At a Special Vermilion City Council Meeting on Monday, December 9, 2019, City Council voted unanimously to pass an emergency ordinance to allow the city to issue and sell bonds in the maximum principal amount of $2,200,000 to acquire and install new water meter equipment and related technology improvements for the municipal water system.
Mayor Forthofer had reiterated at the Utilities Committee Meeting on October 21, 2019 that the city’s water meters have reached the end of their useful life. Vermilion has 6,200 water meters and 74% of them are 15 years or older. Tony Valerius, Service Director, said the natural life of the water meters that were installed are 15 years. He explained that old meters experience problems such as the parts inside of the meters start wearing and they don’t measure the water going through the way it should, and meters begin to underestimate the amount of water going through them causing inaccurate readings.
Mayor Forthofer said the estimate of lost water being billed for old water meters is about a 10 – 15% loss. He said a local study was performed to see how they performed. Valerius said they reviewed a sampling of residential meters and it showed a 12% loss. Amy Hendricks, Finance Director, said the estimated loss in billings is $36,000 per month which equates to over $430,000 each year, and this is looking at a 15% under-reporting.
Mayor Forthofer said a lot has changed with meter technology from 15 years ago when the city installed water meters. Valerius said through technology they are seeing meters that last 20 years rather than 15. Mayor Forthofer said their accountability has tremendously improved as opposed to a truck driving around taking a reading every month or so, or having an electronic reading from the street, such as the city has now. There are now systems that will directly go downtown. Valerius said it would be a real time reading from the unit to a collector and every morning the utilities department can bring up the average users and find out where there are leaks and heavy usage the night before.
Mayor Forthofer said new software systems for meter reading is possible, as well as public communication during the installation, which is critical. If the city went about this, there would not be a need for a water increase.
Hendricks said the $432,000 is the cost recovery amount, so they are looking at a little over six years to repay this. They have looked at financing this, and with current interest rates in 20 years the city would be looking at payments in the amount of $210,000 versus the additional income of the $432,000. Even if it takes awhile for the cash flow to come in, the city can meet the debt service totally out of that additional revenue in water loss they are having now.
Mayor Forthofer said after the six years in which the city’s costs are recovered, the increased revenue the city would get from this through more billable water would be for 20 years, not just for the remaining 15 because these are longer living meters. In the process of doing this, they would probably discover how many dead meters they have.
Valerius said with EPA mandates the city would have to do something about having an employee since they must turn every valve in the city every five years, so they really need an employee to do this. With this new system, real time meter reading causes the city to be able to read the meters in a day or two as opposed to two-three weeks.
Hendricks said even if the city only billed half of the water that would be estimated, it would cover the project. She said the current meter reading system that is obsolete would alone cost $100,000 to get it going. They deal with nightmare situations every month and list of accounts have been coming up with zeros for a long time. They must enter estimates on a manual basis based on prior usage, so at least these people are being billed for something. This is something that hurts the city’s credibility and they still have people who don’t get billed at all, so this all becomes an issue.
Steve Herron, President of Council, said the city has an obligation to do this because the taxpayers have a right to know where all this water is going because they’re paying for water that nobody knows where it’s going, and they don’t know how much it is. So, this would increase their efficiency, and everyone has a right to the value of what they’re paying for.
Council Member John Gabriel said if they say they can’t afford $210,000, they certainly can’t afford to pay $400,000 for meters that don’t work. He said this amount will seem cheap 20 years from now.
Council voted unanimously to authorize the administration to go out to bid for the Water Meter Replacement Project and software.
During the Special Vermilion City Council Meeting on December 9, 2019, Council Member Brady asked the finance director if it was a problem adopting this legislation by emergency since it's such a large amount of money. Finance Director Amy Hendricks said this was per the advice of legal counsel from Squires given the timing of the transaction. She said council authorized the administration to go out to bid for the water meter project, and the timing to have the funding in place needs to be done before January. Gwen Fisher, Certified Municipal Clerk, noted that in the 25 years she has worked for City Council they usually adopt these ordinances on a first reading due to a timing issue.
Brady asked if council was good with adopting this ordinance. Council Member Steve Holovacs agreed with the timing aspect of the ordinance, but in the utility committee they never got a real answer of what they're doing. He said council doesn't even know anything about the system they're putting out to bid and he had asked the Service Director and City Engineer to come back to them about this. He said he would vote for this, but he did have concerns with voting on something for $2.2 million when they really don't know what they're getting.
Hendricks said, at this point, it's authorization to pursue the funding. She said they are working on the exact specifications of the system, and nothing specifically has been selected, but if there happens to be a situation when going through the bid process and there's not an acceptable award they'll put the brakes on this.
Holovacs said he agrees they need the water metering system to help stop the loss, but still wishes he had more information before agreeing to $2.2 million. However, he would take everyone's word they will be able to work all of this out.
Steve Herron, Council President, said they're procuring the $2.2 million, but not actually spending it.
Hendricks said they used the highest budget figure, so adjustments can be made at the time the bid is received. If it turns out there is internal technology items at the water plant that are necessary, they'll be able to cover those items within this amount.
Brady said there are costs for going out for a loan that the city will incur, and they're based on the size of the loan, so if the bids come in lower and they don't need as much money, will they end up spending extra money on loan costs?
Hendricks said no, as they have time to make amendments, but the basic costs are a fixed cost - preparing an official statement costs the same if you're going to $10,000 or $10 million.
Roll Call Vote 6 YEAS. MOTION CARRIED.
Steve Herron thanked the entire council for their service and said it has been a pleasure working with council and the administration over the past two years.