Travis County Commissioners Court
Tuesday, June 28, 2011 (Agenda)
Item 31
31 is to consider and take appropriate action on the divestiture of lcra's water systems. Anybody still here?
is this a good time to take up this item?
please come forward.
good morning, I'm the mayor of the city of westlake hills, joined by barney knight.
I found -- I've now found a job that's more challenging than being mayor.
it's yours.
I thought our meetings went long.
so kudos to you guys.
I will try to keep my comments brief.
I appreciate you taking this up.
about a dozen years, the city of West Lake Hills approached the lcra to establish a partnership to build and operate a wastewater collection system because our city was facing a problem with -- with septic systems starting to fail.
we approached this as two public entities coming together to share the common good and to serve a public purpose.
the lcra committed to doing the project at its cost, which was the city was excited about.
but over the years that financial arrangement sort of evolved to where their costs became inflated and included a lot of charges and fees and markups and what I would call as a, man profits.
so over -- over the next 10 years or so, we really struggled with a lot of the costs that we were incurring and being charged for by the lcra.
so about two years ago, we intoed into negotiations to purchase our wastewater collection system from the lcra in order to get out from under some of these fees that were being charged to us.
we made a series of offers, including one offer that was 97% of what the lcra had stated was their -- their requested purchase price and those offers were all rejected.
we couldn't understand why they were never coming back in counter offering, why they weren't working with us on an agreeable price point until November of 2010 when their board passed a resolution stating that they intended to divest themselves of the 30 to 32 water and wastewater systems that the lcra has owned and operated over the last couple of dozen years.
it then became pretty quickly apparent that the lcra wanted to sell all of these systems to an enron like investor owned utility in order to maximize its own profit or return on its investment.
it was kind of disturbing to us when they made this announcement because it came right in the middle of our negotiations.
but we quickly joined together with some of the individuals at this table to form a coalition of the various interests and communities that were served.
I believe there's three of these systems in -- in Travis County, rollingwood, West Lake Hills and the west Travis County system.
are there --
>>
>> [indiscernible]
>> and glen lake that's -- near lake Austin.
>>
>> [indiscernible]
>> what's the other one?
>> Lakeway and hearst creek.
>> thank you very much.
>> part of Leander.
>> okay.
all right.
there's apparently --
>> coming out of the woodwork.
>> that's right, all over the place.
so when they made -- when the board made its announcement that they intended to sell, it set some parameters around that process.
identified four criteria that they would use in order to select the winning bidder, one was price, the ability to access the capitol, the ability to maintain the systems, it was kind of odd that none of the criteria involved commitments to represent the best interests of the various stakeholders and the citizens served by these systems. The lcra was establishing criteria that would promote its own interests and secure its own goals but they were less concerned about serving the interests of the systems and people that were served.
so the coalition was formed to purchase or to negotiate to purchase these 30 to 32 systems from the lcra in a utility development corporation.
did I get that right?
was formed as the legal entity to pursue the bidding process.
so we have gone through two phases, we are in the second phase of the bidding process.
it's kind of evolved over time.
the lcra initially said they wanted a single buyer for all of these systems. Including the smaller systems that might not have access to capital to be able to purchase themselves, they have since relaxed that requirement and said they are now willing to accept an offer from multiple parties to pick up multiple parts of the system.
we're in a very critical time in the bid process.
it's moved to what they are calling the phase 2 where the -- where the -- do we know three or four, four or five maybe entities that have expressed an interest and been allowed to go through to phase 2, starting to do their due diligence to look at these systems and really figure out what their hard bid is that they're going to make sometime in July and then bmo capital partners, the entity that the lcra engaged to manage this operation and I would argue shield it from the public process intends to make a recommendation to the lcra board at its August meeting regarding the sale to one or more entities.
I'm here to -- to sell these systems to the coalition at a reasonable price.
it's not enough for the lcra to simply say okay coalition you can buy them, but we want $300 million for these systems. The lcra has to be encouraged to forgo these fees and markups that has artificially inflated the book values of these systems on the lcra's books.
we got into this with the lcra because we thought we were partnering with another public entity that was in this for the long haul for 40 years.
if they want to break our contract and sell us to another entity, that's fine, contracts always have ways and provisions to make that happen.
but for them to do it in a way that only protects their interests and maximizes their financial gain to the damage and detriment of these other 30 to 32 systems, all of which could end up being owned by an enron like entity that jacksup their rates the day aftr the sale.
I think the Commissioners court can send a message to the lcra if they want out of these systems that's fine, but they need to do it at a fair price.
I'm sure these folks will comment some more on the coalition process, but I want to bring another kind of disturbing piece of news to your attention.
that involves an open records request that the city of West Lake Hills filed with the lcra in February.
after that request was filed for information about the bid process, we wanted to know how was the lcra marketing West Lake Hills system to these investor owned utilities.
what were they saying about us?
when you purchase an invest store owned utility purchases a system like this, they want to see how expandable is it, because that's where they can invest capital and maximize their rate of return on the investment.
just owning the system doesn't make as much money for them.
expanding the system is where they really make the cash.
we wanted to make sure that the lcra was not misrepresenting our system.
we filed an open records request.
they had as a part of the process of outsourcing this sale to bmo capital partners, they required all bidders to sign a confidentiality agreement.
if you wanted to see the bid packet and make a bid, you had to sign a confidential agreement.
we objected to that and in principle because this was public information.
the lcra is repackaging public information giving it to bmo who is repackaging it and putting it into a bid packet that's being sent out to prospective buyers and we couldn't see that?
the lcra must comply with the Texas public information act.
when we filed our open records request we expected to get documents that were responsive to our request.
the 10 day statutory limit came and went.
the lcra didn't give us anything.
nor did they request an opinion from the attorney general's office requesting an exemption from that requirement.
several months went by.
while we're over here on the sidelines screaming about how the lcra is not responding to Texas law, we filed a complaint with the attorney general's office and we got pretty much no -- no results from that request.
we had a meeting with the Travis County attorney's office and they agreed to look into it.
they had a meeting with us and our attorneys, they invited the lcra and their representatives to a separate meeting.
lcra declined to attend.
a few days later, we got a letter from the county attorney's office stating that the lcra has violated the Texas public information act and that the county attorney intends to file suit against the lcra for that violation if the violation is not cured within four days.
the statute gives the lcra one last chance to remedy the situation by -- by providing responsive documents.
by this point, they had given us the bid packet, which sure enough misrepresented our system as being expandable when we were land locked and our contract with the city of Austin prevents us from being expanded.
but setting that little matter aside, they did not provide us all of the responsive documents that showed how that packet was generated.
we wanted to see the communications between bmo capital partners and the lcra.
you would think that bmo is not capable of again rating a 40 or 50 page packet based on absolutely no inputs from the lcra.
they wanted to see that information and the lcra sent us a little bit more information, a cover letter sent with the packet, but didn't give us the information that we considered to be responsive.
at this point it's sitting with the county attorney who is trying to decide what to do.
there is a possibility of criminal investigation and prosecutions for violating the act.
but we are would it concerned -- quite concerned that this is indicative of a bigger picture at the lcra.
it won't be surprised to anyone who is familiar with the organization that they are not very accountable to anybody but the governor's office.
not accountable to the legislature, they have no sunset review, despite the last session.
the board members appointed solely by the governor, not by representatives of the various counties, which we think is quite troubling.
but all in all, they are attempting, we believe this violation of the public information act shows that this whole process of selling the systems, this divestiture is something they are wanting to do behind closed doors with as little scrutiny from the various coalition members, as little scrutiny as possible from the other governmental entities that are in the region that have a stake in this.
so it troubles us greatly, we hope that the county attorney will pursue this suit and other investigations vigorously.
all in all, we just want to own our system, because we believe we have a high public purpose to serve our residents with the functioning wastewater system that doesn't cost hundreds of dollars a month to operate.
so -- so if you have any questions, I will be happy to answer them.
>> where are the negotiations with lcra granting the coalition partners an opportunity to purchase?
>> bernie knight is the representative of the coalition.
>> yes, my name is barney knight, I am city attorney of Leander among other famous things and a few small cities out in the hill country that are involved in this.
>> [indiscernible] the president of the corporation that was formed by the entities currently the sponsoring members of the corporation that you hear referred to as udc are West Lake Hills, city of sunrise beach village out in -- on the lakes, Leander, bee cave and hays county.
the coalition that was organized to meet lcra's requirements to be able to -- a legal entity bid for one package.
picks asked me to come and speak to you today because he had a conflict.
I want to give you two or three things.
one, to answer your question directly, they have finally after we increased our bid by about $100 million, moved us into phase two where they will consider talking to us now and let us go through due diligence, the due diligence process is underway.
we are estimating that we have a budget of about $225,000 that will be our costs, if you can imagine, assessing values and flows and circumstances and asset conditions of -- of 30 some odd utilities in a six week period.
that brings me to one point, probably doing this early, judge, but picks wanted me to not leave here for asking the county we think a modest contribution to this cost to help us depray it of $12,000.
defray it, of $12,000, all of the cities, entities are kicking in funds to do this, to mention two or three issues.
just I'm a lawyer, I can't help it sometimes.
one of the things that -- one of the things that you should be aware of, the inequity involved here.
the lcra is selling these systems and seeking the highest bid based on a rate based basis.
I have been involved two or three times in my career where a private entity came in I can tell you in every single one of these incidents the rates doubled within two years and then there was additional attempts, mostly successful, to get successive rate increases in future year.
some of these systems are being required, if they want to have a chance to buy their system, they gave the lcra their entire system, they deeded it without cost.
to the lcra.
now the lcra is saying no, you can't get credit for that.
you've got to pay full market value based on what the revenue that's we can receive off of this.
with that, I want -- I apologize, I try my best not to ever get in county business.
I chastised one of your young assistant that Commissioner Huber has been very kind and nice to try to do as much as that I reasonably think she could be doing on this issue given the circumstances and keeping staff members there to give information.
I took him on maybe too harshly out of frustration in a meeting a while back about take some of this information back down there and wake 'em up.
talk to the judge, pass this information on, get this information through of the significance of this to Travis County.
where I know that Commissioners are accustomed to thinking more my precinct and this is responsible.
this issue very conservatively, I can take the time to give you the numbers, they would fit within an economic, general economic assessment, this issue is -- if an outside entity purchases these systems, the economic impact on Travis County, the immediate area, annual economic impact, very conservatively figured, is going to be 100 to $150 million.
and you can calculate that two different ways.
they're anticipating private sector people bidding not less than $300 million on these systems. They're not doing it for free.
you can take a -- take a -- take a 10% return to investment.
and that's $30 million a year.
and generally the economists will tell you that money circulates from one to nine times in a community before it leaves the community.
generating sales taxes and other -- jobs every time it changes hands.
if you take just a mid level multiplier of that number, that's $150 million a year.
before you get to the debt service that's going outside the community, I've spoke to a private individual the other day that's bidding on the system.
they've apparently got some kind of family organization that's putting up the money, I think it's legitimate, it's not east coast family
>> [laughter] they -- the family, you know, is putting up the money because it's a great investment.
they have revenue stream forever.
those moneys are going out of this county, too.
by the time that money circulates in this county, there's -- that's a lot of jobs.
that's a lot of retail store clerks that's got to be around and have a job to -- to handle those transactions.
and then we've got today, in the -- in this group, in the immediate Travis County area, this -- this extends out to the edge of brazos county and extends out to the edge of hays county and extends out to the edge like -- like Leander and Williamson county, but it's the Austin Travis County community.
they spend their money here.
the -- there's 42,000, 42,000 connections that's current connections and two -- only two communities.
what we call vested connections.
in other words they have taken the steps necessary that we've got to provide them service, as soon as they go through.
so 42,000 connections.
combination residential and commercial.
that's going to be impacted by this.
and -- and I can refer you to -- that you can have your staff look at in the immediate area, of -- of Austin, is -- is incidences in the last few years where -- what the rates happened in those entities when the private sector took over local water supply or municipal corporations.
we ask for your contribution and -- but that's less important.
it's important.
but it's less important than your political support.
>> mr. Knight.
>> thank you for your comments.
>> yes, ma'am.
>> I just wanted you to know that john white is our staff person that's responsible and has been attending all of these meetings and has been giving us updates on these meetings.
one of the reasons that I put this on the agenda for this week was because the first that I had heard was from my staffer who monitors these meetings, not as county staff, but for me was that expectations seemed to be higher from the -- from this coalition group than what were being communicated to us effectively.
I have not had anybody from the group specifically contact me with a special interest.
I've been monitoring this, I have a whole slew of questions which I won't belabor the court right now, but that I think that Travis County would need answered before we could move up in a more definitive way than we have.
we care.
this is a big concern.
and I know that I personally am especially interested in this because of not only the current situation but the long-term implications.
but we're going to need to know things from this group as it relates to our participation and at least I would want to know questions like who is going to be the owner of these systems if you are going to actually buy them, what is going to operate them, where is the financing coming from, where is it contemplated to come from.
there are a lot of details like that have not been shared with us in one form other ear that we need answers to.
so I will put my questions down.
if any of the rest of you that you have questions that you would like to be sure are covered in this.
we will get them to you.
but I think that's the first step that needs to happen before Travis County can move to the next step.
this is very, very important.
>> I appreciate that, Commissioner.
and I did also speak to your young staff member.
not the mature guy.
I leave them alone.
>> [laughter]
>> referred to as the young guy.
>> same thing that happened to me.
I did express to him after the meeting that we understood there -- there was information that -- and that you had been reaching out.
please understand, I will be happy, we will be happy to meet with anyone you designate and -- and I think that we could today, but we know what we sat through a lot of the hearing you all went through.
we know that it's lunch time.
you have more work to do.
we will be happy to meet with you any time you or your staff people, any time and give you what we believe are bright, clear answers to each one of those things.
the delays in the communications, if you can imagine in a period of three months, organizing 30 some odd local governments and local organizations and that's just the ones that we know about.
there are parts of these systems we can't even get identified yet.
so -- so it has been a very -- it's been a miracle that we made it this far this quick.
>> and I realize that there are huge hurdles out there.
this is a -- it's been a coming together.
john white is our staff person point person.
my staff person is there is monitoring.
so please specific requests of Travis County that you would have or certainly call my office as well.
but should be communicated either through staff or myself or anybody else.
but we need to know specifics.
just -- just step up -- said some things today.
>> if we can get a copy of your list of questions we can get that answered by the end of the week.
those are great questions, we can get you answers, but it's lunch time, we will definitely write something up and get it back to you.
>> that would be good.
>> what's the time table on the need for the financial contribution?
>> we're going to spend it all in the next month, judge.
we're spending now.
obviously it will help us because we have some of these entities we have listed for a contribution, they're not going to be able to come up with.
Leander council next Thursday night, the Leander city council, we are asking them to put up $95,000.
so -- so that -- that maybe gives you an idea of the importance and the fact that some people are really -- really going to carry a bigger share of this issue than others.
>> as soon as possible.
>> yes, sir.
>> do you have your checkbook with you today?
>> [laughter]
>> no, I don't.
I left it at home.
>> next week then.
>> we appreciate your time.
>> thank you.
>> thank you very much.
appreciate your patience.
we thought that we would be able to get to y'all around 11:30, we missed that mark.
>> I've lived in Austin and watched a few public hearings so I understand.
>> we'll have this back on at the appropriate time in the future.
>> sounds good.
>> may I make one additional comment, please?
>> yes, sir.
>> I'm david.
-- david sneed,president of try
>> [indiscernible] 17, the second largest provider of water in Travis County.
the plumbs in this system that the private bidders want access to is the west Travis County system that serves the bee cave area, several m.u.d.'s out there and -- and northern hays county.
hays county has created a water and sewer authority that -- that -- that is telling a more and more active role, Commissioner wizenhunt precinct 4 hays county has repeatedly commented that he wishes Travis County would get more involved.
part of what internally is developing right now is some debate over who is going to own and operate the west Travis County system if the coalition is successful in its bid.
I would like the county to get more involved before some of those decisions are prematurely made in -- in a -- an unwise fashion.
>> by joining the coalition, making the financial contributions and also becoming more active politically in these discussions.
>> okay.
>> thank you very much.
>> we heard a request early on for a -- communication to the board urging fair and reasonable negotiation.
>> firm, price point.
>> we didn't address that in the resolution that we did.
>> just to remind you, the resolution specifically, the court voiced its support for the guess and objectives of the -- goals and objectives of the coalition, but then specifically called on lcra to number one delay the process that they were engaged in through at least December 31st of 2011 and then asked them to -- to deal with the various stakeholder groups in a -- in a forthright manner and possibly to offer them a right of first refusal, so those are the main elements of the resolution.
>> and the lcra has not granted first right of refusal.
they have said that would be counter productive to their efforts to sell.
also not delayed obviously to December 31st.
but they have been somewhat receptive to the idea of the coalition being at the table.
our concern, though, is that if price is the sole qualifier for how these systems be to are divested then the coalition probably doesn't stand a chance.
>> I think our language was more vague than -- than we would probably like it to be that the point as far as being fair in the sale as it relates to price and perhaps we could consider addressing that.
>> so a more specific resolution would help, you think?
>> I think it would.
I would be happy to work with you guys to draft something.
>> sounds good to me.
>> okay.
>> mary: will this be on next week's agenda?
if we can get some answers to you guys?
because time really is of the essence, the hard work to put the pressure on the lcra to encourage them to be open and receptive to a coalition bid really is the next three to four weeks, max.
>> that will work for me, is that okay?
>> uh-huh.
>> we'll do that.
>> thank you.
>> that's the July 5th, right?
thank you all very much.
appreciate it.
>> thank you for your patience.
>> do we want to try to get back at what, 2:15?
that's a little bit more than an hour.
move that we recess until 2:15.
>> > second.
>> all in favor?
that passes by unanimous vote.
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