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HomeMy WebLinkAboutCC MINUTES 1980 03 10MINUTES OF A REGULAR ADJOURNED MEETING TUSTIN CITY COUNCIL COUNCIL CHAMBERS 300 Centennial Way March 10, 1980 7:30 P. M. .- I. CALL TO ORDER The meeting was called to order by Mayor Schuster at 7:31 P.M. II. PLEDGE OF ALLEGIANCE The Pledge of Allegiance was led by Councilman Saltarelli. III. INVOCATION The Invocation was given by Councilman Welsh. IV. ROLL CALL Present: Councilpersons: Schuster, Saltarelli, Kennedy, Welsh, Sharp (arrived at 7:36 P.M.) Absent: Councilpersons: None Others Present: Dan Blankenship, City Administrator James G. Rourke, City Attorney Bob Ledendecker, City Engineer Mary E. Wynn, Chief Deputy City Clerk Hugh West, Maintenance Superintendent V. PUBLIC HEARING 1. PROPOSED PURCHASE OF TUSTIN WATER WORKS BY THE CITY OF TUSTIN The staff report was given by Dan Blankenship, City Administrator, indicating that this step is a result of over 10 years of negotiations with the Tustin Water Works. Until recently, the rates of the Tustin Water Works were such that purchase by the City was not in the public's best interest. Recent rate increases and other events have now made it possible for the City to consider the acquisition of the Tustin Water Works within the existing rate structure of the company with only the increases that would be required by the company itself for increased cost of water, energy and other costs subject to inflation. This is the first of two hearings that were advertised in the Tustin News and the City has mailed out a brochure to all of the customers of the Tustin Water Works. The acquisition proposed is to be ultimately accomplished by the formation of a non profit corporation which will sell bonds and pay for the Water Works as well as other funds for bond reserves, the expenses of issuing the bonds, and funds for some initial capital im- provements. In this negotiation, the City represents 40~ of the Water Works, and the City Council has authorized to give equal rates and service m County residents. The City's objective has been to preserve a reliable water supply and to attempt to maintain rates that are as low as are practical with the costs of operation and the capital improvement needs. He met with the Santiato Municipal Advisory Committee (SNAG) on March S, 1980 and spoke for about an hour. The Public Hearing was opened at 7:39 P.M. Phil Andersen, 161 Fashion Lane, Suite 114, Tustin, furnished the Council with his letter dated March 10, 1980, a copy of which is on file in the City Clerk's office. He read the letter which contained questions about: 1) rate increases, 2) power of the Board of Directors, 3) reimbursement to the old stockholders for recapture of investment tax credit, depreci- ation expenses or other adjustments, 4) bonds, S) deficiencies in the system, 6) budget for the Water Works, 7) rate adjustments for increased interest expense, replacement of existing system and increased operating costs, 8) salaries of Tustin Water Works employees, 9) increase in City expenses due to this acquisition, and 10) purpose for buying the Water Works. He asked for written answers to these questions prior to the March 17th Public Hearing. (The written response from staff is on file in the City Clerk's office dated March 12, 1980.) Bill Smart, 1741 Stonehenge Drive, Tustin, had the following questions: 7) What went into deciding the purchase price, 2) What does the word "base" price mean, and 3) does the bond debt service refer to the bonds you are intending to underwrite. Council Minutes Page 2, 3-10-80 Dan Blankenship responded as follows: 1) We have been in negotiations for many years and different approaches have been considered and the Council has held the position that if the City had to raise water rates to buy the system, the price was too high. The financial consultant made a brief analysis that if we were to condemn the system in the courts, the system is worth perhaps $14,000,000. On the other hand, if we were to capitalize the profits that the existing stockholders are making, we could project a much lower purchase price of $2,000,000. However, they are not earning on all of their system because of the main extension agreements. The PUC will not let them put that into their rate base and allow them to earn profit on it until they have paid off those agreements. The price of $6,000,000 is primarily a matter of negotiations, trying to get the best price that we felt we could get, 2) The base price is the price as of June, 1979 which does not have an inflation factor for cost of living increase but does have a provision that if they make improvements to the system between that date and the time we acquire the system, those improvements would be added to the purchase price. They will have accounts receivable and accounts payable which we will try to be fair in the resolu- tion of those issues. The only thing other than the base price is the repurchase agreements of approximately $1,060,000, which the City will be assuming, and 3) The bond debt service of 25 years, 656,000 is the antici- pated bonds sold by the non profit corporation. Mr. Smart said that since 1972 he had been extremely pleased with the cost and the level of service in Tustin and he has never had any complaints about water pressure or problems in receiving the water. Bill Davenport, 13762 Loretta Drive, Santa Ana, a director of the East Orange County Water District and a resident of the County who is served by the Tustin Water Works, stated that he had done considerable back- ground work in this area and he pointed out that in 1971, the City of Tustin offered $2,700,000 for the Water Works, and the East Orange County Water District made an offer of $3,200,000, based on an appraised value of $2,500,000, and he would like to know what the appraised value is today. He also would like to know the PUC base. In 1971 it was about $2,500,000. He pointed out that in December, 1970, the City Council made the decision that the East Orange County Water District was the logical purchaser. He said rates would have to be adjusted because the franchise fee will have to be paid to the County and the City of Orange. He felt the City Council should give careful consideration to having 60~s of the Board of the non-profit corporation to be residents outside the City of Tustin and the authority should be someone other than the City Council. Karsten Hirsch, 18502 Beachmont Ave., Santa Ana, expressed that the City should have a budget for the Water Works and he would like to know what other companies want to buy the Water Works. Ed Wells, consultant for the City since 1969, reported that the City has turned down the price many times. What we face is an opportunity to change the basic direction of this asset. At the end of 1979, their accumulated year to year original cost was $6,800,000. The estimates have been made that to reproduce new and subtract depreciations on accrued basis would leave a value somewhere between $13,000,000 and $14,000,000. The City can continue to operate the system at about the same level of expense as the Water Company. The total salaries of employed personnel are very close to $200,000 a year while the total operating expenses are approximately $1,400,000, including many items over which neither the company nor the City will have any control. Salaries are about 1/7th of the total operating expenses. Other charges include the cost to pur- chase water from the East Orange County Water District or from any other delivery source, the cost of purchased power and the cost of extraction, which is charged for by the Orange County Water District. Under public utility operations, those costs of power, purchased water, and pump taxes are levied by outside agencies and are routinely passed along by the company to the customer in the form of increases of water rates which they initiate. The Company cannot initiate a water rate increase to re- imburse itself for its expenditures or to cover increased costs other than certain categories without going back to the PUC. The best approach to buying the system and raising capital for needed improvements is through the sale of bonds using the non-profit corporation. On the other hand, the bond market interests are very high at this time, so the document that we have is unique in that it permits the City L~ ~~o over ~i.o as~eom immediately, operate it at a basic interest rate of about 7~a$ for 25 years. There is always the concern about the character and quality of the system. Council Minutes Page 3, 3-10-80 The City may set a priority of improvement programs that will eliminate the deficiencies and improve fire protection. The City will operate the system equally, both for the residents inside and outside the City. Steven Johnson, secretary to SMAC and businessman in Tustin, had two questions of the Council: 1) Will there be the same rates for City and County residents, and why would the City want to sell portions not in the City's Sphere of Influence, and 2) Does the purchase represent an effort to annex the County areas? Dan Blankenship, City Administrator, answered that the City Council's 1 policy is that there would not be discriminatory rates but on the other hand, if the portion outside the City was subject to franchise fees that would be a different situation. There would still not be discriminatory rates by the City. The resolution that will be adopted if the Council decides to approve the purchase of the Water Works says that no discrimi- nation should be made in the water rates of customers inside or outside the City of Tustin. Councilman Saltarelli suggested that we attempt to have the Board of Supervisors waive the franchise fees in any area outside the City of Tustin. The City Administrator explained that the area north of Fairhaven and west of Esplanade is a high elevation and the most difficult area to provide adequate water pressure and that area would be at the south end of the City of Orange service and would be easier for Orange to maintain adequate protection. Any portions that would be sold would not be in Tustin's Sphere of Influence. The Council assured Mr. Johnson that the City would not use the purchase of the Water Works as a tool for annexation. They did emphasize that a united community is a mutual benefit for all residents but there was no relationship between annexation and the purchase of the Water Works. Matt Nisson, 1462 Red Hill, asked the following questions: 1) When do ~~ you plan to take over the Water Works, 2) Who would pay off the present ~jY bond indebtedness, and 3) Is there a reserve to pay off these bonds. Dan Blankenship answered the questions as follows: 1) Probably not until July or August, 2) The Water Works Corporation would be accepting the liability for the bonds until such time as bonds were sold by the non-profit corporation and at that time, the bonds would be paid off, and 3) To the best of my knowledge, they do not have a reserve set up for these bonds but they will have to be paid off in accordance to the bond provisions, or when the non-profit corporation sells its bonds, then all the bonds will be paid off. Mr. Reed Jensen said there was no reserve. Dale Kimsey, 1821 Stonehenge, said he had not heard any reasons why the City should buy the water works. He felt that the Tustin Water Works has a good track record and the PUC has done a good job. He is a believer in free enterprize and feels they can get more done than bureaucracies. Lloyd Robbins, 2002 Fallen Leaf, was not opposed to the purchase of the Water Works but addressed his remarks to the maintenance and replacement of the system. He was concerned about the underground deteriorations and felt it will cost much more to maintain and replace than the City is anticipating. Bill Ritchey, member of the Board of the Foothills Community Association, commented that it appears Tustin is not buying the Water Works but de- pending upon the users to supply the money, 60~ of whom reside in the County but who have no voice in the acquisition. He asked if the City `-' would purchase just the part of the system that is in the City limits, how the City is going to treat new County development hook ups and what is the possibility of establishing a trustee board, with a representative of each community that is to be served in proportional representation. Richard B. Edgar, 13622 Loretta Drive, was wholeheartedly in favor of the purchase of the Water Works. In some areas, the delivery of the water system is inadequate for fire protection and he did not feel Tustin Water Works has been ignorant of this. The need that exists is that we care enough about the residents and we are going to do something about it. COUNCIL MINUTES Page 4, 3-10-80 Lowell Eherhardt, City resident for 12 years, agreed with most of the concerns of the speakers except the last speaker. He was apprehensive because he did not think the public had heard the whole story. He wants to know what the master plan is, what are going to be the capital ex- penditures and what it is going to cost to operate. Councilman Sharp pointed out that the City Council has been very business- like in approaching this acquisition. They have retained several expert people with credentials and we intend to hire the employees of the Water Works to help with this. It was moved by Welsh, seconded by Sharp, to continue this Public Hearing to March 17, 1980 at 7:30 P.M. Carried 5-0. VI. NEW BUSINESS 1. REQUEST TO RECRUIT FOR PERSONNEL DIRECTOR It was moved by Welsh, seconded by Kennedy, to authorize recruitment of a Personnel Director and temporary appointment of Acting Personnel Director as requested by the City Administrator. Carried 5-0. 2. REQUEST FOR TEMPORARY ON-STREET PARKING, IRVINE INDUSTRIAL COMPLEX It was moved by Welsh, seconded by Kennedy, to grant permission for the on-street parking prohibition in the vicinity of Duke Timber Construction Company of 2841 Dow Avenue to be relaxed for a four week period during the construction of an addition to their existing building. Carried 5-0. VII. ADJOURNMENT It was moved by Saltarelli, seconded by Sharp, to adjourn at 10:15 P.M. to the next regular meeting on March 17, 1980. Carried. -, ; . ~ , _ 1 MAYOR CITY RK '- A A