I have several points to make regarding these proposed utility expansions. They will all support my thesis that this is the wrong thing to do at the wrong time.

First, I believe it has been shown that because of the “Project Manager or Construction Manager at Risk” type of contract, the Utility Expansion Projects (UEPs) have cost Cape Coral residents at least 15 percent perhaps even 20 percent more than they would have if contracted differently. There is no doubt in my mind that the information obtained at Port St. Lucie, corroborated by what was learned at Bonita Springs, substantiates this point.

Second, even if SW 6/7 were to be undertaken at this time, I believe this Council would be abrogating its fiduciary responsibility to the residents of Cape Coral if it didn’t insist that SW 6/7 be re-bid. A resident brought what I believe to be credible information to us showing that the costs of construction materials of the types utilized in this work have fallen significantly from their levels at the time the SW 6/7 bids were made. In addition, most contractors are hungrier now than at that time, so labor and administrative costs would also probably be lower.

Next, we find ourselves facing significant debt for utility facilities, e.g., Reverse Osmosis (RO) plants and Wastewater Reclamation Facilities (WRFs). In order to secure bonds to finance this debt, revenue from utility rates must be shown to be sufficient to service it. The public has been led to believe that this debt has been incurred largely, if not solely, for the benefit of the properties not yet connected to the city’s water and wastewater utilities. It is true that part of it has come from the design (including surveying) and geothermal work for the SW 6/7 and N 1-8 projects, but this amount is a trivial portion of the total. Another significant part of the debt is from the construction of the Kismet RO plant. It is now known that this plant has been constructed prematurely. If this had not happened, its impact on rate increases would not have occurred.

When the Kismet RO plant comes on line, the total potable water production capacity for the city will be 30.1 million gallons per day (MGD) whereas the current usage is approximately 10 MGD. The reports submitted to justify its construction, prepared by a company named Tetra Tech, used highly exaggerated projections of the growth of population, the number of utility connections, and average and maximum daily flows. For example, it projected by the year 2009, a population of approximately 226,000, utility connections of over 86,000, and average and maximum daily flows of 17 and 19 MGD respectively. These projections of growth were generated by data and modeling provided to Tetra Tech by MWH and the City of Cape Coral. However, the current population (2009) is probably 155.000 give or take, current connections are just over 52,000, and current usage (flow) is approximately 10 MGD. Even Tetra Tech’s last submittal of this report in 2007 used these same projections even knowing the actual growth of these parameters was far less than that to reach those levels.

Because of its location, the Kismet RO plant is believed by many to be strictly to service the connections north of Pine Island Road (PIR). In truth it will be connected to the entire city and can be used to relieve the SW RO plant in order to shut down parts of it for maintenance. Even so, it can be argued that the folks north of PIR should shoulder the costs of the Kismet RO plant even though it was mistakenly built too early and such a mistake should really be the responsibility of the entire City. There are, however, additional sources of significant portions of this debt. Some comes from expansion of the SW RO plant, expansion of the SW WRF, expansion of the Everest WRF, construction of the SW Bio Solids Facility, and construction of Aquifer Storage and Recovery (ASR) wells. All of these will benefit the entire City.

A difficulty exists in that there is no clear definition of the magnitude of the total Utility Facilities debt or how much of it is attributable to each of the items listed above. This information was requested by a Council member at the June 8 Council meeting. He subsequently followed that request with a memo specifying the information he desired. It is still being awaited. The total debt seems to be in the $400 to $500 million range. The best information I have is that the Kismet RO plant including all of its peripheral equipment cost about $140 M. It’s difficult for me to see how an informed decision regarding these projects can be made until we have the details of the source and structure of this entire debt.

Another important point is that in much of the past when these projects came to an area (e.g., SW 1, 3, and 2) many homeowners had the opportunity to refinance their home, drawing some equity out of it to pay the assessments and impact fees. Not only has this option completely gone away, many homeowners are currently upside down on their mortgages and hanging by their fingernails to even keep their homes. These projects coming at this time will drive many of them “over the edge.” Mr. Day changed his position on whether or not to proceed with these projects now, based partially on data he claimed showed that it was not the UEP that was causing foreclosures. The data he quoted were that foreclosures in SW 4 and SW 5 were only in the 25 percent range, but the foreclosure rate in SW 6/7 was 36 percent. He “reasoned”(?) that since the UEP hadn’t come yet to SW 6/7, the high foreclosure rates couldn’t be due to the UEP. Wow! I wonder what the foreclosure rate will reach in SW 6/7 if UEP does come there now. Even though we’re assured that the assessments and “Capital Facility Expansion Charges” (Impact Fees) will be paid either by the banks holding foreclosed properties or by tax certificate sales where people default on their taxes (I have grave doubts that these sales will continue to be as successful as they have been in the past), how many of these properties will really become regular rate payers? So if the goal is to extricate ourselves from the morass we’ve created by adding lots of new rate payers, we need to make a realistic estimate of how many that will really be. Most empty houses don’t pay utilities. Regarding the vacant home sites, particularly in N 1-8, how many of those will simply be walked away from when a $6000 bill ($16,000 or $20,000 for extended payment options) comes to someone who would probably consider themselves lucky to get $3000 for it now? Not only will they not pay the Assessment and the Capital Facility Expansion Charges, but the city will lose the property taxes on these too. To believe that tax certificate sales on these properties will be robust is not realistic. If going ahead at this time should result in many more houses becoming vacant, and many of the undeveloped lots being abandoned, the results could dictate even higher rate increases on existing payers rather then reducing them.

Now, are there any solutions? I believe we should wait until at least 2012 to consider resuming these activities. In the meantime, we should investigate several possibilities of how to continue. One is to bring the management of these projects in-house and bid them out with wide-open competition. Another is to obtain services of a company like United Water or CH2 M Hill (there are many others) to handle this for us by engaging in a P3 (Public-Private Partnership), an innovative approach within the industry that can optimize the long-term efficiency and “cost of ownership” for future capital expansion, as well as on-going utilities operations. In any event, we should learn the details of how these projects were handled in Port St. Lucie and Bonita Springs. They seem to have done it without the tremendous controversy we encounter.

Finally, what do we do about servicing the debt we must not default on. If it is legal to collect Capital Facility Expansion Charges (essentially Impact Fees renamed) up front on properties including vacant lots, then there has to be a way to begin collecting those in installments. If the debt for the cost of the Kismet RO plant were serviced in that manner by all the properties north of PIR, I believe it would come to several hundred dollars per year, per property. If that were to be paid annually, probably on the tax bill, and credited to offset the eventual Impact Fees for those properties, I believe that could be a workable solution. The other portions of the debt that I have outlined above need to be borne by the entire city. As a priority, we need to place a moratorium on all further non-essential debt, including the expansion of SW 6/7 and N 1-8. We need to aggressively pursue Build America Bonds (offered through the Federal Stimulus Program) for all current bond requirements, as they have rapidly become a lower-cost alternative to tax-exempt municipal bonds.

– Pete Brandt is a Cape Coral City Council member. He represents District 2