Waukesha Projects $25+ Million One-Time Payment To Milwaukee For Water Connection

A potential $25+ million payment - - similar in definition to New Berlin's $1.5 million, one-time regional services or cooperation fee, for the entire 20-year term of its water purchase agreement with Milwaukee, its preferred seller - - would be in addition to state-approved water rates per gallon.

And on top of $15+ million projected to advance the application, Waukesha says.


The figure appears on page 8 of this section of Waukesha's new information provided last week to the state DNR and is response to a question posed by the state agency:

Comment WS13

The application contains no estimate of “sunk costs” or “one time” payments to Milwaukee, Oak Creek or Racine. The City of Waukesha has stated that the sunk costs are included as “contingency” costs in the May 2010 Waukesha Diversion Application. Please present the “sunk” or “one time” costs as a separate, specific cost item in the application.

Response

It is impossible to know if a “one-time” payment will be required from water suppliers before negotiations are concluded. If a one-time payment were to be required, it is impossible to know a dollar amount before negotiations are concluded. Industry cost estimating standards for dealing with unknown conditions such as this are to use a contingency as a percentage of the construction cost. This also applies to other unknown situations, such as the changing cost of materials and local market conditions in the construction industry. The contingency is more than $25 million for the Milwaukee water supply alternative, plus an allowance of more than $15 million for permitting, legal, and administrative costs. This $40 million amount is sufficient to cover future unknown conditions that may or may not occur.

Milwaukee made it clear via a unanimous Common Council signed by the Mayor (below) three years ago that a community like Waukesha buying Great Lakes water through the Milwaukee Water Works would have to meet a number of conditions with regard to housing, planning, and transportation and other regional and cooperative issues and services.


[Insert at the request of Waukesha Water Utility General Manager Dan Duchniak: Your claim that we have $25 million projected for a one-time payment is untrue.  We have not ever stated a budget for any potential one-time payment.  The contingency is for many items, one of which could be a one-time payment.  Again, as you are aware, many unforeseen issues arise during the course of construction.  These items may include: unknown soil conditions, unforeseen construction issues, adjustments for other utilities, etc.  Having been through many large construction projects, it is very reasonable to encounter construction issues that were not anticipated.  That is why it is standard industry practice to include contingency as a percentage of construction in cost estimates.  The contingency is included in the estimates for all the water supply alternatives.  In fact, the contingency is larger for the other alternatives because the construction costs are higher than they are for a Lake Michigan water supply.  In the answer to the DNR question, we were merely pointing out that we could potentially pay a possible but unknown amount to a water supplier from this construction contingency.  We did not project a $25 million one-time payment to a water supplier and to report it that way is irresponsible.}


The word "extortion" has been thrown around when it comes to these sorts of payments, but it is clear from the wording of the Milwaukee Common Council policy that genuine cooperation is expected from water sales' partners.


Here is the wording of the Milwaukee resolution (I will bold-face some items):

Number

080457

Version

080457 Resolution 7/1/2008

Version: 1

Substitute resolution establishing terms and conditions by which the City of Milwaukee will provide water service to neighboring communities. ALD. BAUMAN

WATER SALES

Substitute resolution establishing terms and conditions by which the City of Milwaukee will provide water service to neighboring communities. Analysis The City of Milwaukee’s current policy for reviewing potential agreements for water service to other communities is contained in Council Resolution 980871, adopted April, 1999, as amended by Resolution 020459, adopted March 25, 2003. 


This resolution rescinds the policy set forth in those resolutions, and creates a new policy for negotiating and reviewing potential agreements for water service to other communities. This new policy differs from the current policy in 3 principal ways:

1) It states that before negotiations may commence regarding an agreement for water service, the following must occur:

The Common Council directs the Milwaukee Water Works, the Legislative Reference Bureau and the Department of City Development to perform analysis and evaluation relating to the proposed agreement; these agencies shall submit their reports via a communication file not less than 7 working days prior to the Common Council committee for which it is scheduled.

The community which has applied for water service shall submit a written response to the aforementioned communication file not less than 7 working days prior to the committee hearing, providing information relating to the community’s comprehensive plan, affordable housing plan and public transportation plan.

The Common Council directs the proper City officials to begin negotiations with a community for a water service agreement. The current policy does not require that these studies be completed before negotiations may occur.

2) It creates a water service negotiating team which shall be responsible for reviewing and negotiating potential water service agreements. The team is authorized to commence negotiations upon Council adoption of a resolution directing negotiations.

3) It states that before an agreement for water service may be executed, the community which has applied for water service from the City of Milwaukee must enter into an intergovernmental agreement that contains a “non-compete” clause and an economic compensation provision.

The policy set forth in this resolution does not apply to agreements referenced in Common Council File Numbers 080011 and 080012.

Body

Whereas, The Water Works currently has significant excess capacity and could readily supply water to new customers; and

Whereas, The City of Milwaukee is widely recognized for its superior quality of drinking water, which may prompt requests for the Water Works to expand its service to new areas; and

Whereas, By providing water to other communities, the City, directly or indirectly, facilitates residential, industrial, retail and commercial growth in other communities; and

Whereas, This growth may result in lost opportunities for additional housing, jobs and tax base in the City of Milwaukee; and

Whereas, It is in the best interest of the City of Milwaukee that the Common Council establish procedures and policy criteria relating to potential agreements for water service to other communities so that such decisions can be based on timely, accurate and complete information; now, therefore, be it

Resolved, By the Common Council of the City of Milwaukee, that the provisions set forth in Resolution File Number 980871, adopted April 20, 1999, and Resolution File Number 020459, adopted March 25, 2003, establishing policy and procedure for potential water service agreements, are rescinded, and a new policy addressing those matters is created; and, be it

Further Resolved, That this policy establishes procedures and policy criteria for potential water service agreements between the City of Milwaukee and other communities, as follows:

Requirements before negotiations of a potential agreement may occur

The following criteria must be met before any negotiation of a potential water service agreement may be authorized:

1) The Water Works shall introduce and receive approval, via Common Council resolution, for the Water Works, the Legislative Reference Bureau (LRB) and the Department of City Development (DCD) to perform analysis, in accord with this policy, relating to a proposed water service agreement.

2) The City Clerk shall introduce a communication file to transmit Water Works, LRB and DCD analyses, and the report from the community which has applied for water service, and the Water Works, LRB, DCD and the community shall submit their analyses to the communication file not less than 7 working days prior to the date on which the file will be heard before the appropriate Council committee.

Reporting requirements

A. Milwaukee Water Works reporting requirements

The Milwaukee Water Works shall submit to the communication file a written evaluation of the water service request including a feasibility analysis of the proposed sale of water, which shall include, but not be limited to, increased revenue, cost of production, effect on the City's water rates, impact on capacity utilization and any required capital costs, and other information the Water Works deems relevant to the Council's consideration.

B. Legislative Reference Bureau reporting requirements

The LRB shall submit to the communication file a written report that analyzes and evaluates the following:

B-1. The reason for the request for water (e.g. is the request for water the result of a water shortage, water contamination, public health concerns, drought or some other conditions).

B-2. The economic profile of the community, including tax rate, assessed valuation per capita, median household income, per capita income and median home value.

B-3. Poverty rates, minority representation and other demographic and community characteristic data it finds to be pertinent.

B-4. The current status and an analysis of past and future trends relating to the availability of public transportation and affordable housing.

B-5. The environmental impact of the proposed sale.

B-6. Other information that the bureau finds pertinent to the Common Council’s consideration of the proposed water service request.

C. Department of City Development reporting requirements

The DCD shall submit to the communication file a written report that analyzes and evaluates the following:

C-1. Whether the water can be used directly or indirectly to facilitate new residential, industrial, retail or commercial development in the community which has applied for water service, and the value of such development and the number of new jobs and residents that such development will generate.

C-2. Potential negative social and economic impacts on the City due to lost opportunities for attracting new businesses and jobs to Milwaukee, and the loss of businesses and jobs that exist in Milwaukee.

C-3. The current land use patterns in the community which has applied for water service and expected trends in land use if Milwaukee provides water to the community.

D. Reporting requirements for the community which has applied for water service

In addition, for purposes of Common Council review, the community which has applied for water service from the City of Milwaukee shall submit a written report to the aforementioned communication file indicating that the community has adopted and implemented:

D-1. A comprehensive plan pursuant to s. 66.1001, Wis. Stats., and, if the plan has not been completed, indicate the status of the community’s compliance with each of the 9 requirements which comprise s. 66.1001 (2), Wis. Stats.

D-2. A comprehensive housing plan and can demonstrate that such plan has resulted in the creation of affordable housing opportunities that have resulted in racial, age and income diversification, with data on the percentage of population in assisted and affordable housing that is age 30 or less, above age 30 and below 65, and age 65 and above.

D-3. A comprehensive public transportation plan and can demonstrate that such plan has resulted in the expansion and improvement of public transportation links between persons living in the City of Milwaukee and job opportunities in the community which has applied for water service. Such plan may include, but is not limited to, participation and inclusion in the Southeast Wisconsin Regional Transportation Authority or an equivalent entity.

3) The Water Works shall introduce and receive approval, via Common Council resolution directing the City negotiating team to begin negotiations with a community for a water service agreement, and any negotiations with a community which has applied for water service from the City of Milwaukee shall consider the analyses provided in the aforementioned communication file.

The negotiating team shall be composed of the Mayor, or the Mayor’s designee; the City Attorney, or the City Attorney’s designee; the Superintendent of the Milwaukee Water Works; the Common Council President, or the President’s designee; the Comptroller, or the Comptroller’s designee; the Director of the Budget and Management Division, or designee; and one representative from the Legislative Reference Bureau.

Before an agreement for water service may be executed the community which has applied for water service must enter into an intergovernmental agreement that contains a “non-compete” clause and an economic compensation provision that is substantially similar to the “Cleveland Agreement” which is attached to this file; provided, however, the precise amount of economic compensation shall depend on the particular circumstances of the community which has applied for water service.

; and, be it

Further Resolved, That the Common Council directs all City departments and agencies to cooperate with the Milwaukee Water Works, Legislative Reference Bureau and the Department of City Development in providing all necessary information for studies of proposed water service agreements pursuant to this resolution; and, be it

Further Resolved, That the policy set forth in this resolution does not apply to agreements referenced in Common Council File Numbers 080011 and 080012.