At least one council member doesn’t think the city should spend more time considering a private-public partnership for Gardner’s utility management.
Council member Chris Morrow said maintaining management of Gardner’s electric, wastewater and water utilities is in the public’s best interest.
“I’m not sold that this is something we need to spend more time studying,” Morrow told council members and a group of officials from Alinda, Infrastructure Management Group and Black & Veatch.
Phillip Dyk, a partner at investment firm
Jointly, the three companies answered Gardner’s Request For Information about the idea of a possible partnership that would involve a company essentially leasing Gardner’s utilities.
Under terms of a yet determined agreement, the companies would give an upfront payment of between $65 million and $75 million to the city of Gardner. In return, they would takeover management of the city’s three utilities.
Phillip Dyk, a partner with Alinda, an infrastructure investment firm, explained that the agreement would allow private investors a steady rate of return over the course of 30 years.
The benefit to Gardner, he explained, is that Alinda would provide capital up front for and the long-term leasing agreement would allow the city to better plan changes in utility rates.
“We are in the business of making sure pensions get a benefit over a long period of time,” he explained. “…Our role is to make sure the investment is creating a good return.”
The company has similar agreements with public entities in Rhode Island and in California as well as internationally in Great Britain.
The agreement would require the transfer of the city’s utility employees to a newly-formed private corporation whose board would oversee management of the company.
The new company would offer a 401k-type retirement plan to employees rather than the defined pension benefits of KPERS, Kansas’ public pension program.
The mayor and council would retain oversight of the utilities, and existing employees would continue to handle day-to-day operations.
The city would continue to own all assets and continue to manage utility billing. In exchange, the city would transfer all of the risk related to running a utility to the private corporation.
“We would be like the tenant in a landlord-tenant contract,” Dyk explained. “The city’s relationship with customers would not change.”
Council member Kristina Harrision wondered how the agreement could be profitable for the companies involved.
“How do you make that happen?” she asked.
Dyk said the company wouldn’t enter into any agreements that would add costs to the utilities.
Contractors typically find a way to do work for less when they’re working with private corporations rather than the public bureaucracy.
“We think we can find ways to make improvements with no negatives to your community,” he said.
A portion of the profits would come from growth of the utility – or more users in the form of new Gardner residents and businesses.
Officials from all three companies shared the table with council members during a work session on Jan. 9, and Dyk said they’d like to leave with a consensus to continue towards an agreement.
“What we’re here to request is the ability to do more due diligence,” Dyk said.
It’s unclear whether they received it.
“I’m not sure I was sold on (the idea) to begin with,” Council member Larry Fotovich said. “How much are we being charged compared to doing it ourselves? If this is a marriage, then with the due diligence, we’re not ready for a trip down the aisle.”
He compared the agreement to a reverse mortgage.
Mayor Dave Drovetta said the agreement is a way to get ahead of future challenges. Specifically, the city has several utility upgrade and maintenance needs and limited funding to make them.
“I think we do need to get in front of the issue that’s facing us in the not-so-distant future,” Drovetta said. “We’ll address it now or we’ll address it when it’s an emergency.”
The city can use municipal bonds to fund infrastructure improvements. The bonds currently require a 4 percent interest rate.
Council member Brian Broxterman said city officials need more information.
“We’re trying to make a decision without all the facts,” he said. “We’re trying to get all the information we can.”