ACTION REQUESTED:
Title
Communication from the City Manager and Public Works Director with a Request to RECEIVE and FILE a LETTER Pertaining to the Offer by the CEO COUNCIL to Fund $400,000.00 for DUE DILIGENCE Activities Related to the WATER COMPANY BUYOUT.
Body
BACKGROUND: In 1889, the City of Peoria entered into an agreement to sell its water utility to a private company, which is now Illinois American Water Company (IAWC). That agreement was amended in 1904. The Agreement provides an option that allows the City to repurchase the utility once every five years. This option will be before the City Council again in 2019; the deadline for final decision is May 3, 2019. Per the agreement, the City must give IAWC notice of its intent to consider purchasing the utility no later than six months prior to the anniversary of the agreement, or November 2, 2018.
According to the 1889 Agreement and subsequent amendments and confirmed in the case Illinois-American Water Co. versus the City of Peoria 332 Ill. App. 3d 1098 (3d Dist. 2002), the City has the option to purchase the waterworks in Peoria. Section 17 of the Agreement outlined the terms and conditions for the exercise of the purchase option and provides for the appointment of a three member commission to determine the fair market value of the property to be acquired.
As part of this process, the City and IAWC agreed to terms and conditions, the “Rules of Order for the Commission”, which would be followed in the execution of the valuation procedure set forth in Section 17 of the Agreement. The Rules of Order were last executed in 2003 (attached). These Rules of Order are outlined in the following manner:
1. Amendments - Amendments or additional rules can be made by a majority of the Commissioners, with the mutual consent of the City and IAWC.
2. Commissioners - The City and the IAWC would appoint a Commissioner each, and mutually select the 3rd qualified Commissioner.
3. Issues to be determined - The Commissioners would determine the fair market value of the waterworks, including tangible and intangible property; and the definition of waterworks is also defined.
4. Meetings - The Rules allow the Commissioners to meet as often as they deem necessary.
5. Confidentiality - The parties, their respective experts and the Commission would sign confidentiality agreements to protect security-related and financial information.
6. Evidentiary Hearing - The Commission would be required to hold at least one Evidentiary Hearing in order to take testimony of the City and IAWC and their experts. Direct evidence, cross examination of experts, oral arguments and legal memoranda would be submitted to the Commission. The hearing would be held no later than 9 months after the Effective Date of the Rules of Order.
7. Discovery - Subject to the confidentiality agreement, IAWC would provide the City and its representatives with reasonable access to facilities, operations, books, records, contracts, business, commitments, and properties of IAWC pertaining to the water works. Expert reports would be shared ninety (90) days before the evidentiary hearing and depositions 30 days prior to evidentiary hearing
8. Expenses - The Rules outline how expenses are reimbursed. If the sale is completed, the expenses are split evenly between the City and IAWC. Should the City not proceed, the City shall reimburse IAWC for their costs.
9. Award - Within 45 days of the Evidentiary hearing, the Commissioners will make an award containing the fair market value of the waterworks and the reasoning behind the award. If the City elects to purchase, it must give notice to the water company within 60 days from the notice of the award.
10. Post Award Procedures - Should the City accept the award, the City is given 180 days of reasonable access to the facilities and records of IAWC to conduct standard due diligence following acceptance of the award to determine if the City wishes to complete the purchase or decline the purchase option. If the City does not execute the purchase option, the City will have to reimburse IAWC for their expenses.
The 2018 recommended budget presented to the City Council in October 2017 included $400,000 to begin to study the legal, financial and operational issued with the purchase of the Peoria Assets of Illinois American Water Company (IAWC). The funding was removed from the budget adopted by the City Council. On January 5, 2018, the CEO Council sent a letter to the Mayor and City Manager informing the City that they had been successful in raising $400,000 of private funds to pursue the due diligence by the Peoria City Council prior to December 2018 (attached).
The CEO Council proposes the creation of an oversight committee to advise, make recommendations, and offer consent about the selection of in-house experts and outside consultants involved in due diligence. They recommend a committee composed of representatives of the City of Peoria, the CEO Council, the League of Women’s Voters, and other community stakeholders.
The CEO Council proposes that, should Peoria District assets of IAWC be purchased, that the $400,000 be repaid through the initial bond issuance. The proposal explicitly states that if the purchase of IAWC’s Peoria District assets is not pursued by the City Council, then the $400,000 would not have to be repaid. Should additional resources be needed, the City of Peoria and the CEO Council would enter into negotiations to determine how to raise the necessary additional funds.
Staff would like to have an informational discussion with Council concerning the process and the issues pertaining to the water company. Accepting the funds from the CEO Council would require the Council to begin the process of examining the purchase of the waterworks of IAWC, but might not be sufficient to complete the process. The City would need to notify IAWC of the intent to purchase, and then the process starts once the Rules of Order for the Commission are adopted.
Following the discussion with Council, staff would like to research and respond to all Council questions and come back by March 27 prepared to act upon the proposal of the CEO Council.
FINANCIAL IMPACT: The $400,000 contribution from the CEO Council would assist in the process of determining whether to purchase the waterworks from IAWC. Whether $400,000 is enough funds to complete the process is not clear.
NEIGHBORHOOD CONCERNS: Citizens have expressed interest in purchasing the waterworks and in keeping IAWC.
IMPACT IF APPROVED: Staff recommends this item be received and filed and a decision made in 30 days.
IMPACT IF DENIED: N/A
ALTERNATIVES: Should Council wish to act on this item sooner, direction could be given to the staff to bring the item forward March 13.
EEO CERTIFICATION NUMBER: N/A
WHICH OF THE GOALS IDENTIFIED IN THE COUNCIL’S 2017 - 2032 STRATEGIC PLAN DOES THIS RECOMMENDATION ADVANCE?
1. Financially Sound City
2. Grow Peoria
WHICH CRITICAL SUCCESS FACTOR(S) FROM THE COMPREHENSIVE PLAN DOES THIS RECOMMENDATION IMPLEMENT?
1. Invest in our infrastructure and transportation.
2. Keep taxes and fees competitive.
3. Support sustainability.
DEPARTMENT: City Manager's Office