INTERVIEW: City Manager Discusses Water System Sale
By GEORGE BROMLEY & STEPHEN SIEGEL
February 20, 2012
Five days after the Falls Church City Council unanimously approved the release of a request for expressions of interest (REI) in the City’s water and sewer systems, City Manager Wyatt Shields sat down with the Falls Church Times on Friday to discuss the complex and weighty subject.
The Feb. 13 vote (with Robin Gardner absent) may rank as the most significant since the City’s founding in 1948. The water system is older than the City, dating to the 1930s. It serves over 120,000 customers, primarily in Fairfax County. For many years, it provided Falls Church with a significant return on investment, but a 2010 Fairfax Circuit Court decision prohibited the City from transferring the system’s profits to its general fund, effectively making it a non-performing asset.
During the interview, Mr. Shields said he was “cautiously optimistic” that the water and sewer systems will be sold for a good price, but he reminded reporters, residents, and interested parties that the City won’t automatically sell the system if the offers received are inadequate.
“The Council is not taking it lightly, not taking it as an academic exercise,” Mr. Shields said.
But he added that while there are risks associated with keeping the system, including the possibility of additional litigation, there also are risks with selling it.
In particular, Mr. Shields said that selling the system would not relieve the City of the water system’s $23 million in debt and its pension obligations. It wasn’t entirely clear why those liabilities couldn’t be part of the sale.
“One basket of risks would be replaced by another set of risks,” he said. “That’s why the Council isn’t rushing into it.”
The REI and the City’s Options – Mr. Shields advised that the City has sent the REI to approximately 20 government and investor owned utilites. These include the systems maintained by neighboring jurisdictions, such as the Arlington and Fairfax water authorities, and investor owned American Water, which services Alexandria.
The city manager said Falls Church could transfer the water system to an independent municipal authority or to an investor owned utility. It also could choose to maintain the status quo. The water and sewer systems could be sold as a package or to different buyers, or the City could opt to sell one while retaining the other.
“We have analyzed the matter from a legal and financial perspective, but we need more public discussion and industry input,” he said, adding that officials are seeking a “deliberative process.”
“The City Council wants to evaluate all options. It’s better to do that in a public way than in a confidential way. We want to have discussions with public and private agencies to identify what problems could exist,” said Shields.
Expressions of interest are due to the City by Friday, March 2.
Referendum Required – Falls Church’s charter mandates that the transfer of the water system must be approved by a majority vote in a general election. The Council would set the date of the referendum, which could be held as early as November 2012. Transfer of the sewer system would not require voter approval.
System Staff Would Likely Stay – Fifty-five people maintain the water system. Mr. Shields said that when utilities change hands the work force typically transfers to the new owner, at similar pay and benefit rates. The city manager spoke very highly of the staff’s skill and devotion to duty, and praised their “can do” spirit.
City and County Still at Odds – Mr. Shields said that the City was prepared to challenge the Fairfax Board of Supervisors’ December 14 decision to set water rates for County customers and require developers to connect only to Fairfax Water mains, even when City pipes are closer.
“”The County ordinance is bad public policy that will likely increase costs for its residents and drastically increase costs for development in the County,” Mr. Shields said. He added that Fairfax City, which maintains its own water system, already has sued to overturn the ordinance.
Some County customers also are continuing to press their claims against the City for refunds of what they regard as overcharges. A filing in Fairfax Court was thrown out, but several plaintiffs have pursued the matter in Arlington, which is the proper jurisdiction. Others have appealed the Fairfax ruling.
Mr. Shields maintained that the continuous litigation over the water system has not impaired the City’s relationship with Fairfax County. “The problems over water have not been allowed to color the things we do very well together,” he said, citing cooperation in community services, public safety, family health, among others.
New City Web Page – The full text of the REI and additional information on the City’s systems is now available at “The Future of the City of Falls Church Water and Sewer Utilities.”
By George Bromley
February 20, 2012
Falls Church in the News
Yes, the water system is now a non-performing asset and an expensive litigation magnet. This is a condition our city can ill afford. Following the ill-advised decision to pick a fight with the acquisitive Fairfax County 800-lb. gorilla over rights to provide water service in the county, it has seemed to me inevitable that the city may be unable and/or unwise to continue to operate the system. If that is, indeed, the case, then resolving waterworks issues should be the highest priority and should not be delayed.
If the decision is to sell, the proceeds should not be used as a cash cow to meet short-term city needs. I commend Ira Kaylin (writing separately in FCT) for showing that creative, strategic long-term thinking will allow the proceeds of any sale to remain in operation as a long-term, productive asset targeted to satisfy a predictable, continuing financial obligation and, thus, reduce our increasingly heavy residential tax burden.
Traditionally it has been “the Falls Church Way” to turn important issues over to a committee and subject them to an often long, drawn-out deliberative process before the Council begins its work in earnest. I hope this is not what the city manager advocates by his reference to “more public discussion … [and] deliberative process.” Regarding the waterworks, “The Falls Church Way” will simply delay the Council’s decision-making, which necessarily will turn on complex technical and financial analysis of a kind not generally forthcoming from committees of non-experts.
Better that the Council expeditiously gather and analyze the responses to the REI with the aid of expert advice and, thereafter, make public their analysis and conclusions about the pros and cons of a sale, including all available source material. They should do so in sufficient time before holding public hearings so that citizens can provide well-informed input. Then, if the Council ultimately decides to recommend a sale, it will be able to put the matter to referendum without undue delay, and the voters will have all the information they need to cast their votes. And if the Council decided not to sell, the process will have been transparent and we will all understand the decision.
With FC residents paying 60% more than Fairfax County for water and sewer, it seems to me that the common sense thing would be to sell it to our neighbor, regardless of the bad feelings due to the legal mess. We get some cash, and presumably, lower rates. Selling it to a private for profit company would probably be a boon for the City, but we citizens would end up paying even more for our water service and subject to the rate paying/review process similar to the electricity provider, Dominion.
I’m with Linda on the process for deciding this issue. It’s complicated and time sensitive. I have a lot of confidence in the City Council and the City Manager and his staff. I hope they dig into the issue, get expert advice, and then present a strong suggestion (that I personally will support in any referendum).
I get the vibe that there’s a sense of pride in our water system and it’s been part of the City for a long time. I’m a pretty nostalgic person (just look in my garage) but we should be looking at the financial and risk aspects of the water system decision.
While I like a good deal as much as the next guy, I seriously doubt we will be offered a good deal. It is clear that the goal of Fairfax County is to impair the value of our system to the degree that they will be the only bidder and they will offer us pennies. While I hope we get some active interest, everyone should be prepared to hear an insulting low-ball bid from Fairfax and pretty much nothing from everyone else.
It’s time to issue a request for a proposal (RFP) for the sale of the water system rather than an expression of interest (EOI). The EOI approach is so “Falls Church” and is reflective of a clutch of citizens and officials who revel in discussion and debate without resulting in positive action benefitting the entire community.
In that regard, in another venue—the lack of economic development to achieve a broad and diversified tax base—is the result of decades long vacuous talk and it is all too evident along the lengths of Broad and Washington Streets. While other communities are discussing ways to manage growth, we are still trying to generate it.
An RFP can be crafted in such a way to secure all possible information relative to a decision to secure an eventual sale. Requesting an expression of interest does not. So it appears that the discussion and debate crowd are in the driver’s seat and once more taking us on a circuitous route.
Which begs the question: While the Council leadership and city staff are mulling, debating and discussing what do they think Fairfax Water is doing? Waiting for us to finish the evaluation of the expressions we receive? I doubt it.
But there is an election coming up and the proper, timely and beneficial disposition of an asset worth tens of millions of dollars should be on the questioning minds of the voters and the ways and means to achieve it clearly articulated by the candidates.
Sam’s right. Instead of the usual endless speculation about what might happen, see from the REI if, in fact, there is interest. In any case, issue an RFP and see, once it is out, what the scope and quality of offers we get. Assuming the feasibility of a sale on fair and reasonable terms is indicated – I emphasize, fair and reasonable – the Council should formulate a recommendation and set it for referendum. This is the point at which community discussion should take place, not during the RFP phase or in advance of it.
As for the concern that sale of the system leaves us reliant on an outside water supplier, with the possibility of price increases, I suppose it could happen. It happens in every other facet of life, so why would water be an exception? We pay more for surrounding jurisdictions now. Our costs could go down. Who knows? The Council and city staff, through the due-diligence process, should be able to ascertain the history of fees and fee increases, and other pertinent information, that will give us a reasonably predictable idea of what we might expect.
In any case, I doubt that the Council would recommend sale of the system unless we get a fair price, considering the systems and its assets and liabilities to a buyer, and assurances of a continuing supply of clean water at a price consistent with other local jurisdictions.