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OFFICE OF THE CITY CLERK
KAREEMAH FOWLER,CITY CLERK
UTILITIES JANUARY 23, 2017 5:46 p.m.
Committee Members Present: Dr. David Varner, Oliver Davis, Randy Kelly,
Regina Williams-Preston
Other Council Present: Jo M. Broden, Tim Scott, John Voorde
Others Present: Kareemah Fowler, Graham Sparks, Aladean
DeRose, Adriana Rodriguez
Presenters: Michael Schmidt, Eric Horvath
Agenda: Bill No. 06-17—Reaffirming Ordinance 10461-16
regarding compact and assessment fees
Bill No. 66-16—Addressing New Water Rates and
Charges
Committee Chair Dr. David Varner called the meeting to order with two (2) items on the agenda.
Committeemember Dr. David Varner announced that Bill No. 66-16 would be continued
indefinitely.
Sill No. 06-17—Reaffirming Ordinance 10461-16 regarding compact and assessment fees
Michael Schmidt,Assistant City Attorney, with offices on the 12'h Floor of the County-City
Building, South Bend, IN, served as the presenter of this bill. Mr. Schmidt stated that he comes
before the Committee to reaffirm Ordinance 10461-16. This was brought before the Council in
October, 2016 and passed. Mr. Schmidt stated, That particular ordinance largely dealt with the
removal of compact fees and the assessment of system development charges for wastewater and
water users. We did not provide proper notice to wastewater users outside of the City's corporate
boundaries. This really deals with three (3) or four(4) sections that only touch upon wastewater
users outside of the corporate district. The rest of that ordinance is still good, actionable law. The
only thing that exists right here, in front of the Council, is to allow for a public hearing, pursuant
to the statute, so that all users outside of the corporate boundaries may provide an opportunity to
get their voice to the Council about the rate change and, in this particular instance,the fourteen
percent(14%) surcharge that was being implemented in place of compact fees. It is fourteen
455 County-City Building•227 W.Jefferson Boulevard•South Bend,Indiana 46601
Phone 574-235-9221 •Fax 574-235-9173•TDD 574-235-5567-www.SouthBendIN.gov
JENNIFER M.COFFMAN ALKEYNA M.ALDRIDGE JOSEPH MOLNAR
CHIEF DEPUTY/DIRECTOR OF DEPUTY/DIRECTOR OF POLICY ORDINANCE VIOLATION CLERK
OPERATIONS
percent (14%) in lieu of a calculation that was based upon thirty percent(30%) of the difference
between a property tax if they were using one (1) utility, and fifty percent (50%) of the
difference if they were using two (2)utilities, for outside users. The fourteen percent(14%)
number that was provided to the Council was based upon recommendations from outside
counsel—Barnes and Thornburg—and through their discussions with the regulatory bodies of
the State, such as the IURC. Essentially, fifteen percent (15%) is the threshold. We recommend
to the Council that fourteen percent (14%)be used as the fair and reasonable surcharge number.
Councilmember John Voorde asked, And that was a phase-in, correct?
Mr. Schmidt responded, Correct. You're going to go with five percent(5%)the first year,ten
percent (10%)the second year, fourteen percent (14%)the third year and going forward. We ask
that you have the public hearing today and that you allow, as the statute requires, customers
outside the boundary to come and let their voices be heard. It is important that they be heard. We
remind the Council of Ordinance 17-29, which allows for individual customers to negotiate a
private use agreement with the Board of Public Works, if they can justify a basis for having a
different fee than other outside users. 17-29 gives the authority to the Board of Public Works to
enter into a contract with an outside company,but such a contract would only be effective upon
the Council's approval via resolution and then yearly presentations by the applicant before the
Council to continue to justify such savings. We ask that you reaffirm the provisions of Ordinance
10461-16 so that we can move forward with the implementation of the surcharges on our
customers that are outside the City boundaries. Absent action from the Council,we are at
jeopardy of going back to the old compact fees of the prior ordinance, which I think we can all
agree would be a disappointing outcome and would be very challenging in application and for
our customers out there.
Councilmember Jo M. Broden asked, So, any anticipated numbers or percentage of folks who
would look to negotiate a different rate?
Mr. Schmidt responded, We know of one (1) company, I/N Tek and I/N Kote, represented by
Mr. Dick Nussbaum. They are the City's largest wastewater customer. We have had some
positive discussions with them about why they might be able to provide strategic justifications as
to why a savings would be appropriate. We hope to continue to negotiate a special rate deal with
them that we could then bring forward to both the Board of Public Works and the Council for
final approval. Outside of I/N Tek and I/N Kote,the University of Notre Dame does have a
private use agreement. We would expect that Notre Dame would have an interest in discussing
this with the Council, as well. As Dr. Varner noticed, there is some discussion as to the current
validity of the agreement with the University of Notre Dame. At one point in time,they did have
an agreement with the City for a special rate. My sense is that those would be the two (2) parties
that would engage in conversations for special rate agreements. We are sensitive to the fact that
we don't want to open up Pandora's Box on special rates. We need it to be compelling. We need
there to be a true justification to the City as to why they are entitled to a lower rate than the rest
of the 2,000-plus customers outside of the corporate limits. But that's what 17-29 exists for: to be
able to prove it, sell it to the Board of Public Works, sell it to the Council, and then come back to
the Council, and make sure that the savings that were there, when the Council approved the
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contract, are still there, moving forward. This, so that there is a good, healthy dialogue every
year on the subject matter; so that the Council can be informed.
Committeemember Dr. Varner stated, Just for the record, the one (1)that is in effect came to us
years ago on the same pretext, and there has never been the annual Council-required follow-up
nor the reaffirmation, which is one of the issues I have had with this as it's gone along over the
years. Hopefully, we will take a good look at legitimizing that, if possible, in the future.
Committeemember Regina Williams-Preston asked, What justifies a special rate?
Mr. Schmidt responded, It could be a number of reasons. It could be that the particular customer
provided capital—thousands or millions of dollars to help build dedicated sewer lines. It could
be that they are not part of the combined sewer. It really is up to the Board of Public Works and
that customer to verify, economically, why this is a real savings to justify the rate increase and
then bring that to you. I am only speculating here. I don't want to box this into two (2) or three
(3) different concepts. It's up to that applicant to be creative and to justify their savings,through
hard numbers, before the Board of Public Works, and the Council should finalize such an
agreement.
Councilmember Broden asked, So, the burden is on the petitioner, and they establish a case?And
there really isn't a criteria on the Board of Public Works?
Mr. Schmidt responded, I would say that the burden is on the applicant. However, I think that
you look at these things and you try to work together, and you try to do things that make sense. If
the numbers are there and can be justified, then the Board of Public Works is interested in
working with its customers to find the right solution. But, again,this is why you have to come
back year-in, year-out, and justify it to make sure that the numbers that have been presented play
themselves out to justify the savings.
Councilmember Broden asked, You're describing where you want to go and the way you want to
work with people and your outcome,but is that a policy statement?
Mr. Schmidt responded, Currently, there is no formal policy.
Councilmember Broden responded, I would recommend that if word is going to come back
around to us,just to make sure that the criteria that you are looking at, as the Board of Public
Works, would align with the Council.
Eric Horvath, Director of the Department of Public Works, with offices on the 13th Floor of the
County-City Building, stated, I could point to the ordinance itself, because I think that it is
written pretty well in this regard. The party seeking a special rate has the burden of proof. They
have to provide written proof with information detailing the specifics substantiating the resulting
clearly definable reduction in cost to the Sewage Works. So,there has to be a clearly definable
reduction in cost to Sewage Works in order for the Board of Public Works to move forward with
a special rate agreement,which then has to come to the Council, ratifying it through a resolution,
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before it becomes effective. Both of those things need to occur before that special rate goes into
effect.
Committeemember Williams-Preston asked, So, the policy is that once they get that rate it stays
that way?
Committeemember Dr. Varner interjected, There was a fairly well-defined-
Committeemember Williams-Preston continued, Because I hear you saying that you have to
come back year after year, but then I thought I heard you saying that it didn't happen. So, they
just continue to get the rate?
Mr. Schmidt responded, It would come down, probably, to how the contract is written,but the
ordinance is very clear that every August t 30th or August l't, or somewhere in that range,the
applicant is to present to the Council why they should be able to receive such a benefit. And I
guess just spit-balling it off the top of my head—you would want some language in the
agreement that reminds them and requires them to be able to present the data to the Council
11 That could be a termination provision if the can't do that.
successfully. p y
Committeemember Dr. Varner added, And that if they are to achieve a successful resolution, we
will terminate the contract upon such failure.
This being the time heretofore set for public comment on the above bill,proponents and
opponents were given an opportunity to be heard.
None from the public wished to speak in favor of this bill.
Those wishing to speak in opposition to this bill:
Richard Nussbaum, 225 South Sunnyside Avenue, South Bend, IN, stated that he had been asked
by I/N Tek and I/N Kote to present to the Council their opposition to this particular work. Mr.
Nussbaum stated, I want to say from the outset that we are not here to be adversarial. We are
here to try to work something out. The fact that we did not get notice was an oversight on the
part of the City. We accept that. We don't think that there was any intent to not notify us. But we
really have only been only working at this since we were notified of the passage of the
ordinance, which was right before Thanksgiving. So, we've had about a month and a half—with
a couple of major holidays—to try to have meetings. We had our first real substantive meeting
with the City last week, and I can tell you that from that meeting I think there's some real, good
faith on both sides to try to work something out so that we do reach an agreement. We don't
think it's going to be very difficult at all to show justification for an agreement in favor of I/N
Tek and I/N Kote. We are here to continue the process of working out an agreement, but we are
also here from a legal perspective, because we have to remonstrate to this ordinance if we are
going to preserved our legal rights. My respectful suggestion to the Council would be to hold the
public hearing and to continue this matter in the public hearing to allow us at least thirty (3 0)
days, or something along those lines,to try to work out an agreement, because if there is action
taken on this ordinance, in order to preserve our legal rights there would have to be a lawsuit
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filed. We don't want to see that. We want to make sure that we have every opportunity to try to
work to an agreement on this matter.
Mr.Nussbaum continued, stating, The bottom line is that we have a company with five-hundred
and twenty(520) employees. It is a union planta United Steel Workers plant. A very highly
paid manufacturing plant that's had a record of great success over the past thirty(30) years. It
employs residents of the City of South Bend. It does business with many businesses here in
South Bend. I looked at their vendor list: there are two-hundred (200) businesses in South Bend,
many of which are longstanding companies that they do business with. The way this all occurred
thirty(30) years ago-1987, actually, is when the New Carlisle Economic Development Area
was put in place—its infrastructure was constructed without any City money whatsoever.
There's a truck line from the I/N Tek and I/N Kote plant to the Wastewater Treatment Plant; a
dedicate line, so there are no additions or any leakage out. It goes right into the Wastewater
Treatment Plant; it does not go into the river. So, there is absolutely no combined sewer overflow
issues that are caused by I/N Tek and I/N Kote. However, in calculating the rate,there is a
significant part of the rate which I/N Tek and I/N Kote pays which does address that issue. There
is also part of the rate, a PILOT—payment in lieu of taxes—where the City of South Bend
benefits from the Wastewater Treatment Plant to the extent that it would otherwise be a tax-
paying entity. There are some significant dollars there. That is outlined in the presentation, and I
will go into further detail later this evening.
Mr. Nussbaum continued, stating, About forty percent (40%) is what I/N Tek and I/N Kote pays
to the City as the largest rate-paying customer. Those, for things that it either causes—which is
the major part: combined sewer overflow—or for services the plant does not receive: it does not
receive Fire services, it does not receive road services, it does not have its garbage picked up.
There are no City services that are offered that I/N Tek and I/N Kote needs. However,part of the
I/N Tek and I/N Kote rates that are being paid do go to those things. If you quantified it, based
on the numbers that we have: between those two (2) components—the combined sewer overflow
and the PILOT—it's about$1,000,000 a year that I/N Tek and I/N Kote pays. That is significant.
That's $1,000,000, in my view, of savings. The rate that they paid has gone up $1,000,000 from
2010 to 2016. If you add on this fourteen percent(14%), that's another$300,000. It's just not
sustainable. They are either going to have to look for other options or they are going to have to
cut back in other areas, whether it's employment, or what-not. I think it is well worth our while
to try to maybe give us one (1)month or so to try to work out an agreement so that we don't file
any litigation and we can put this matter, in a very businesslike fashion,to bed. It would be in the
best interest of everybody. My request this evening is for you to open the public hearing, hear
from the public, keep the public hearing open, and we schedule the public hearing to continue at
a future date, to allow I/N Tek and IIN Kote and the City of South Bend to continue its
discussions.
Committeemember Dr. Varner asked for the man behind Mr.Nussbaum to be introduced.
Mr.Nussbaum identified the man as Tom Caiya, President of IIN Tek and UN Kote. Mr.
Nussbaum stated that Mr. Caiya was open to questions regarding the plant and its operations.
Committeemember Dr. Varner responded, I would expect that stuff will all be covered when we
get around to talking about some finalities. I appreciate you being here, thank you. Another
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thing, in response to one statement you made: with regards to Police and Fire and things like
that,you're not in the City of South Bend. You are in the City of New Carlisle. There would be
no expectations of City services, but the rate is where this is all—
Mr.Nussbaum interjected, I'm not saying that we are not getting something that we should get.
What I am saying is that we are paying for something that we are not getting. When someone
was asking for examples and criteria—this is an appropriate example.
Committeemember Dr. Varner asked Mr. Horvath if he wanted to respond to Mr.Nussbaum.
Committeemember Dr. Varner then asked, Or Mr. Schmidt?Are you feeling comfortable with
the notion of a consideration with regards to negotiations? Where do you stand on that?
Mr. Schmidt responded, Thank you, Mr.Nussbaum, for your statement to the Council. We just
want to reaffirm why e are here. We are asking you to reaffirm the ordinance that has already
Y gY Y
been passed, to make it applicable to the users outside the corporate boundary. We do believe
that we have many factors and momentum to negotiate a private use agreement to bring forward.
We do not anticipate that this could be an extended negotiation. We respectfully ask that we not
hold the rest of the ordinance and our ability to begin getting fees that were not consistently
applied in previous years. We need to move forward on this. We need to get some finality to it.
The multiple statements that Mr.Nussbaum brought up are all good reasons why 17-29 already
exists. We have every expectation to be able to negotiate in good faith, without the threat of a
lawsuit hanging over the City and Council. We expect to be able to get something done, and the
ordinance to get something done already exists. We know what we have to get done with that
ordinance. We have the public hearing today: reaffirm the ordinance and let the City move
forward with all its customers and come up with the special rate agreements when the customers
ask for them.
Committeemember Davis stated, Do we make a motion to send this forward tonight? The public
hearing tonight is not a problem. The question is: how much time should we allot, if we go on
too late, or should we have a thirty (30) or sixty (60) days situation?
Committeemember Dr. Varner asked Committeemember Davis if he had a motion to make.
Committeemember Davis stated that he would opt to have the public hearing in the evening as
well as allot Mr. Nussbaum thirty(30) days.
Committeemember Dr. Varner stated, If it goes to the floor tonight,there would then have to be a
motion on the floor to continue. So, we can take it from this point, if you want to do the hearing
tonight.
Committeemember Davis asked, But then the thirty (30) days?
Committeemember Dr. Varner responded, Well,then after we have heard the input or the
evidence, we can decide whether to continue for thirty (30) days or take action.
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Councilmember Tim Scott stated, Just a point to that: when we passed the original, there were a
lot of developers wanting to make sure that got done and that we move forward so that they
know what they are getting into.
Committeemember Dr. Varner asked, Correct me if I'm wrong: the whole ordinance is in effect,
save this one consideration? Is that a misunderstanding?
Mr. Horvath responded, Let me try to bring some clarity to that. We appreciate IN Tek and I/N
Kote as a customer and what they do for economic development in the area. I would be more
than happy to push this back, but the issue that I'm concerned with, more than anything, is the
fact that we have these existing assessments and compacts. The piece that's in the City is already
resolved, and we know we are doing SDC's there. The problem is that I can't charge those
outside of the County. So, a developer comes in to connect to a property that is outside of the
County, I would have to charge reassessments for the sewer base and square footage of property
and lien front footage for water, and then we are also going to have to look at the compact fees
and what to do with those, if they are still in place. That's my biggest issue with this and why I
want it to move forward, but by all means, at the same time, we should be expeditiously moving
forward with I/N Tek and I/N Kote to try to come to a resolution on a special rate. We can do
that as quickly as you can.
Committeemember Davis asked, So, if we pass tonight, we just pass with the understanding that
they may go ahead and file something against us?They can do that anyway, no matter what,
right?
Mr. Schmidt responded, I can't definitely speak towards I/N Tek and I/N Kote's intentions, but I
don't think that it's their intention to hold over the City any type of potential litigation. Our
thought is that we have had some preliminary discussions with them. They're motivated, we're
motivated. They have reasons to present to us to justify the special rate. You heard several of
them when Mr. Nussbaum presented. We believe that this is something that can move quickly.
Committeemember Davis stated, We've allowed for that in the regular ordinance. So,they can
come back at any time and address that. We can literally pass this tonight and if they don't like
what was done they can go back and renegotiate.
Councilmember Broden asked, Am I to understand that this section presented in the ordinance
before us (17-29),that they've not done that before?
Mr. Schmidt responded, I/N Tek and I/N Kote,to my understanding, has not had a private user
agreement. The only one that I'm aware of being out there is the University of Notre Dame.
Committeemember Oliver Davis made a motion to send Bill No. 66-17 to the full Council with a
favorable recommendation. Committeemember Dr. David Varner seconded the motion which
carried by a voice vote of four(4) ayes.
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With no further business before the Committee, Committee Chair Dr. David Varner adjourned
the meeting at 6: 14 p.m.
Respec Submitted,
avid Varner, Committee Chair
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