presented several contractual options to Flint and all of them are based on Flint signing a new
30 year contract. The options shown in Table 2-1 are based on two different supply points; one at the
current master meter location FL-1 at Potter and Baxter (P&B) and the other at the location of the Imlay
Pump Station. The reason for the varying options is to provide a lower water rate at the Imlay Station,
since the DWSD rate formula is based on distance and elevation factors related to the supply location.
The rates are also dependent on the maximum amount of water DWSD supplies. As example, if DWSD
supplies a maximum day demand of 18 MGD that would equal the entire amount of water required by
Flint.
For the options less than the maximum of 18 MGD means that the Flint WTP would supplement the
difference by supplying water treated from the Flint River. These options are known as “blending” and
would allow for Flint to blend two sources of water to supply its customers; the Flint River using the Flint
WTP and Lake Huron from DWSD system.
xxxEND_PAGE:treasury01_b20_2634_2931_167
gDesc i |. Average Day Demand 3
18 MGD Maximum Day Customer—FL-1 12MGD
12 MGD Maximum Day Customer~FL-i 8MGD
8 MGD Maximum Day Customer — FL-1 8 MGD
12 MGD Maximum Day Customer -Imlay 12MGD
8 MGD Maximum Day Customer- Imlay 12 MGD
Table 2-1: DWSD Supply Options
xxxEND_PAGE:treasury01_b20_2634_2931_168
3. DATA COLLECTION
During the course of the investigation several documents were used to perform the analysis. The names
of the documents are listed below for reference.
KWA and Flint
= Preliminary Engineering Report, Lake Huron Water Supply Karegnondi Water Authority,
September 2009;
= Analysis of the Flint River as a Permanent Water Supply for the City of Flint, July 2011;
= Cost Comparison, KWA vs. DWSD, Letter to Mr. Kurtz, October 31, 2012;
= Lake Huron Supply Study, KWA, Appendix 20, October 2012 Preliminary Report Update, Final
Report (DRAFT), October 4, 2012;
= Articles of Incorporation of Karegnondi Water Authority, endorsed in 2010;
= Karegnondi Water Authority Bylaws, October 26, 2010;
™ KWA Raw Water Supply Contract;
= Flint WTP Statement of Revenues and Expenditures 09’ — 12’;
® GCDC Division of Water and Waste Services Financial Statements 03’ — 11’; and
Assorted emails with further clarification of questions and documentation.
\=]
WSD
Historical Rates and Charges to Flint 04’ - 13’;
= Historical Rates and Charges to Flint with Hypothetical Model Contract 10’ — 13’;
= 2013 Rates and Charges for the following options:
a 18 MGD Maximum Day Customer at FL-1;
12 MGD Maximum Day Customer at FL-1 (Flint blending*);
5 8 MGD Maximum Day Customer at FL-1 (Flint blending*);
5 12 MGD Maximum Day Customer at Imlay (Flint blending”);
5 8 MGD Maximum Day Customer at Imlay (Flint blending*); and
® Assorted emails with further clarification of questions and documentation.
xxxEND_PAGE:treasury01_b20_2634_2931_169
* Flint blending based on DWSD supplying two-thirds and Flint one-third of 12 MGD average
day demand.
Two meetings were also held; one with DWSD and one with Flint and Genesee County representing
KWA. The meetings were held on November 19, 2012 and November 20, 2012, respectively. Minutes