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Good afternoon Mr. Fraser: Per Ed Kurtz, please find attached the City of Flint's proposal to address the short term funding issues associated with choosing K WA as the city's water source. Maxine Murray Executive Assistant to Mayor Dayne Walling Edward J. Kurtz, Emergency Financial Manager Michael K. Brown, City Administrator 1101 S. Saginaw Street Flint, MI 48502 810.237.2035 Telephone 810.766.7218 Fax Flint Page 1 xxxEND_PAGE:treasury01_b06_0561_0924_133 Dayne Walling Mayor Edward J. Kurtz Emergency Financial Manager Proposal to Address Short-Term Funding Issues Associated With Choosing KWA as the City of Flint’s Water Source Flint officials have spent numerous hours considering the options of securing quality water at an affordable price for city residents and businesses. There have been many discussions with KWA and County officials, state officials, and representatives of the Detroit Water and Sewer System. Our conclusion is that participation in the KWA project will be in the best interests of the City of Flint, both in financial terms and in the future development of the region. Over the next 30 years, we project that participation in KWA will be less costly than continued participation with DWDS by at least $58 million and as much as $293 million. The one issue of concern is the short term costs associated with joining KWA while continuing as a customer of DWSD who is paying a 15% penalty for failure to enter into a 30 year contract with DWSD. The issue is significant financially: 1. The up front cost of KWA during the 3 year construction period is projected to be $2,325,600. 2. The costs associated with continuing to pay DWSD an approximate 15% premium for not signing a 30 year model contract is projected to be $5,504,524, assuming an annual rate increase of 4.4% for each of the three years. | am pleased that we have identified a strategy which will mitigate this concern: 1. With respect to the up front costs of KWA, the City and the Genesee County Water and Waste Services (GCWWS) have agreed in principal that the City's six miles of 72” pipeline located in Genesee County will be transferred to GCWWS in lieu of the projected $2.3 million up front payment. While this is subject to documentation of value, we believe that the value of the pipeline to GCWWS is at least $2.3 million. It would be our intent to lease that pipeline to the GCWWS for three years for $2.3 million and then deed it to GCWWS for one dollar when the pipeline is completed and KWA is delivering water to Flint. Once the City is part of KWA, the pipeline has no value to the City. City Hall 1101 S. Saginaw Street - Flint, Michigan 48502 810-766-7346 FAX: 810-766-7218 www.cityofflint.com xxxEND_PAGE:treasury01_b06_0561_0924_134 2. With respect to the ongoing penalty costs imposed by DWSD, it would be KWA’s intent to enter into negotiations with DWSD to purchase their 72 inch pipeline which runs from Lapeer to Genesee County. This pipeline would have no value to DWSD when KVVA is operational with Flint as a partner. tn principle, the KWA offer would include contracting with DWSD at a reasonable rate to be the backup for KWA, including the elimination of the 15% penalty to Flint for the 3 years that KWA construction is underway and Flint is purchasing water from DWSD. The elimination of this penalty has the potential to reduce the cost of water to Flint during the three year construction period by some $5 million. We believe that this strategy has long term benefits to Flint, KWA, and DWSD. First, it makes use of existing infrastructure which would otherwise be abandoned as KWA goes forward. Secondly, it reduces the current projected costs of building KWA. And finally, it benefits DWSD by providing them a continuing revenue stream as the provider of redundancy. However, should we be unsuccessful in negotiating an equitable arrangement with DWSD, we will pursue an alternative strategy. Development of this proposal has opened the possibility of additional cooperative arrangements between the City of Flint and the GCWWS. We have agreed to begin discussions on the possibility of the GCWWS contracting to operate the Flint Water System. The plan would be to reach a conclusion before the start of the next fiscal year. If an agreement is reached, then negotiations would begin immediately on waste water treatment as well. This could be the start of a regional water and sewer authority. 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Jo Ayiqeleay seaioslgo pue adoos yoaloid pauyep Aea|D i i i i i i i i i i) diysuepes yosfoid Buoys xxxEND_PAGE:treasury01_b06_0561_0924_142 Koryzno, Edward (T reasury)