AD HOC COMMITTEE MINUTES

FEBRUARY 26, 2007

The meeting was called to order by Chairman Burke at 7:00 p.m.

MEMBERS PRESENT: David Burke, John Gore, Dan Fogt

OTHERS PRESENT: John Morehart, Phil Roush, Kathy House

CITIZENS PRESENT: Esther Carmany, Don Bergwall, Leah Sellers, Jennifer Weikart, Lloyd Baker, Gary Little

AGENDA:

Water Treatment Options

Mr. Burke gave a summary of the last meeting. Representatives from Malcolm Pirnie, Mr. Brossart from Fifth Third Securities and the City’s Bond Counsel were in attendance at that meeting. Options were discussed and different scenarios were run on rates.

For the record, Mr. Gore commented about an article printed in the Columbus Dispatch regarding stormwater rates. Ms. Tracie Davies was quoted as saying Marysville would have to raise their rates. In a conversation with Ms. Davies today, she assured Mr. Gore that she did not make that statement, that she in fact commented that the recommendation a few years ago had been $4.13, but instead a $2.75 charge was instituted, but that the city was ahead of the curve. Ms. Davies had commented that a rate increase was up to City Council. Ms. Davies confirmed her statement in writing to Mr. Gore, who will in turn copy the other Council Members.

Mr. Gore asked Mr. Roush if this was part of the infiltration issue. Right now we cannot accommodate any additional water. Mr. Roush stated water infiltration is an issue in the wastewater area. With our new water reclamation facility, that will help a lot. We are also continuing to do some I & I removal through our ________ filter. The stormwater issue is becoming more critical because Ohio EPA is now mandating a Phase II on some cities. Marysville has already received their Phase II. City has six months to come up with a management plan and implement it. The key element to that plan is that the EPA is going to monitor the actual quality of the water in Mill Creek and other streams that are tributary to Mill Creek that run through the City as part of that program.

Mr. Gore asked questions relating to funding. When we determine the amount of money that we want to borrow, it seems that we automatically go to one bond counsel or one lender, 5/3 Bank. We tell them the amount of money we want to borrow, and they go out to get the best rate for us. Mr. Brossart mentioned in the last meeting that everyone goes through the same process, but Mr. Gore noted that these lenders get a commission from this. He asked if the City ever bids our money out or do we automatically say we want $20M and the underwriter goes out and finds $20M at the best rate? Mr. Morehart said the City does not change underwriters for every piece of financing. The underwriter basically represents the City as far as he and his staff (inaudible) markets the City to investors to make sure that they get the lowest rate, so along with the value, and the advice from the underwriters, he knows the City and the financial needs of the City. That would be lost if we change on a regular basis. The traders that work very closely with Mr. Brossart are the ones who contact the investors that have experience with the City already.

Mr. Gore asked how the underwriter is compensated? Are they paid by the City? Mr. Morehart stated yes. It’s generally part of the borrowing package. Mr. Gore asked what percentage is paid to the underwriter? Mr. Morehart didn’t know the amount at this time, but said he would get that number for Mr. Gore. Mr. Gore asked if Mr. Morehart felt that it was worthwhile staying with one broker on all money that is borrowed He said that would be his recommendation because they have the knowledge of the City’s needs and the knowledge of investors.

Does the City rely on the underwriters to advise whether to go with a low-interest note or bond? Mr. Morehart said he relies on them prettily heavily. When rates were low in 2002-2004, the underwriters advised the City to refinance the long-term debt and realized a substantial savings by reducing the interest rates. Mr. Gore agreed that it benefited the City at that time to do it.

He has not completed discussions with EPA, there is still some “supposed” 3-1/4% money available for loan, whether we qualify or not is not known, and City is paying 4-1/2% on a bond. If City was to qualify, the 1-1/4% would allow possibly a lower percent rate increase.

City tries to keep the rates low. City is willing to take the risk exposure on the interest rate and pay interest only the first year or two, and not worry about making a payment on the principal. This will allow the city to convert a 20-30 year bond, keep the rates relatively low because the debt service is a little more reasonable the first couple of years, because that’s how it’s been structured through the notes. Once it’s converted to bonds, in possibly 2-3 years, the revenue stream will be a lot higher and we’ll be able to pay the debt service. Once we go to bonds, we’re somewhat limited for a few years as far as whether we call a note or refinance it. We try to keep the debt service relatively constant during the term of the bond, that way we’ll know how much debt service we’re going to need from a cash-flow standpoint. Going out in the market, there is a little more flexibility with the terms of the debt. You can have 20/30 or 40 years. It is Mr. Morehart’s understanding that with Ohio EPA, loans are less, 20/25 years and you don’t have the flexibility to refinance. If rates go lower than the 3-1/4%, you couldn’t refinance to get the lower rates.

Mr. Fogt asked what is the function of Bricker & Eckler? Mr. Morehart responded they provide all the legal advice on the transactions. They also put together the information that actually goes out to the investors. The underwriter underwrites and markets the debt and the bond counsel basically provides the legal advice and makes sure it’s structured properly.

Mr. Gore asked if the decision is made to bid our money and would have to be advertised, how long would it take to advertise for bids. Mr. Morehart responded 30-45 days.

Mr. Burke mentioned a bid coming up on the trunk interceptor project. Mr. Roush stated the date for opening bids is March 8^th. March 20^th is the date scheduled for opening bids on the force main and pump station. Once bids are open, City has 60 days to award the contracts. City doesn’t have money for those contracts; it has to be borrowed. Mr. Gore asked why they were extended? Mr. Roush stated there was a question regarding the bid form and unit price bid and whether or not that was the proper way to get the best bid or whether we should go with a bid for each leg of the project. Decision was made that that would be better. Another factor was that March 8^th put the 60 day period in the middle part of May and City was hoping to have a water rate in place by May 1^st, so legislation could be presented for borrowing the sewer money and water rate increase at the same time. The City has been advised by their legal people and underwriters that without having the water rates in place to assure that City can continue water services, they won’t work with us to borrow money wastewater treatment project. Mr. Gore asked for confirmation that what he is hearing is that the $55M previously borrowed for the wastewater treatment plant won’t be enough to cover this. Mr. Roush said the budget for the whole series of projects was $120 million and we’ve borrowed $70+ million so far. We need to borrow another $52M. Mr. Gore asked for confirmation that the City doesn’t have the money to let the contracts. Mr. Roush said the original $75M paid for all the design of all the projects for a total of $5/6M. Contract with Kokosing for $65M for water reclamation facility and out fall line and $2-1/2M to buy the property. We may have $2/3M left. Mr. Gore confirmed what’s being said then is that we have the money to complete the facility but we may not be able to connect to it. Mr. Roush said that’s our fear. Ms. House said the reason the City didn’t borrow $120M out of the gate is so they didn’t have to pay interest on it if it wasn’t needed at the time.

Mr. Burke recalled the new facility, even at the existing size of the current facility, was in the vicinity was $45/50M, so we were destined even for an apples-to-apples comparison of around $50M. Mr. Roush stated the wastewater rates have been adjusted to allow for all of that growth, based on projected expansions so that future new businesses will help pay.

Mr. Burke clarified the timeline for awarding the contracts. Bids would be opened on March 20^th, 60 days to award the contracts – May 20^th. Would have to pass rate increases, all three readings in order to let the contract??? Is that right? Mr. Morehart said not to award the contracts. Ms. House said in order to borrow the money. Mr. Burke asked if that included the 30-day waiting period? Mr. Morehart said yes. That would put you to the end of April and possibly could declare an emergency. Mr. Roush said the only way you could extend the 60-day awarding period would be if all the bidders agreed to it.

Mr. Burke felt Council is making progress on finding a resolution for moving this project forward. It’s a secondary issue as to who controls this county. If we don’t move forward for two reasons, to assure quality water for residents, Columbus or Dublin will move into the southern party of this county. If we don’t do this, we will run out of water and cannot build taps. The City will no longer qualify as a service provider. That will put the County Commissioners in a difficult position.

Mr. Burke wants to see legislation by March 22^nd and possibly consider waiving a reading and declaring an emergency. Mr. Gore committed to having legislation by March 22^nd, but he’s not ready to commit to support that legislation. He feels the City has all their eggs in one basket, we have one firm, Malcolm Pirnie, where we have to go to get all of our answers. They admitted they didn’t pursue any additional funding. Same thing with one underwriter. He’s not convinced that we don’t need a grant writer for the City of Marysville that not only identifies grants, but writes grants. He’s looking for different options. Potential water crisis concerns him. He feels there’s another answer besides raising rates. You can call a rate increase what you want, but it’s still a tax. Rates have been raised several times over the years.

Mr. Burke agreed, there is a short term problem and a long term problem. It may take 5/10 years to turn it around. Planning starts today on those situations.

Mr. Roush stated he met with the Ohio EPA during the Wastewater project; they outlined their whole programs and what hoops Marysville would have to jump through and terms of the programs, and Administration made the decision that that wasn’t in Marysville’s best interest, one being the rates in the open market were very close to the other rates, about ½%. In order to use their program, there were a lot of requirements needed up front which would increase engineering costs by a considerable amount of money to take care of those things. Their loan of 20/25 years didn’t make sense. In going through the Wastewater Master Plan, met with Malcolm Pirnie grant people, worked with them and others and various senators and were able to get some federal money.

Ms. House stated the 3-1/4% was the hardship discount. Unless you qualified as a low-to moderate income community, you couldn’t get that 3-1/4%. It was Mr. Gore’s understanding that on the surface, the City qualified for the 3-1/4%. There was not much more discussion than that in the initial conversation.

Mr. Fogt asked if future tap-in fee money was figured in at all? Mr. Roush said yes. They came to Council after the master plan was published to address raising the tap fees to $4,450 because that was the amount the consultants had in their financial study they felt was necessary to pay for some of these costs. Mr. Fogt asked in these revenue and expenses summaries from Malcolm Pirnie, are the tap-in fees added in? Mr. Morehart stated yes. The revenue is in 3 separate pieces. All that revenue is channeled through the financial model. Water tap-in fee assumptions are based on growth assumptions that are made into the model. That is based on extended growth and underlying percentage of the model and then growth is converted to increased number of taps. Mr. Fogt asked what tap-in fee money could be used for? It cannot be used to pay old debt? Mr. Morehart stated structured tap fee revenue is strictly capital. Mr. Burke stated you can use tap-fee money for anything you want – is that true within the system? Mr. Roush said a portion of the tap-fee money is reserved entirely for the debt on the new system, but the portion below that could be used for anything.

Mr. Burke stated the first thing you need to pay for is the existing plant. 20-25% of everyone’s bills goes to service that debt. He’s equally concerned for the other side of the equation. When we refinance this note and it drops down from $800,000 to 756,000 – what happens to the other $40,000, where does it go? Same as with tap fee indexing, where does the money go. What gets service first or does it change with every mayor. Mr. Roush stated the last two water rate increases or taps were earmarked for the incremental fund so that that money is would be used for new improvements. It can only be used for that purpose. That’s why it was done that way. The question about the purchase of the water plant and the payoff of that debt, he said you can’t prepay that without a significant penalty. Mr. Morehart stated once you go to bonds, there is a timeframe that you can’t pay it off prematurely, believes it’s a minimum of 10 years. We’ve essentially made a commitment to the investors of the status quo for a minimum period of time and if we want to change that, they would request a premium to make sure their investment is ________ for Marysville. Mr. Burke feels this is an issue that needs researched. He would like to examine that further after we get through this initial problem.

Public Comment:

Lloyd Baker, 418 Milford Avenue. At the last Ad Hoc Committee meeting, he read an article from the Marysville Journal Tribune in 1991 when the water company was purchased. It gave a very bright prediction as far as the cash flow accommodating current, as well as future needs, which is in conflict with our current situation. Since then, he’s done research at the library and noted an article from the 2001 rate increases. He was disturbed at the last Ad Hoc Committee meeting when the amount of the changes between 2001 and 2006 were referred to as “minor.” The increase in water alone in that period was 56.7% and the increase in sewer was 168.6%, as a result of those increases. The total utility bill increased approx. 60%. At that time, it was reported that the City Administrator, Mr. Schaumleffel, blamed previous administration’s use of creative accounting and shielded funds for the situation they were trying to approach with those rate increases. In addition, he was quoted as saying if we’re to have a bright future, (and noted that was back in 2001 before the rate increase) someone has to address the situation honestly, otherwise it will rear its ugly head and get worse in the future. That was the sales pitch for promoting that series of rate increases. It goes on to say “The increase will fund debt service on the City purchase of the water company, which costs $1.2M annually, as well as pay for current and future improvements.” That was when the rate increase was first announced to the public. The rate increase was introduced at the February 22^nd Council meeting. It was approved at the March 22, 2001 Council meeting. It was reported in that meeting that the increases will fund debt service on the City’s purchase of the water company, as well as pay for current and future improvements such as the construction of the Raymond Road reservoir. That seems incongruous, on top of the portrayal back in 1991 together with this, with where we stand currently.

At the last Ad Hoc Committee meeting, he respects the right of all citizens to speak, but when it comes from a previous City official of the era that seems like many of our problems focus from, it’s disturbing to hear from an ex-city official that the citizens have no right to be concerned about the calculation of the rates; they should leave it to the experts. When it’s dipping into those individual citizens’ pocketbooks, experts or not, they should at least have a decent say into what those increases are. At the last Ad Hoc Committee meeting, the subject of capacity fees was brought up as their use in the state of Washington. Mr. Baker did further research and feels it has some untapped potential over and above tap-in fees for our area. He feels Ms. Sellers hit a good point when she said lack of a business plan is part of the root of this problem. In conclusion, “Deceive me once, shame on you, deceive me twice, shame on me.” He believes the pattern of these past increases leaves some skepticism on the part of the public as to how much or what we’re asked to swallow here now, to just be the repeat of what we’ve been asked to swallow from 1991 and from 2001. Finally, paraphrasing Einstein “to keep doing the same thing over and over and over and expect different results is insanity.” Feels we’re drifting into that pattern, just raising rates and not looking at the true root of the problem.

Ms. Esther Carmany said she wants a well-run water utility. An 8% rate hike in any one year is unreasonable on top of all the other rates and more projected in the future. It’s unreasonable for all her friends and family. Make growth pay for growth. Build in an annual indexing of sewer tap connection fees and water system capacity charges. A good business plan is essential. Suggested citizens task the water utility department with managing their budget. Save some money, make budget cuts. Reduce operating expenses in Water Dept. budget, review contracts for professional services, shop the water department engineering services. Supplement income with grants. Employee a grant writer. Keep rates in line with Consumer Price Index, normally 3%.

Mr. Gary Little commented about the comments made about the wastewater and the surprising amount of money still needed to make up for the loan situation. Wonders if we’re borrowing from Peter to pay Paul in this situation, and if that is something that happens often, why hasn’t it been addressed in a plan. What’s to say if we go ahead with the water and increase the plan on the facts of the regular citizens of Marysville to go ahead and make sure that those individuals are not increased until they start screaming about the rates. We’ve had all these rate raises in the last five years and yet go through the insanity of seeing it go up and nobody makes any kind of grant movement, etc. We haven’t done much work administratively, to find anything like that. He can’t understand why unless I was getting a better product, to pay more money for it.

Ms. Leah Sellers spoke as a resident. She complimented the committee on their hard work on researching grants, loans, etc. She shares Mr. Burke’s dilemma regarding the vicious cycle of growth. She suggested shifting the paradigm a little and start from a base premise of, what money do we need to spend for our current residents. Then we say if we are going to ask our current residents to finance above and beyond what is needed for their water quality future and water supply future, then we need to make sure what our end product is going to be. She suggested contingencies: 1) Land use plan so we can tell our residents that we will pay some percentage above and beyond to finance their water needs in the future. Here’s why – we need business growth in our area, in our county, and we’re going to assure them through a proper land use plan that we’re not just going to put up additional roof tops; 2) Business plan for the utility. How do we make sure that we’re getting a good return on our investment? We’re asking our residents to increase water rates – how do we know that we’re going to be able to give a return to them. Is there a way to guarantee future rate reductions? The idea she keeps hearing is that we need to have a sewer and water utility both, for control over the county. She gave examples of areas, one with control and one without. Delaware County has two separate utilities for water and sewer. The southern townships of Delaware County have had pretty much complete control over the growth. Because of poor land use planning, it’s really congested. That’s where the government entities have complete control over sewer and water and they have bad results. City of Dublin has no control over sewer and water and is subject to the whim of Columbus and its contract and yet Dublin has had incredible business retention and attraction. The Mayor of Dublin attributes all of that to land use planning.

Mr. Burke noted in terms of land use, the City began meeting with Jerome about a year ago, knowing that the 33 corridor was probably the last “breadbasket” in the area in our lifetime. The negotiating tool that we have is our utilities. Land for the reservoir was purchased in 1997 and there has been no activity. We’re so close to our peak demands at this point, given our current capacity, we will not be able to meet those demands, and there is not enough time between that kind of action and our peak capacity to allow for any real land use planning. We need to accommodate that growth to some degree. We’re asking our residents to invest in this facility to get a return on that investment. In terms of rate reduction, it comes in either satisfying debt or increasing revenue. He feels Jerome, located south of Marysville, allows us to obtain both of those goals. If we’re not able to achieve both of those goals, Columbus or Dublin will do it for us, then we’ll be stuck with our current capacity or we’ll be stuck with a wastewater facility that can only accommodate half the water that we can generate. At that point, we’ll either have to double sewer rates or have to accept sewage from another location, i.e. Columbus or Dublin. Mr. Burke is not just looking at one issue and saying we have to raise rates. To address the issue Ms. Sellers mentioned, there is a very acute problem that we need to handle, then there is a chronic problem that needs to be handled. The acute stuff gets handled when we raise rates. Mr. Burke promised to spend the rest of this year diligently pursing a long-term answer in policy form, so that Administration to Administration and Council to Council there is a fiscal model to handle, because it has not been in place in the past. Mr. Burke said we are at a point in our growth cycle that allows us to overcome what has happened in the past, and if we don’t cease that opportunity, get that supply, make a sellable product for the southern portion of the county, it won’t happen again. That’s the investment he’s talking about.

Mr. Gore’s concern is one of what if we take the chance and what if we do have a water crisis and we halt all development and not sell utility to anyone until we’re able to build a reservoir and until we’re able to complete the wastewater treatment plant. The unfortunate thing about this situation is it’s the 11^th hour. There have been conversations about pursing a joint water district. Why can’t we have a partner in water storage (reservoir). Why can’t people buy into this, why can’t a township or developers invest in this? If the Study is correct, you could be in crisis within 2010 and if that’s the case, can we continue to negotiate or pursue some type of partnership. That’s why there has to be some compromise somewhere that says here for a period of time is the compromise, but here’s what we also need to pursue. If that partnership comes to be, we’re talking about the citizens and their investment. Then comes another long-term option. He believes the City is faced with a potential crisis, but also believes there are options other than borrowing $22/$27 or $17 million. Ms. Sellers stated that we don’t have to raise rates 8% this year to keep the reservoir on track. Mr. Gore stated the problem what we’re faced with is lower rates now and larger rates later. It’s unsure whether the 6% could qualify to borrow the money. Ms. Sellers wants to see the financial piece to say that these 5,000 homes in Jerome Township will pay for themselves and will somehow benefit our current residents. Mr. Gore believes it goes beyond residential; there’s more potential in Jerome Township beyond residential; that’s where the money will come from. Mr. Burke noted because of the sewer and water agreement, they’re paying 10% more than us. Ms. Sellers believes a pricing mechanism should be implemented.

Mr. Gore said that he won’t be able to support legislation that doesn’t at least have something set aside for a grant writer. Unnamed guest asked to have a financial person from the EPA come and bring with them loan percentages. She said you can write in the legislation what you want to do with the money. She suggested inviting another opinion, another source and having someone come in to explain exactly what the City is qualified for. Mr. Gore will pursue this further.

Mr. Roush said the City has a business plan, it’s called the Water Master Plan. It was developed with the input of a committee representing Administration, City Council and local industry. This plan calls for development, outside the city, to pay for itself. The City is not asking the residents of Marysville to pay for water systems in Jerome Township. The reason for the increase from the citizens is that we have concerns inside the city, lines that need to be replaced and looped, a pressure zone on the west side of town which is inadequate. This increase is not only to build a water plant to take care of people outside the City. You need to read the whole plan. Development is to pay for development.

Regarding Mr. Roush’s statement about the 8% being for present city resident users, and anything outside the City would be paid for by the development itself, it’s kind of contradictory to some of the Mayor’s comments that if don’t raise rates, we won’t go outside, we won’t allow anyone outside the City limits to develop or allow them to have taps. To me, that says that I’ve got to build it with your money before we can let them have it. If we could separate it and say this 8% rate increase will go in this pot and be spent just for this, that’s a different story, but it

doesn’t; it goes into the general operating fund for anything that needs to be fixed, built or purchased and will come out of that additional 8%.

Mr. Fogt asked for confirmation of something said earlier, that if we don’t pass this water rate increase, the City will not be able to borrow money to finish the trunk line sewer for the Wastewater Plant, because they don’t trust us to be able to pay. Ms. House’s comments were inaudible. The following was hit & miss as far as being able to hear what was said. - If we have to stop the ____ in water, down zone is that taps and sewer do not come higher. If the taps come in sewer, then we can’t guarantee our payments in bonds for borrowing funds for the sewer. Mr. Fogt asked if it takes an 8% raise to make that happen. Ms. House could not answer the question. She understands that a lower percentage does now allow the City to continue forward with the design of the water treatment plant. If we can’t design the water treatment plant, then we can’t build one in X number of years. Mr. Gore asked if that statement had been received verbally or in writing. Ms. House stated verbally from both bond counsel and underwriter.

Mr. Fogt asked how firm are we on the $26M estimate on the reservoir? Mr. Roush stated a meeting is scheduled this week with the consultant. Ms. House said it depends on how much time has elapsed since the original _____________.

Unnamed guest thanked the committee for their work on this issue. She understands this is a big problem and asked that you try to come up with alternative thinking and sees the committee is trying to do that. She just doesn’t want a lot of the same mistakes that keep happening over and over. Would like to see different results this time.

Meeting adjourned.