COMMENTARY

LUX ET VERITAS

Indian River County has on four occasions attempted to purchase or poach customers and revenues from the City of Vero Beach’s water and sewer utility system.  Essentially, the county’s moves to take territory and customers from the city and its efforts to corner the city into an unwelcome sale is similar to an unsolicited hostile corporate takeover in the private sector.

In 2011, the county’s initial thrust was to purchase the city’s water and sewer system. GAI Consulting valued the system at $100 million, but the county made an offer worth no more than $55 million, including some $35 million in connecting and transition expenses. Significant personnel exit costs to the City (underfunded pension, other retirement benefits, unemployment, vacation and sick pay accruals) were not addressed. 

The county’s proposal was to decommission the existing deep injection well waste disposal system, and abandon and demolish millions of dollars worth of facilities which have a remaining useful life of twenty to thirty years.  The cost of the demolition and connectivity expenses to be incurred by the county were included in its proposed purchase price.

The county next attempted to convince Indian River Shores leaders to switch their water, sewer and wastewater business from the city.  All the while, the county has continued to maneuver to retake the city’s service area on the south barrier island.

The county’s latest assault on the city’s water and sewer business came in the form of a memorandum approved by the Administration on September 5 proposing the city share its south barrier island revenues with the county.  “…if consolidation is eventually inevitable it is better to reach a solution which both parties can live with for now, until the inevitable occurs,” wrote former County Attorney Alan Polackwich.

This was proposed as an alternative to the county building a redundant infrastructure on the south barrier island, or taking legal action, or purchasing the city’s infrastructure as significant costs, or connecting the south barrier island to the county’s system boring under the Indian River Lagoon, at still greater expense.  (attached).

A comparison of the two Utility Systems regarding density/growth, rates, efficiency/operations income, and vulnerability is telling.

DENSITY AND GROWTH

The service area population and growth data underscore the potential exposure to future capital requirements and infrastructure expansion:

Density population per square mile of service area

IRC       196 residents/square mile

VB      1428 residents/square mile

Growth population in service area 2000-2010 US Census

IRC  22% gain

VB   10% loss

The City’s water and sewer system is built out for delivery of potable water throughout the service area, though sewer service reuse water delivery is only partially deployed. The county’s coverage for the entire expanse 20 miles west of I 95 to Yeehaw Junction is sparse or non existent. Thus, new development and associated capital infrastructure and facility provisioning is limited in the City’s service area, while potentially capital intensive for the county is virtually incalculable.  If the city’s existing customers become part of the county system, they will share in the cost of any capital investment for expansion.

Because the city’s $10 million deep injection well gives it a closed system, its customers are also not liable to the cost of future regulations that may well add to the cost of doing business for the county.  Consider, as well, the potentially astronomical costs the county could face if the state requires the elimination of existing septic systems.

RATES

Rate comparison between the two utilities are complex since charges are computed on different parameters (equivalent units by IRC, meter size by VB) and vary as well on surcharges for higher usage.  The county is more expensive for high volume users.The county also bills undeveloped lots for water if it has access even if not connected.

The City’s agreement with Indian River Shores commits to matching county rates. A similar agreement has been offered to the residents of the south barrier island, although the aggregate revenues would actually be higher than city rates by approximately $150,000 to $200,000.

OPERATIONS EFFICIENCY AND INCOME

In contrast to Vero Electric, which has an underutilized, aged power plant and is a reseller of wholesale power, the city has its own adequate water supply provided directly from the city to its customers

Water and sewer facilities are well maintained with an extended useful life, rates are competitive, cash flow, reserves, operating income and cash surplus after debt payments are all excellent.

Current financials for the city’s water and sewer system are exceptional, and planned improvements through projected efficiencies from upgraded technology and staff right sizing, and further cost reductions from the sale of Vero Electric will continue to enhance its operation and reduce costs.

One creative modernization/optimization project is to convert sludge now hauled as waste to land fills be processed into organic fertilizer.

In brief, the 2013/14 budget projects an operating income of $6.2M on revenues of $16.6 (a 37.5% return on revenues); a surplus after debt payments of $5.3M. Total assets (2011/12 CAFR) were $75,8M with $10.7M in cash and investments.

By 2022, total debt will be reduced to $5.5M, which may be an opportune time frame to move facilities off the Indian River Lagoon, though it should be stressed the move cannot be justified simply on economic reasons or environmental reasons, since the move would bring no economic benefit to the water and sewer system, and because the city has already converted its disposal to a deep injection well.

VULNERABILITY

The City’s closed, self contained waste water system was deemed leading edge when certified by the Florida Department of Environmental Protection. Future requirements on effluent discharge from local, state or federal regulations could mandate the county also installed a closed system extensive, better filter contaminants, restrict septic fields and follow more stringent standards for new developments.

All of these potential changes could require major expenditures by public as well as private utilities that would ultimately be funded by the property owner.  In this regard, Vero Beach has far less risk than the county.

REALITY

Clearly there is a need to cooperate and develop a consistent approach for both the county and the city, and there could well be significant benefit to synchronizing the management of septic systems, fertilizer, road/canal runoffs and agricultural waste into the waterways.

However, there is no compelling economic rationale or urgency for the City of Vero Beach to relinquish its water and sewer utility.

EPILOGUE

Lux understands from back channels the profitability analysis of the system by the private sector had spurred interest in the Vero Utility

Editor’s Note:  Much like “Lexington,” an anonymous commentator for The Economist magazine, “Lux et Veritas” offers commentary for readers of InsideVero.com, addressing local politics, lagoon contamination, quality of education, Libertarian and Liberal excesses, media reporting and agendas, wealth disparity and more.