The city of Peoria will wait another five years before the council takes up the always-controversial water buyout debate again.
The council voted 7-4 on Tuesday to end the process this go-around. Under the terms of the 1889 sale, Peoria has an option to buy back its water utility from Illinois American Water every five years. The city spent $100,000 on an initial assessment that projected a cost of at least $2 million just to appraise the water company's value.
Illinois American Water president Rebecca Losli made the case for her company. She said Illinois American Water has $200 million in upgrades scheduled for Peoria's water system over the next five years. That includes things like replacing more than 9,000 lead service lines in the city and switching to liquid chlorine disinfection.
At-large councilman Mike Vepsa questioned why Illinois American Water's rates are significantly higher than those of municipally-owned systems in similarly-sized cities like Springfield, Waukegan, and Rockford. Losli said some of those cities may defer maintenance, keeping rates lower in the short term.
"We're regulated by the Illinois Commerce Commission. The rates are based on our cost to serve and we are committed to being safe, reliable, clean, and we're doing what we feel it takes to provide that to our customers," Losli said.
The company is currently entitled to a 9.78% profit, also called a "return on equity," under ICC rules. Illinois American Water currently owns 148 water systems in Illinois.
Losli said a water company's rate base continually depreciates, but it increases based on the amount of capital invested back in. She said rate increases are essentially happening because capital spending is outpacing depreciation. She said she believes the $200 million in planned improvements will be offset by depreciation.
Consulting firm Woodard Curran projected an average residential customer in Peoria would see their annual water rates increase from $669.51 to $850.28 under a buyout scenario as the city pays off debt. Project manager Morgan Roper said Tuesday that those initial estimates would be mitigated a bit by the federal incentives available to municipalities for lead service line replacement.
The water company was last appraised at $220 million in 2005. That would be $345 million when adjusted for inflation. The city would need to pay off the purchase through issuing general revenue bonds. Woodard Curran projected the annual payments on a 30-year loan would be somewhere between $18.1 million to $22.6 million, depending on which price estimate you use.
Mayor Rita Ali reiterated a point she made at the last meeting about the city's ballooning public safety pension payments that will eat up an increasing share of overall revenues. The $35.9 million payment needed in 2025 will increase each year, peaking at $77.8 million in 2039 before falling off to $17 million in 2040.
City manager Patrick Urich said how to pay for pensions is the "$40 million question" for the next 16 years.
"You're either going to have to raise taxes or you're going to have to cut services, period," he said.
Fifth District councilman Denis Cyr said the unfunded pension liability has "nothing to do with this purchase" because market performance could change how the investments perform. He said there were too many questions that can't be answered without moving forward in the buyout process.
"I'd love to get the numbers. I'm an investment guy. I think our people, my constituents in Fifth District would like to know if what the deal would be, what the selling price would be, which we cannot answer without due diligence," he said. "What the loan amount would be, the debt would be, what the interest rate would be?"
Cyr voted to move forward, along with Vespa, Zach Oyler, and Kiran Velpula.
2nd District councilman Chuck Grayeb said he's been on both sides of the issue over his 23-year tenure around the horseshoe, but he believes the support needed to move forward just isn't there among key stakeholders right now.
"In order to do something as consequential as this involving so much money, we have to have the support of the business community and labor and the people who live in our neighborhoods," he said. "We have failed to make the case."
