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Water Utility's Managers Earn Praise from Officials
by Beckle Kelly
[reprinted from Evansville Press, Feb. 26, 1998]

“We have not experienced any loss in the level of services,” Utility General Manager Jack Danks says as he reviews the city's first year in private management contract of the water utility. “The services have actually improved.” 

A year ago, the city entered into its second public-private partnership agreement, this time with the water utility.

In 1992, the city entered into a ground-breaking contract agreement with Environmental Management Corp., of St. Louis, to manage the city's wastewater utility. The five-year contract was expanded to include the sewer collection system in 1995. Both parties can agree to extend the contract for another five years in 2000.

So far, city officials say, they have saved more than $4.2 million through the sewer agreement.

Last year, the city signed a 10-year agreement with EA2/Systems [EMC & American Anglian Environmental Technologies] for the management of the water utility. EA2 also operate water facilities in Lexington, KY and Chattanooga, TN.

The contract boasted $19 million in savings for the city through lower operating costs and a reduction in staff, but also required EA2 to increase revenue each year by $190,000, cap overtime funding, guarantee $610,450 in maintenance and repair expenditures and $1,347,438 in new services expenditures among a host of other demands.

Danks said most of these were met. “Everything that we expected to achieve through private contract management has been met,” he said. “There are a lot of areas they are committed to and they are ahead of schedule in many areas.”

“In the first six months there is going to be a learning curve with the employees but we've increased services with a decreased amount of money.”

On the EA2 side of the deal, regional manager Adam McDonough said there have been a couple of rough spots but the agreement has run relatively smoothly. He said most of EA2's demands were met, with the exception of annual expenditures. He said with a few days left in the first year of the contract, he expects the amount to be either $60,000 more or less than promised.

If it is more, EA2 would pay the cost. If it is less, he said EA2 would refund the difference to the city. But McDonough said he doesn't expect this to be a problem in the future.

“We made some investments in the maintenance and repair category that were one-time fixes and things that were both functional and aesthetic improvements that fell into that category,” he said.

The contract specifically calls for EA2 to operate the water utility in meter reading and maintenance, the filtration plant and the water distribution system. The city will maintain all administrative functions including consumer billing, service, capital project planning and monitoring of the contract.

For the first five years of the contract, including a Consumer Price Index adjustment of 3 percent per year, the city is paying EA2 $5,153,500 each year.

With the city's budget operational costs through December 1997 being $12 million and actual expenditures with the contract being $11 million the city has already saved $536, 723.

After the first five years of the contract, the average CPI will be re-evaluated, and the yearly fee will be adjusted. Without the CPI adjustment for the first year, the cost to the city would be $4,903,673, thus another $250,000 in savings which will be realized at the end of the first five years.

All of this is in addition to the savings customers realized last year when the utility diminished its rate increase because of the privations. Originally the city has asked for an overall rate increase of 17.5 percent. Because of the expected savings from the contract with EA2 this rate increase was cut to 11.6 percent.    

But unlike the city' s full asset sale parivatization contract with Browning-Ferris Industries, which runs the city's trash disposal service, the contract with American Anglian and its partner, EMC is an operation and maintenance management contract.

Only 21 people were transferred to EA2, and none of those were union members, although the union members are being managed by EA2.

The contract calls for 44 position reductions from both the city and the private company. Danks said six union and one non-union positions have been reduced so far, all through attrition or transfers. The $400,000 savings by eliminating these positions and the three more scheduled for this year will be realized at the end of the second year, Danks said.

The reductions don't cost the city anything — they will actually increase the city's savings in each year of the contract. It's EA2's risk to commit to running the utility with fewer people while maintaining or increasing the levels of service.

Danks said it was important to the city when negotiating with EA2 that union employees remained city employees.

“In most cases, the private partner hires all the em0loyees including the union members, which means that the union no longer has a contract with the city and must negotiate with the new employer with no job security insurances.” he said. “In those cases, private partnerships don't retain all the union jobs. We've had a very good relationship with the union, and we didn't want a situation where all the savings were at the expense of the employees.

The arrangement saved union members' benefits and retirement plans and thus minimized some of the resistance which the union might have had if a full management operation was created, Danks said. It also allowed non-union employees to be secured positions at equal or better salaries and benefits.

The city continues to employ 30 non-union adminstrative customer service and engineering workers.

“There's lots of barriers to private-public partnerships you've got to overcome.” Danks said. “Many cities don't privatize because they don't want to lost control. But we didn't feel like a total aprivatization was good idea because we wanted our customers to have a chance to voice their opionions in the utility with the Utility Board and the City Council into what happens with their services and rates.” 

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