Tag Archives: buyout

City Council, City of Peoria, Illinois American Water

Water company buyout on agenda for Tuesday

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As my letter from Illinois American Water indicated, the council will be taking up the matter of whether to buy the water company at their Oct. 28 meeting.

Included in the council communication are (1) the March 1, 2005, letter of appraisal that set the value/purchase price of the Illinois American Water Peoria District at $220,000,000, and (2) the City’s Water Company Acquisition Financial Analysis. The financial analysis estimated that 2006 revenues would have been $29,360,000, based on actual revenue information acquired through the due-diligence process at that time. It also estimated that an operations contract to manage the water company would cost about $11,000,000 in 2006, increasing 3% each subsequent year.

The analysis showed that the water company would pay for itself — i.e., taxes would not have to be raised to cover the debt service — and water rate increases would only be 3% per year. Under this scenario, sufficient funds would be set aside for capital improvements as well.

Of course, things have changed since 2005. A new analysis would have to be done, as well as a new appraisal. According to the council communication, due diligence could cost as much as $2 million, and the city could find that it now can’t afford the water company when all is said and done.

Mayor Ardis is quoted in the paper today as saying, “To me, it will be very difficult to justify spending $2 million to do due diligence on this under the current budget constraints…. I don’t think that is a priority.” Ardis voted against the buyout last time, also.

Also of interest in the Journal Star’s article are some preliminary numbers from Illinois American Water Company’s telephone poll:

Company spokeswoman Karen Cotton said the research shows that of 400 registered voters in Peoria who were polled, 55 percent strongly opposed a city-backed buyout of the waterworks, while 89 percent believe City Hall has higher priorities.

In a 2005 referendum, 82% of voters were opposed to the water company buyout. Depending on how many were “somewhat opposed,” we may find that opposition is softening.

City Council, City of Peoria, Illinois American Water

Water buyout mania starts again

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I got a letter from Illinois American Water today (as I’m sure many of you did, too). I thought it was going to be a report on water quality, but to my surprise, it’s the first volley in the quinquennial fight over the City’s attempt to take over the water company! The pertinent portion of the letter reads (underlining in original):

One other matter I would like to inform you of is that the Peoria City Council is expected this month to consider whether to pursue a buyout of Illinois American Water’s Peoria District water system. An 1889 franchise agreement gives the City the right every five years to pursue a buyout of the water system. As you may recall, in 2005 residents of Peoria voted against a buyout by a margin of 82-18. At that time, an independent panel determined the purchase price would be $220 million in addition to new capital investments made by the company.

If the City Council decides to again pursue the takeover of the water system, the study alone may cost taxpayers $1 million or more. In addition, the company has made significant capital improvements since 2005, which have increased the value of the water system. Some buyout proponents suggest that the takeover of Illinois American Water’s business in Peoria will provide new revenue for City projects not related to the water system. That would be a mistake. Revenue from water bills should be used to operate and invest in the water system, as we do, rather than to fund other City projects. We have encouraged members of Council not to pursue a buyout because there is no reason to do so. A buyout process will be very long, costly and divisive while distracting the City and the company from more important priorities.

I could be wrong, but if I were a betting man, I’d bet that this time we’re going to hear the biggest push ever to buy the water company. Why? Three letters: CSO. The city really, really wants to find a way to pay for the Combined Sewer Overflow project without raising taxes. Being able to take water company revenues and put them toward that effort may prove too hard for the council to resist.

I’ve always been against the water buyout in the past, chiefly because I fear the city will use water rates to raise revenue for other things — essentially a hidden tax that could be used for questionable things like Gateway Buildings and subsidized parking decks. And that’s the argument the water company is making as well in this letter.

But on the other hand, it’s not like Illinois American Water is a non-profit cooperative, putting all their revenue back into the company. They make over $6 million a year in profit for their shareholders. Why shouldn’t the City make that profit and be able to use it toward, say, the CSO project? Or to get rid of the so-called garbage fee?

I’m starting to change my mind. It’s not that I don’t still have the same concerns about a potential water company buyout. It’s just that desperate times call for desperate measures. Buying the water company might be a way for the City to mitigate potential tax increases and still have the money to take care of the CSO project and other basic services.