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HomeMy WebLinkAbout04252001JOINT WORKSHOP MEETING CITY OF PORT TOWNSEND PUBLIC UTILITY DISTRICT NO. 1 April 25, 2001 Chimacum Grange MINUTES NOTE: This workshop meeting was advertised as a special meeting of the City Council to comply with Open Meeting Act requirements. Since less than a quorum of the council attended, the meeting is not a City Council meeting and the minutes are not minutes ora City Council meeting. These minutes are a record of proceedings of the joint workshop prepared by the City Clerk for administrative purposes. CALL TO ORDER The meeting was called to order at 7:05 p.m. by PUD Chair Ken McMillan. Mr. McMillan introduced the other two PUD Commissioners, Wayne King and Dick Shipman. Mayor Geoff Masci introduced council members Syd Lipton and Bill Wolcott. Mr. McMillan stated that the purpose of the meeting was to present information gathered so far regarding the potential sale and exchange of the Tri-Area water service area (from the city to the PUD) and the Glen Cove service area (from the PUD to the city). He added that there will be subsequent meetings to discuss the transfer and take public input. He said the respective staff members would brief the group on where we are and what has been done to date. The staff will take questions from the PUD and council and the public would have an opportunity to comment and ask questions. Mr. Masci added that this is an informational meeting for both entities and they are here to get information the staff has gathered over the last 18 months. It is the first time all parties have heard the entire scope of information. After this meeting, both entities will go back and assess the information and decide respectively how to proceed. PUD PERSPECTIVE Mr. Shipman stated that the PUD had initially come to consensus that they would not consider taking over the Tri-Area system if it would result in a rate increase. He stated that there are 14 water systems scattered around Jefferson County, some with just a few customers. He added that the PUD has a whole range of experience in water systems; they employee three staff members and have grown up considerably in the last ten years. He stated that he has participated in pre-negotiations regarding the potential sale and transfer. A letter of intent has been drawn up for the bodies to consider, with a time line that would result in the trade taking place by the end of the year. City Council/PUD workshop meeting Tri-Area water system exchange Page 1 April 25, 2001 Mr. Masci interjected that he has been asked why the council has not yet formed the proposed Tri-Area water service area citizens committee. He stated he believes that there had been nothing for the committee to talk about until some information had been gathered and a plan proposed. It is possible that the committee could be formed now. Mr. Shipman went on to say that the USDA has funds available to help consolidate and maintain systems. A public meeting to discuss the project and potential financing of the purchase will he held after the joint workshop. Jim Parker then talked about the impact that the exchange would have on the PUD. He explained the various ways which are used to evaluate the value of a water system and said the city and PUD have agreed on the assessment methodology which uses the cost of replacement of the system less depreciation. The total debt assumption by the PUD will be approximately four million dollars, including a $1.3 million Public Works Trust Fund Loan, debt of $2.2 million and $ .5 million for the Irondale Road project. The PUD is trying to work out a financing package now, looking for grant and loan money. Some money may be available from the US Department of Agriculture. Since the utility operates in an economically depressed area, it could mean that more money will be available from various sources. It is anticipated that customer utility rates will not increase as a result of the sale and when the debt is paid off, rates will probably drop. The acquisition of the water service area will result in economies of scale. The ratio of customers to staff goes up, so the cost per customer drops. Operational expenses are high, but the PUD will end up with two excellent new emploYees. In terms of political impact, the idea has been in existence for 25 years or more. When the Sparling Well was put in, the PUD included an option for first right of refusal upon sale. He added that customers will be directly represented and be able to elect their own PUD officials. The PUD office is located more conveniently for water customers. Other areas may end up being served by the PUD, including Indian Island and Kala Point; this will allow even more economy of scale and water supply options. CITY PERSPECTIVE Mr. Timmons referred to area maps posted on the wall. He stated that from the city perspective, this is not a new issue but has been on the books for a long time. An attachment to the agenda detailed the many references to the water system in various city planning documents. The hold up recently has been trying to get the numbers to work in order to make the transaction feasible to both parties. In terms of financing, the city is faced with making a business decision and it is important that both entities agree on the methodology. The approach was to determine what would happen if the parties went to court to condemn the system. Agreement on methodology was important since neither side wanted a protracted debate on the value of the system. City Council/PUD workshop meeting Tri-Area water system exchange Page 2 April 25, 2001 Whatever money the city receives must go into the bond reserve fund. The money has to pay the debt committed. Mr. Timmons said that if they city were looking purely at a business case, the decision would be to upgrade, improve and expand the system to get further revenue; however the system is in the county and should serve the county. In fact, the city will lose approximately $80,000 in utility taxes from the general fund as a result of the deal. It comes down to the fact that the PUD or a private purveyor could take over the system and other options were also explored. Sale to a private entity would be a complicated process and require a vote of city residents. In that case the customers would be disenfranchised but the city would receive the full value for the system. The letter of intent outlines the process and refers to a time line. The goal is an October 1 signing and transfer on January 1 to tie into both the city's budget cycle and to meet the PUD's deadline for seeking federal financing. Exchange of the Glen Cove system would make the city's water service area contiguous and consistent with city planning documents. It pulls the city back nearer its borders and would make the surface water contiguous also. Cross connection would be maintained so the systems can work together in tandem for redundancy purposes although DOH doesn't allow that at this time. QUESTIONS Bob LaCroix, the city's water service manager, was asked to list improvements already made to the system and current system needs. A partial list of improvements funded by the city include: engineering studies groundwater study of the tri-area drilling of a new well wellhead protection plan upgrade of the water treatment plan property purchase for wellhead protection new two million gallon reservoir which will be done in two months Irondale Road pipe replacement (to be done in Aug./Sept. 01) Current system needs: Fix low pressure in the Snagstead area (PUD new system on Woodland Hills will run through that area and pump will be shut down) 1-1/2" galvanized line down Center Valley Road needs upgrade soon Pipes on Cleveland Street in Oak Bay area are corroding Mr. LaCroix stated that otherwise the system is in good shape. Mr. Timmons added he is uncomfortable about bringing capital investment expenses for the Tri-Area system to the city council because there are other critical issues related to long term water sustainability and city priorities will be on those city issues, not in the Tri-Area. He added that a political entity with the Tri-Area's interests at heart should City Council/PUD workshop meeting Tri-Area water system exchange Page 3 April 25, 2001 have the system. He added that the interests of the city and Tri-Area will probably diverge mom in the next years. Mr. King asked why the Department of Health would not allow crossover connections. Mr. Timmons replied that the chlorine contact time would not meet regulations - the system would have to be isolated (connection is near Four Comers.) He added that storage or bigger piping for secondary may help but the city will be analyzing technologies; it could also mean full filtration. Mr. Lipton added that surface water has more problems and regulatory requirements than well water. The intertie connection could be activated in an emergency but a boil water requirement would have to be initiated for the Tri-Area customers. The staff developed the timeline by working backward from the City/PUD's fiscal year and the federal funding deadline. Another benefit to Tri-Area citizens is that customers who can't be served because they are now outside of the service area may now be allowed to join in by the PUD. Mr. Masci asked about the downside for the city. Mr. Timmons said from the city perspective, them is a loss of revenue, but if the agreement is not made, the city's ability to deal with the system will be compromised. Mr. Parker said the PUD will take on more work but it is good to grow and become a regional purveyor of water. Mr. Timmons added the city will lose two excellent employees but the possible impact on billing services may allow some staff rearrangement and shift reorganization. He stated that in the short term a hit will be taken by the city, but in the long term both entities will be much better off. Mr. Masci asked if there were any downside to the customers. Mr. Timmons believes customer service will improve. The perspective that the utility belongs to the city reflects on Tri-Area customers no matter what we do. The capital investment will improve and be locally driven, and accountability will be enhanced as the customers will have their own elected officials to deal with. He added that there will be a period where the PUD is catching up and there may be some inconveniences; however property owners will not have to deal with two entities. Mr. Parker expanded on some of the possibilities which may become available to the PUD. Kala Point will sell its last lots soon and will be ready to get out of the utility business; Indian Island has one million gallons of storage; lines may be extended to Marrowstone Island. All this will allow more flexibility and economy of scale. City Council/PUD workshop meeting Tri-Area water system exchange Page 4 April 25, 2001 Mr. Timmons added that some smaller service areas may be done as addenda at a later date. These would be areas which are not included in the various planning documents of the city and county. PUBLIC COMMENT/QUESTIONS Dennis Bate asked whether system was bought and paid for with public funds. Mr. Timmons replied it was a combination of private systems turned over to the city and some public financing which the city held. Mr. Bates: What risk would the city have on bonds? Mr. Timmons: the risk factor is associated with the inability to raise enough money to pay debt rating against the ability to cam.,, debt; in context, the greater amount of outstanding debt impacts the ratio maintained and it is possible system rates could be forced higher if the ratio changes. There is also a time allocation for staff in terms of managing the debt. Mr. Bates: Are we repurchasing what we have already purchased? Mr. Timmons: The city is sensitive to that argument, that is why we looked at what method a court would use to determine its value if the system were condemned. Question: Is the Port Townsend system exclusively groundwater? Mr. Timmons: The Tri-Area service area is currently groundwater and the city is surface water. Question: When you divest the system will the city no longer be involved in groundwater? Mr. Timmons: That is correct. Q: (Ocean Grove system manager): Would LUD 15 go on to well water? What is the analysis of water quality? Is there heavy manganese? Mr. LaCroix: Groundwater in the service area now is brown and hard; after treatment to remove the iron and manganese it comes out better than city water. It is moderately hard water, surface water is softer. In dire straits, the Kively well kicks in but is not filtered. Q: If a capital investment is required to allow surface/groundwater intertie, who would pay? What is the magnitude? Mr. Timmons: We have to maintain chlorine contact time, because of new rules for cryptospiridium; filtration could be initiated by the PUD or the city could go back to City Council/PUD workshop meeting Tri-Area water system exchange Page 5 April 25, 2001 being a wholesale provider. It is all subject to negotiation, but is doubtful the city would want to go back into the county water business. In short, the Tri-Area customers would probably pay for any intertie costs. Mr. LaCroix: The reason the tri-area is on ground water now is that the surface water rules require filtration. The city is on a day to day basis without filtration; it made more sense to develop groundwater for the Tri-Area. Question: Has any trickle-down federal funding been received? Mr. Timmons: No, and the PUD will be eligible for some funding that the city is not eligible for. Question: Is this a driving factor in the transaction? Mr. Timmons: The city is at a crossroads in terms of funding; a concern is that the Tri- Area will become an orphan in that process. It makes sense to put the water system in the hands of an entity that has the tri-area customers as a first priority. Nancy Dorgan: Read a prepared statement, attached as ExhibitA Guy Rudolph: Asked why this is being done without doing a land use designation (urban or rural). The city has 60% of urban growth and what happens to the other 40%. Since the city's appeal of the county's comprehensive plan in 1994, the Tri-Area is in limbo with respect to land use planning. He suggested a sub-area plan to the county, but the BOCC said it was not timely. Mr. Rudolph has asked for an explanation from the County Administrator. He stated that land use issues must be resolved first, then the issue of the utility should be addressed. Question: What is the guarantee that the water in the system will be in compliance with all health department and environmental laws? Mr. Timmons stated that the agreement allows 90 days for those documents to be produced; the letter of intent could articulate that it will be assembled and produced during this 90 day period. Mr. McMillan noted that the Department of Health will not transfer the license without the appropriate documentation and signatures. Question: Why is the city as "landlord" selling the system to a profit making entity? Isn't this theft? Some county citizens have put thousands of dollars into infrastructure. Mr. Shipman noted that the PUD is a government entity, a special district and not a for- profit private entity regulated by the state utility commission. Ms. Dorgan asked why the section west of Glen Cove is not included in the agreement. City Council/PUD workshop meeting Tri-Area water system exchange Page 6 April 25, 2001 Mr. Timmons replied that the Coordinated Water System Plan defines the service areas within the county; the plan needs to be amended with an explanation of how the service will be provided. Mr. LaCroix referenced the Water Utility Coordinating Committee, and added that during the process, the city's representative represented the Tri-Area at the table. Question: Why hasn't this been done until now? Mr. McMillan noted that it has been a slow, evolving process, and it has taken this long for the PUD to establish adequate assets, adequate staff and adequate know-how to take over the system. He added that the PUD didn't have anything to trade before, but the Glen Cove service area is something that will allow the transaction to occur. Mr. Bates: Have capital improvements been mostly mandated by the state? Mr. LaCroix stated that the capital improvements are all related to groundwater and upgraded facilities. Mr. Bates: Do you consider these improvements a "favor" to the utility customers? Mr. McMillan stated that capital improvements are generally done to provide better service to the public. Mr. Timmons stated that bringing the system up to speed requires investments of time, money, and maintenance. He stated he didn't think the city would be able to maintain the system or devote the same amount of staff time and resources in the future as the city has in the past. He added the that debt for tri-area improvements is not segregated or distinguished from the rest of the system. Question: Why do tri-area ratepayers pay 10% more? Mr. Timmons stated that this in part is a recognition of the risk factor the city assumes for the system. At this point, Mr. McMillan stated that the PUD public meeting on the system financing should begin. He suggested a brief break and thanked the city elected officials and staff for attending. He added that there will be more public process for each entity. The workshop meeting ended at 8:50 p.m. p~ Ko~lacy ~/~/~ City Clerk City Council/PUD workshop meeting Tri-Area water system exchange Page 7 April 25, 2001 April 25, 2001 Joint PUD/PT City Council Special Meeting re Exchange of Water Service Areas Chimacum Grange Public Comments for the Public Record: On July 17, 2000 the Port Townsend City Council passed a resolution authorizing the Public Works Committee to appoint citizens to a new Tri-Area Subcommittee and to develop the subcommittee's scope and time line, but the advisory committee was never formed. I'm a member of People for a Liveable Community, and one of the things that is important to us is olden and responsive Rovcrnment. On the issue of this water system swap, the public has been shut out of the process. We have been constituents, not participants. Bits of information have been periodically released, but there has been no public involvement or real effort to educate the citizens of Port Townsend about what this deal means, how it was arrived at, and what the repercussions will be to growth management planning in Jefferson County. Behind the scenes there has been lots of discussion. Appraisals have been conducted, financial analysts and bond consultants have been hired, and not much is left to do now but take the cap off the fountain pen and make it so. But all of this has been occurring without any attempt by the City to either gather public input or form the committee that was promised last summer. It took the initiative of a private citizen, Guy Rudolph, to organize the March 22nd Town Meeting that was also held here at the Grange. That meeting-- finally-- gave people a chance to meet, talk about what is going on, and say how they felt about it. None of the City's publically stated reasons for doing the system swap with the PUD has included any indication that there was any kind of urgency to do the swap as quickly as possible. I think the City ought to put this swap on hold until the County actually designates the new UGA's in the BOCC's recently adopted Draft Decision Document. Wait until TriArea residents have had a chance to say if they still want to form their own town with their own water system. I think it would be in the best interests of the Tri Area citizens to do a city-to-city transfer of their water system if that becomes feasible, rather than relying on divestment by the PUD. The City wants to get out of the County, but that shouldn't be assumed of the PUD. The water system should pass directly to the county residents who have been paying for it all along. If the city wants to purchase the Glen Cove distribution system directly from the PUD, then that would be a different deal. I think the City's desire to annex Glen Cove is a major part of what is driving this issue forward now, because part of annexation is sorting out who provides what services, and if the city had full control of Glen Cove water system, those arrangements wo01d be easier to conclude. However, the sticking point for the county commissioners right now, is how to designate a large Glen Cove UGA as well as a large Tri-Area UGA with an adequate commercial base for it to thrive, given the fact that there isn't enough acreage allowed under the results of the Special Study for both. If the BOCC assigns the acreage to the Glen Cove UGA first, then Port Townsend expands unnecessarily and the Tri Area is left with what the bird left on the pump handle. · A "whereas" in one of the drafts of the letter of intent to exchange systems stated that the City's Comprehensive Plan depicted Glen Cove as a Future Urban Growth Area. The term was spelled in caps, and is an error. The correct term is Final Urban Growth Area, and that Final Urban Growth Area was created under GMA when the City adopted its comp plan in 1996. The county designation process that is under way now is to create a new Glen Cove UGA adjacent to the Port Townsend UGA. Whether that UGA is GMA compliant and can sustain an appeal is a question that needs to be answered. There is still the possibility that the City will continue to be operating a utility outside of its UGA. So, that is another reason why I think the water swap should wait until the UGA boundaries are solid fact. I am especially concerned about the fact that utilities are not required to comply with growth management planning, if the PUD takes over the Tri-Area system, it will do so with the business intent to maximize its revenue, wherever that leads until the water runs out. Nancy Dorgan 2137 Washington St. Port Townsend