Dawn M Bowne, City Administrator: Explaining why Dunnellon sold its utility system (Ocala Star-Banner, December 24, 2017)
Friday, January 05, 2018
On Dec. 11, the staff of the City of Dunnellon presented City Council with a proposed Purchase and Sale Agreement with a government entity, the Florida Governmental Utility Authority (the “FGUA”), containing the terms of the purchase and sale of the city’s water and wastewater utility facilities. The council approved the purchase and sale agreement and expects closing/transfer of ownership to take place no later than April 2018.
It is my hope that the information contained within this guest column will help to educate the general public (especially those who were not able to attend our council meetings and public hearings) as to the reason for this sale and why the City Council found the sale to be in the best interest of the public.
A BRIEF HISTORY
The city has provided water and wastewater utility services to its residents since the early 1900s, and records show piping in the downtown area dated as far back as 1908. Until 2011, the city’s active service area was limited to the city limits and portions of the Chatmire neighborhood — providing service to approximately 1,110 customers.
In August 2011, the city assumed ownership and operation of the Rio Vista water and wastewater utility system, adding approximately 200 water and 44 wastewater customers to the city’s utility system. In December 2011, the city acquired the Rainbow Springs (RBS) water and wastewater systems from Rainbow Springs Utilities. The addition of the RBS system added another 1,600 water and wastewater customers to the city’s utility system.
In January 2012, the city purchased the Juliette Falls water and wastewater utility systems. The Juliette Falls utility system provides water and wastewater service to approximately 295 platted lots and a golf course clubhouse.
Currently, approximately 3,411 water customers and 2,479 wastewater customers are served by the City’s system.
The City of Dunnellon has faced a number of technical, managerial and financial challenges in managing the utility system. As a result of these challenges, and a pending FDEP funded project to expand the wastewater system along Southwest 180th Avenue Road outside of the city limits, the newly appointed City Council opted to suspend making any further major decisions with regard to the utility until they could conduct a Comprehensive Utility Analysis. In a weakened state, with stressed budget, high debt, limited staff and important capital obligations, the city engaged Woodard & Curran to perform a Comprehensive Utility Analysis, which was completed in February 2017. Woodard & Curran recommended that the city consider the following options:
• Retain the utility and re-build utility management and operations, requiring significant rate increases.
• Outsource operations and maintenance.
• Divest the utility.
This detailed report outlined necessary improvements needed in the areas of operations/process control, facility management, staff development, asset management, capital improvements and financial stability.
The report also states it is essential the city create a consolidation plan to meet improved state environmental standards.
Following the receipt of this report and impending increases necessary to the water and sewer rates under continued city ownership, the City Council authorized city staff and Vice Mayor Rick Hancock (Council liaison) to contact Marion County and FGUA staff to discuss possible interest in a potential sale of the city system.
The Marion County Board of County Commissioners declined interest. However, FGUA accepted the city’s invitation to make a presentation to the City Council in March 2017. Shortly thereafter, the City Council formally invited the FGUA to conduct an evaluation of the utility system and explore a potential purchase. In April 2017, the Marion County BCC adopted a Resolution supporting an FGUA due diligence evaluation for the potential purchase of the Dunnellon systems.
The FGUA then engaged its “at risk” acquisition team to initiate Phase 1 due diligence activities. The Phase 1 analysis was conducted by the FGUA team and the results were reported to the City Council on May 23, 2017. At this meeting, there was a unanimous vote of the City Council and the city’s Utility Advisory Board (UAB) to proceed to the next step with the FGUA. Since Marion County would be the “host government” with right to first acquire the system from the FGUA, the city requested that Marion County agree to a minimum 5-year FGUA ownership “hold period,” and that the city have the first right of purchase following the holding period. This request was approved by the Marion County BCC unanimously on June 20, 2017.
The FGUA team then proceeded to conduct a more detailed Phase 2 analysis and the results were reported to the City Council and UAB on Sept. 18, 2017. The result again was a unanimous vote to move forward to Phase 3 activities, which included negotiation of a Purchase and Sale Agreement, an interlocal agreement between the parties and Marion County and taking the proper steps to secure USDA Rural Development loan financing, which is required for the acquisition to be considered feasible.
IN THE PUBLIC’S BEST INTEREST
By the FGUA acquiring the Utility Facilities, the rates will be stabilized, the debt will be more manageable, new regulatory requirements will be met through the implementation of the 5-year capital improvement program and the system will benefit from a utility-focused management team and organization.
If the city were to maintain ownership of the system (at a minimum) the rates for service would need to be adjusted to provide for the funding of increased capital needs of the water and wastewater system. To maintain comparability with the acquisition plan by the FGUA, the city would need to debt finance the additional capital projects, which could be difficult recognizing the overall financial position of the system. The city would likely need to increase rates by approximately 17.45 percent above the estimated rates projected under FGUA ownership in order to meet the system needs. The 2017/18 FY budget contains a 3 percent increase in the Water Fund and a 7.5 percent increase in the Sewer Fund in the event the city did not divest the Utility System.
As a governmental authority focused solely on delivering water and wastewater utility services, the FGUA is in a position to assume these important responsibilities from the city and provide high quality, cost-effective service to the utility customers. The FGUA, as an ownership entity, has the advantage afforded to governmental owners, such as access to low-cost public financing and grants, but also some of the creativity and nimbleness of private sector management and operations.
Another important advantage of the city divesting the system is the FGUA will be an ongoing partner with both the city and Marion County in the long-term utility planning for this area. This effort will include actively and jointly seeking federal and state funding to expand and improve the system and connect existing septic systems to the sewer system and protect the important nearby spring sheds.
The FGUA has been acquiring private utilities since its creation in 1999. Since such time, many counties and cities have utilized the FGUA to acquire their utility systems, provide utility management services and advice, perform government utility financing and accounting functions as well as other services.
During this time a number of these counties and cities have recognized the FGUA’s ability to successfully transition utilities to FGUA ownership, improve customer service, improve the quality of water and wastewater service, fund capital improvements, and establish fruitful working relationships with customers through the establishment of customer advisory committees, customer and community outreach programs and other means of improving service to customers once they become FGUA customers.
City staff believes that the FGUA currently has an experienced staff of qualified individuals knowledgeable in the operation of public water and wastewater utilities who are able to provide and maintain high-quality and cost-effective utility service.
In summary, by divesting the city’s water, wastewater and public access reuse utility assets to FGUA it best accomplishes the goals of the City Council for this utility and supersedes the remainder of the options available to the city. It addresses the city’s excessive debt and provides for improved management of a utility that has outgrown the city’s current management structure. It opens the possibility for a future county regional facility that will benefit all customers.
The FGUA’s re-rating plan for the wastewater system reduces the overall financial impact of the previous capital plan proposed by the city and can be reduced even further with possible FDEP springs initiative grant funding.
A copy of the complete detailed Executive Summary can be obtained by contacting the office of the City Administrator or downloading it from the City’s website at http://bit.ly/2kZwIlF.
— Dawn M. Bowne is city administrator for the City of Dunnellon.