Monday, August 22, 2005

Water-Logged Buyout Resurfaces With a Bad Smell

Here is how I see the change of heart by a couple of city councilpeople and why this vote tonite will probably be against the public will:

1. The water company headquarters wants to sell because they believe they can walk away with up to $100 million in profit. I’ve heard that local manager Kevin Hillen is being transferred. He has not returned my phone calls and calls to Indiana were referred back to Mr. Hillen. (Mr. Hillen did call me this morning and sent me an e-mail. He had been out of town. He confirms his transfer and writes as follows: "his company did pay $312,000.00 in property taxes last year compared to $273,715 in 2001." He also says that they estimate they will contribute $112,000.00 to charitable-community-civic functions and groups in 2005. As far as our reinvestment, Mr. Hillen states "most of our capital budget is focused on replacement of existing facilities, such as services, meters, hydrants and mains. In the last two years, this has ranged between $4.5 and 5 million dollars annualy. When we get to a period that requires a new treatment plant or a new equipment, we could easily spend another 6-8 million annually."
2. Illinois-American announced an 8% upcoming price hike right before the council vote. Why would an intelligent company make themselves look bad if they didn’t want to sell? (East Peoria announced a possible 18% rate hike) Mr. Hillen said today that they did not announce a rate hike; he said President Gloriod when asked by the JS reporter, said "IA MAY ask for an 8 percent rate increase effective in 2007."
3. Mr. Manning means well but he is a neophyte in politics. Why didn’t he do his “due diligence” when he was run inning for office rather than wait to release his figures only days before the council vote? While Mr. Manning appears to know accounting, he may not understand how companies do “creative bookkeeping.” He certainly did not conduct a certified audit. Mr. Manning is a senior VP with a prominent brokerage firm and his company has many wealthy clients. You listen up when wealthy clients talk.
4. A brochure widely circulated by the city of Peoria states the following: “Since significant cost saving are expected, the result would be “lower rates.” What’s this??? Both Manning and the City Manager admit they will needs to RAISE rates 3% a year indefinitely. This means that the cost of water would double way before the 34 year bond is paid off. Any number of things could go wrong in 34 years!! This city mailing also says the city would make a 25% rate reduction to their consumers. 37.5% would go to renovating older neighborhoods and 37.5% toward infrastructure projects in growth areas. How could they be so far off??
5. Once the city buys the water company, the facility will no longer be under the control of the Illinois Commerce Commission. The City can do anything they want and charge anything they want. (I understand plans are being made to run a water line along Rt. 150 to Brimfield where PAAG member Rita Kress has extensive land holdings waiting to be developed.)
6. The city says they would own the water company but hire someone to run it. They believe they already have found that company with an extensive background. Question? Who found this company and what connections to prominent members of this community? The city says it would create a Water Resources Council who would oversea the daily activities of the company that would manage the company that the city would now own. Sounds interesting. Who would pick this committee and what carefully selected members would be the core that runs this committee? I’m betting the committee will be controlled by PAAG, the Chamber of Commerce and the Civic Federation.
7. The Chamber of Commerce announced today they throw the full support of their 1200 members behind the buyout. Many of these members do not live in Peoria City or County. Of all the calls to Chamber friends I made today, none said they were polled. Do you believe the C of C made 1200 calls??
8. If Manning’s figures prove to be wrong, no problem, just plan on paying more taxes for generations.
9. Under Illinois American, developers pay to hook up to the water main. Under the city it is planned there will be no cost to the developer; the city will pay this cost for the developers and the city will then pass the cost on to us taxpayers.
10. Sandra Birdsall is a power on the Chamber. She is also a power at Cullinan Realty. The ex- Diane Cullinan has extensive land holdings in Kickapoo Township. Expect the city owned Water Company to run water lines in the direction of her properties waiting to be developed..
11. Routing city water all around the county could put excessive strain on older lines which many believe to be old and in need of extensive repair or replacement. It does not appear enough money will be set aside if the infrastructure proves to be worse than the city believes. NO study of infrastructure was done according to my sources. Tied in with public water are public sewers. Expect the Sanitary District to be raising prices again.
12. PAAG lent the city approximately $880,000.00; this includes interest of 9% deducted. (This interest rate was later reduced slightly.) This contract will need to be reexamined but I believe all PAAG members will get all their money back with interest.
13. They drain on the water system could require another expensive deep well to be drilled, especially if we have continued drought in this area.
14. Illinois-American is unionized as would be the city employees. Those of us, who have dealt with unions in the private sector, know how much more the unions have been able to extract from the public sector. Expect wages and benefits to accelerate. Look at your current tax bill and see how salaries and benefits eat up more revenue than is actually spent for city services and infrastructure. My tax bill shows $240.00 for services and $408.00 for pensions.
15. Note Mr. Manning’s statement that profits gained from the city ownership “would go to the city.” Don’t count on any of it coming back to the taxpayer. There are always new projects to spend these “savings” on such as a new entrance into the expanded zoo, more Med-Tech infrastructure, more tax abatements to projects like Cub Food, the ballpark and InPlay and more TIF districts like Walmart and Menards. The City investment of $5,000,000.00 in the RiverPlex hurt private businesses as well as caused a cutback on PPD services. The RiverPlex losses will continue for many years. As in investor in the ball park where the City put another $5 million of your money, the club has performed so poorly that I can not even get any offer for the $50,000.00 investment I made 10 years ago. One Technology Plaza space owned by the County and promoted by Sandra Birdsall, has set empty for over a year as we have not been able to sell it or lease it.
16. The city will not receive any more property tax dollars from Illinois-American or any taxes and no more donations to charity.
17. According to city sources the vote is likely to be Grayeb, Sandberg, Van Auken, Gulley, Manning and Jacobs voting to buy the water company at an exorbitant price of over $220,000,000.00, all borrowed money. The actual cost of the water company will be around $420,000,000.00 including interest. (Less than 20 years ago Dave Ransburg estimated the water company could be bought for $60 million.)
18. Expect the final hidden cost to be somewhat higher than $220,000,000.00. Time has elapsed; attorneys and employees working on this project have to be paid. Personnel tied up in this purchase will not be counted as an “expense.”

This buyout is all about power, use of influence and greed. Who still in business today, has the guts to stand up to the Chamber, the Civic Federation, the PAAG members and the unions?

The referendum to not buy the water company meant just what the voter said. WE DO NOT WANT THE CITY TO GET IN THE WATER BUSINESS. THE CITY HAS TROUBLE TAKING CARE OF THEIR CORE BUSINESSES. The voter expected that Illinois-American was making a profit. They are supposed too!! Only the Socialists in our community expect the government to do all things; eliminating private entrepreneurship. If the city thought IA was charging too much, why didn’t they take this up with the Illinois Commerce Commission?? If the city felt the ICC was incompetent, why didn’t the take it up with their elected officials in Springfield??

The city says it is buying the water company for you the taxpayer and voter. No, they are doing this to try to dig them out of a hole that will eventually prove to be quite large. Do not expect them to stop spending more than they take in. Expect higher taxes like garbage taxes, property taxes, higher assessed valuations taxes, sales taxes and every other type tax that can be legally be assessed. Buying the water company will not reduce your costs. The city already has said expect a 3% rise annually for your water bill. Also, the city may declare a "special assessment" at any time to handle further expansion in the county as the city has the ability to annex more property to the City of Peoria.

For people like us who live in the city, expect our property values to remain stagnant or decline while our assessed valuations and property taxes keep rising. Expect City and County services to be spread thinner and thinner or expect more people to be hired by the government while our population grows in single digits for the next decade. The realtors have already locked out the discount brokers in Peoria so expect the 6% paid by the seller to continue indefinitely further reducing the selling price of your home while the assessed valuation only goes up each year.

This whole water company buyout stinks but by the time the voter finds out where the smell is coming from, it will, as usual, be too late. However, their will always be more elections. We grassroots people need to encourage the right people to run.

12 comments:

Anonymous said...

As usual Merle you are right "on the money".

Anonymous said...

Its all about money in Peoria. Standard of living is not even a consideration.

Our resources are already stretched so lets pull them some more. Remember how rank the water was this summer? Imagine the taste when more is drained for developers.

An accountant for a brokerage firm also is an expert in the water supply business? That's like a monkey making a business plan for Chiquita.

Eyebrows McGee said...

Yeah, suddenly the buyout is going to make money? There's mysterious new information we didn't get before? I have this bridge in Brooklyn I can sell you ...

Illinois American does a fine job; one of the better utilities I've dealt with, regardless of the stanky water this summer.

The city, OTOH, is something of a nightmare. Sanitation never even answers its phones - or returns messages.

Problems with garbage pickup I can deal with. My water suddenly disappearing would make me irate.

Mike Radigan said...

I e-mailed Mr. Widmer and asked him what interest rate the city would pay for the municipal bonds to finance the buyout. He replied the city “hoped” for 4.97%.

Municipal bonds typically have to pay interest semi-annually with the principal all paid when the bonds are due. At 4.97% the city would have to pay $5,467,000 every 6 months, or $10,934,000 per year, or $371,756,000 in total. That’s $371.756 million folks and that is just the interest.

In addition the city would have to establish an escrow account to finance the principal payment. The formula for the future value of an annuity is:

F = (P((1+i)(raised to the nth power) – 1))/i

I know its difficult to display formulas here. Anyway, solving for the payment yields:

P = Fi/((1+i)(raised to the nth power) - 1)

Calculating interest rates from 0% (not unheard of for the government) to 6% (a pipe dream) in increments of 1% yields to fund the escrow yields

0%:
$6.471 million per year escrow
$10.934 million per year interest
$17.405 million per year total
$591.756 million total

1%:
$5.465 million per year escrow
$10.934 million per year interest
$16.399 million per year total
$557.559 million total

2%:
$4.580 million per year escrow
$10.934 million per year interest
$15.514 million per year total
$527.480 million total

3%:
$3.811 million per year escrow
$10.934 million per year interest
$14.745 million per year total
$501.324 million total

4%:
$3.149 million per year escrow
$10.934 million per year interest
$14.083 million per year total
$478.830 million total

5%:
$2.586 million per year escrow
$10.934 million per year interest
$13.520 million per year total
$459.687 million total

6%:
$2.112 million per year escrow
$10.934 million per year interest
$13.046 million per year total
$443.552 million total

Mahkno said...

*claps*

Well done Widmer!

No means NO !

Merle Widmer said...

Thanks, everybody. Mike's figures look to be correct. I was scolded last night by Gary Sandburg who said the sthe city did get full million from PAAG. If so, why didn't the city pay interest to PAAG as the contract called for - 9% for some years and then dropped to 6% according to a councilman and the JS.

I was told by Rita Kress, who, by the way, said she would use my blog as "toilet paper",that PAAG was asking for nothing back from the city including interest. Interesting??

Gary Sandberg said...

Merle, I am typing this real slow in hopes that you will understand. I am sorry for words of more than one syllable and compound sentences, but here goes.
PAAG did not receive interest on their $1,000,000 expense nor the return of any portion of the $1,000,000 because the terms of the contract between the City and PAAG stated the City only have to repay the $1,000,000 plus interest IF THE PURCHASE WAS "AFFORDABLE" under the terms of the City/PAAG contract and the City did not pursue the purchase. That agreement required a MAX. of 26 year amortization for the bonds. The determined price could not be amortized over 26 years.

It is unfortunate that the County is less forthright in honoring agreements such as the GSI agreement where the County is taking the "windfall" from GSI induced recording fees (around $450,000 this year) and using those revenues for purposes OTHER than GSI expenditures. Seems to me that PAAG understands agreements and contracts much better than you which is why I hope this helps with your understanding.

Mike Radigan said...

Mr. Sandberg, your condescending response is uncalled for, and quite frankly, you just don’t get it. The citizenry does not want the city to expend the amount of monies necessary for this project. The RiverPlex, the Gateway Building, the ballpark, et al have delivered less than promised. And those projects are miniscule compared to the buyout of the American Water.

I’m sure Mr. Manning was well intended with his projections, but they are just that; projections. Extrapolating future maintenance and capital improvements on past performance is risky at best. The people of Peoria do not want to undertake such a massive project until the city delivers on smaller projects. What part of 82% don’t you understand? Chicago cannot deliver that kind of vote.

Further, in my opinion I think the voters will remember who voted in the affirmative. I believe this is the very issue which defeated Mr. Ransburg and others in the last election. Ms. Van Auken can add a fourth L to her Listen, Learn, and Lead speech. LOSE.

Merle Widmer said...

Thanks Mike.

Gary, I can go on information I read and hear. In an editorial the JSEB says "If the council refuses--therby failing to find out the buyout cost --it would have to repay PAAG the entire loan, according to its contract. To date the interest charges total $184,000.00 of the city's $1,000,000.00 obligation." Sorry I deducted the $184,000.00 interest as the editorial indicated. All that APPEARS to be moot since the appraisal was made and the council voted not to buy. However, even wealthy people don't give up money that easily.

We'll see.

As to the GIS charges, who did you you think was going to argue with you from the County on the council floor. I talked to Mr. Urich who says that is a lie, and you should read read the contract. I talked to Mr. Oliver, he said Mayor Ardis and he were meeting with Administrator Urich and County Board Chairman Williams to handle any differences thru the proper channel. Gary, you tried to deliver a low blow Tuesday night on the council floor just like you did on the so-called booking overcharges. I will not debate with you issues on this site that should and will be handled by the Mayor and City Manager and the Cunty Administraor and the County Board Chairman in civily conducted dialogue and then differences can be brought to the full County Board and the full City Council.

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