HomeMy WebLinkAbout1983 06 28 City Commission Workshop Minutes
.
WORKSHOP MEETING
CITY COMMISSION
CITY OF WINTER SPRINGS
JUNE 28, 1983
The Workshop Meeting was called to order by Mayor John V. Torcaso.
Present:
Mayor John V. Torcaso
Commissioner Buck Adkins, late
Commissioner Inez Linville
Commissioner Leanne Grove
Attorney Tom Lang
Attorney Janelle Bronson
City Manager Richard Rozansky
Cal Conklin
Bill Leedy
The Workshop Meeting was called for the purpose of discussing the status of the
acquisition of the North Orlando Water and Sewer Corporation. Attorney Lang
explained that what is the issue is that Florida Land Company would like to sell
us the NOWSCO on an "as is" basis. We would have to maintain it and honor their
commitments. We would get their accounts receivables but also any liabilities,
as well as any responsibilities they may have under the law to make sure that that
system is in compliance with the law.
In order to properly evaluate how we handle an "as is" acquisition, the team (Cal
Conklin, Bill Leedy, and Attorney Lang) has been put together to try to take a look
at that entire system, and the price that has been put on it by Florida Land and
North Orlando. We are going to try to coordinate to bring all the documents through us
so that we can negotiate.
.
Originally there were some negotiations that had gone on between the City and North
Orlando in the range of approximately $2,000,000 acquisition price. There was a
letter that came back to us in April 1983 wherein North Orlando and Florida Land
indicated to us that they were interested in negotiating the acquisition, but they
wanted to approach on a purchase price basis wherein we would take into account the
utility's original cost of all their assets, less depreciation, and contributions
at date of construction received by the utility through the same time, meaning that
we would take their depreciated asset base and we would buy what they had in the way
of value in the plant. They estimated as of June 30th of this year their value would
be between 3.3 and 3.5 million dollars.
Based on the instructions we were given, it is our understanding that the City does not
want to pledge any of its general revenues in order to acquire that plant, but to use
the cash flow from the plant itself to make it a self-supporting system. The idea is
not to take tax money to subsidize a utility but rather to get in the utility business
for the benefits that may be in it for the City by having that type of utility. Based
on the cash flow that we have been able to acquire, what you have to do is take the
number of units that are currently on line and looking at the flow and the income
stream that they can expect as a result of those units, we have asked our underwriters
(Bill Leedy) to go ahead and give us some projections as to what we could possibly
afford in the way of a purchase price given market conditions.
The reason market conditions are important is because our acquisition price is going to
be a function of the interest we have to pay; in other words there is only so much money
that will come out of that plant that is going to be available for the City to meet
.
Workshop Meeting, City Commission, June 28, 1983
Page 2
.
the debt service on the bonds and retire the bonds and to operate the utility. So
obviously the more interest we have to pay the less we can pay at acquisition cost
to Florida Land. So as interest rates go up we have less money available.
Based on the cash projections that we had, we are looking at being able to afford
between 2.6 and 3 million dollar plant. Again, that's a function where interest
rates are at the time we sell the bonds. We are at least 70 days away from selling
the bonds and we haven't even validated or reached agreement with anyone yet. The
point to be made here is that we are roughly 4 to 500,000 dollars apart.
.
So, where we are - we wrote to Florida Land back in May in response to their April
letter and indicated that I needed some additional information from them and they
were to understand at this point the City posture was we did not want to look at
an asset value approach to acquire the utility. We wanted to look at a cash flow
approach, but in order to properly evaluate, they were saying their cost basis was
in that plant; they needed to give us information so that Cal and his people could
properly go in there and evaluate that plant to see whether or not there was 3.5 in
value. We also said that in order for us to properly evaluate what we can pay for
this plant, we needed to know what as is meant, especially as to the commitments
they were saying we were going to have to honor, because they have commitment agree-
ments outstanding to, we are assuming, developers for on line useage of that plant
and without having those commitment agreements in our hands, we don't know what kind
of hook in fees that we are talking about down that road; we don't know where that
revenue is going to lead us because obviously those hook up fees will have tremendous
bearing on your ability to get future financing and possibly for this one, because
if we have to go to creative financing, one of the things you might have to pledge
would be some future interest in hook up fees. So you are going to have to know what
kind of commitments are there. We wrote and asked them for the data that supported the
figures that they gave us as far as their asset base; we wrote and asked for the
commitment agreements that they had outstanding and we wrote and asked if there were
any major items of maintenance that were hanging over Florida Land that we were going
to have to assume responsibility for, because we didn't want to walk in there on say
Sept. 1 and find out that we were going to have to put another 2 million in there to
make it meet any federal guidelines or any D. E. R. guidelines.
The letter they sent back which I received on June 10 is as follows: Dear Mr. Lang:
It would seem that a purchase by the City of Winter Springs of the assets of the
NOWSCO would involve 1. an economic evaluation to support the purchase price; 2. an
engineering evaluation of the facilities; 3. evaluation of agreements and deposit
commitments to be assumed and 4. an evaluation of title, easements, etc. A great deal
of time and expense would be incurred by both the City and Florida Land in performing
these evaluations. Accordingly, it would seem appropriate that we determine initially
that we have some basis for agreement on a purchase price before expending considerable
amount of time or incurring a great deal of expense. The economic evaluation would
seem to be the first step toward an agreement.. Furthermore, it would seem that we
could reach an agreement condition upon other evaluations if the economic evaluations were
satisfied. If you agree with this approach, please schedule a meeting between the
City's acquisition team and our people.
.
That is where we are today and we need some guidance from you because what is actually
implied in that letter is that they are going to hold the line on their asset acquisition
approach. We are going to hold the line on our cash value. We can go to the table and
talk but I would have to tell you as a City counsel, I am not sure we could make those
two meet. We might be able to but its going to require Mr. Conklin getting in there and
.
.
.
Workshop Meeting, City Commission, June 28, 1983
Page 3
making them move off their first demand as such, and us trying to find a way to
prove the underwriters to move the cash values up and you need to know that and
that is where we are moving. I f you have no objection to us going to the table
and holding our position on cash value and asking them to prove their asset value
that is what we intend to do. Go into negotiations with them and see if there is
not a point where our cash flow projections would support a purchase price they
could accept. I can't guarantee that we can do that. It may have an impasse just on
basic philosophy. We would like to do that at the same time moving to another area
for a second. They didn't give us those contracts but we've gone out on our own to
check with D. E. R. There are some problems with D.E.R. but there are no outstanding
citations. We've confirmed that. We were concerned about that. There has been a
history of problems. Right now there is nothing more than Cal already knew about.
There will be a problem with spray fields, in that we are going to have to confirm
that we can continue to use the golf course because that is what they use now. There
will be a problem in 1984 when the time comes to renew their certificate because we
may have some additional burdens on us to provide for effluent disposition and that
point we may have to plan in the takeover how we will finance those additional effluent
requirements. I have also been told, that there may be some further federal restric-
tions that are in the offering that we are going to have to be concerned with. I
was only told that because some one called me and said there is a clean-water act of
1983 (Cal said as long as they don't discharge, and they don't have a discharge) given
that, I think the only problem we are faced with would be compliance in 1984 in order
to get our certificate reissued and find out what it is going to cost us. There is
one pending lawsuit involving Mohawk Village. How we resolve that will probably have
to be done at the negotiating table. As to what responsibility we will take if any.
The bottom line is as to where we are is we will schedule a meeting unless you tell us
not to go any further. As long as you all~are happy with the fact that we are going to
go forward based on the cash flow projections and that is the only way we are going to
buy it and we will go to the table and see if we can reach agreement on price. I can
not recommend to you, based on what I've seen, that you would pledge any of the City's
tax dollars to acquire this. I'm not sure that would be logical. They are going to
hold the line on the other side. Cal will be the one to try to get them to move off.
There is a rate filing that is pending before the PSC; they have their interim rate
increase. They are asking for an additional rate increase sometime in July that they
are up before the P.S.C. for a hearing. If they get their increase we will once again
escalate to being one of the highest utilities as far as rate structure in probably
the entire state.
Mr. Conklin - not the State, this area.
Attorney Lang - based on what the League of Cities said, it would appear that we would
be higher than most utilities in the State if that is approved. Yet we have no control
over it; we have not played a part in asking them to do that. If that does come
through it will effect the ability to purchase it. It will obviously generate more
income that can be counted on for purposes of establishing a purchase price. The down
side from a political standpoint there will be accusations raised that that rate increase
went into effect so the City could buy and that is inconsistent with the reason for buying
because the reason for buying is to hold down rates. That is just something we will
have to deal with when the time comes. If you have any questions from any of us, we
will ne happy to answer them.
Mayor-T'm quite sure the Commission is in favor of your office continuing with the
purchase of the water company.
.
.
.
~
Workshop Meeting, City Commission, June 28, 1983
Page 4
Attorney Lang - all inquiries are being directed to me and I am responding to them
so that we do not have a lot of people trying to make public comment. Discussion
followed. Commissioner Linville asked if we are still looking cash flow vs. assets,
but we are still looking at "as is" if there is any way of check everything out?
Attorney Lang said - we will not put you in the posture that you will acquire without
knowledge. All we are really saying to you is before we continue to spend the hours
and get into it, if there is any change of heart we want to know that because it is
going to be a substantial problem, but we would not allow you to buy without having
that knowledge. If they are not willing to relinquish it, I'm going to tell you that
our position would be to advise you to walk away from the table because you would be
getting into too many problems that you would be held accountable for to the public
to acquire it without knowing what's out there.
MR. Conklin - the idea "as is" isn't too terrible; the first proposal was that they
would make a whole bunch of improvements to the system over a period of time and they
would sell it and they would continue to make these improvements as they deemed necessary.
The City did not really like that idea because we had no control over the type and
level of service and type of improvements they put in so the idea of buying it as is
originated in effect, from the City's side of the negotiations, but we are just having
a little trouble getting defined what is "as is".
Commissioner Linville - we've had a number of years letting it deteriorate.
Mr. Conklin - they have done some things.
Commissioner Linville - how much have se spent so far just in the negotiations?
Dick - since we resumed, probably about $600.00. I agree with Tom and Bill, and Cal,
with everyone here, but I think we also need to get serious about it and press ahead.
We need to do this, because I hear the same arguments I heard two, four and six years
ago, and that is the reason we don't own it now. I just don't want us to slip back
in that groove again because I really believe if we don't buy it, someone else will.
I think we owe it to our community to insure that we can develop it and grow in accord-
ance with the plan you folks adopted, not at the whim of some private company or other
governmental entity.
There was discussion on bond validation.and Attorney Lang said the Commission would
have to formally select a bond counsel.
The Workshop Meeting was adjourned at 7:01 p. m.
Respectfully submitted,
ln~7~
Mary T. Norton,
City Clerk
WORKSHOP MEETING
CITY COMMISSION
CITY OF WINTER SPRINGS
JUNE 28, 1983
The Workshop Meeting was called to order by Mayor John V. Torcaso.
Present:
Mayor John V. Torcaso
Commissioner Buck Adkins, late
Commissioner Inez Linville
Commissioner Leanne Grove
Attorney Tom Lang
Attorney Janelle Bronson
City Manager Richard Rozansky
Cal Conklin
Bill Leedy
The Workshop Meeting was called for the purpose of discussing the status of the
acquisition of the North Orlando Water and Sewer Corporation. Attorney Lang
explained that what is the issue is that Florida Land Company would like to sell
us the NOWSCO on an "as is" basis. We would have to maintain it and honor their
commitments. We would get their accounts receivables but also any liabilities,
as well as any responsibilities they may have under the law to make sure that that
system is in compliance with the law.
In order to properly evaluate how we handle an "as is" acquisition, the team (Cal
Conklin, Bill Leedy, and Attorney Lang) has been put together to try to take a look
at that entire system, and the price that has been put on it by Florida Land and
North Orlando. We are going to try to coordinate to bring all the documents through us
so that we can negotiate.
Originally there were some negotiations that had gone on between the City and North
Orlando in the range of approximately $2,000,000 acquisition price. There was a
letter that came back to us in April 1983 wherein North Orlando and Florida Land
indicated to us that they were interested in negotiating the acquisition, but they
wanted to approach on a purchase price basis wherein we would take into account the
utility's original cost of all their assets, less depreciation, and contributions
at date of construction received by the utility through the same time, meaning that
we would take their depreciated asset base and we would buy what they had in the way
of value in the plant. They estimated as of June 30th of this year their value would
be between 3.3 and 3.5 million dollars.
Based on the instructions we were given, it is our understanding that the City does not
want to pledge any of its general revenues in order to acquire that plant, but to use
the cash flow from the plant itself to make it a self-supporting system. The idea is
not to take tax money to subsidize a utility but rather to get in the utility business
for the benefits that may be in it for the City by having that type of utility. Based
on the cash flow that we have been able to acquire, what you have to do is take the
number of units that are currently on line and looking at the flow and the income
stream that they can expect as a result of those units, we have asked our underwriters
(Bill Leedy) to go ahead and give us some projections as to what we could possibly
afford in the way of a purchase price given market conditions.
The reason market conditions are important is because our acquisition price is going to
be a function of the interest we have to pay; in other words there is only so much money
that will come out of that plant that is going to be available for the City to meet
Workshop Meeting, City Commission, June 28, 1983
Page 2
the debt service on the bonds and retire the bonds and to operate the utility.
obviously the more interest we have to pay the less we can pay at acquisition
to Florida Land. So as interest rates go up we have less money available.
So
cost
Based on the cash projections that we had, we are looking at being able to afford
between 2.6 and 3 million dollar plant. Again, that's a function where interest
rates are at the time we sell the bonds. We are at least 70 days away from selling
the bonds and we haven't even validated or reached agreement with anyone yet. The
point to be made here is that we are roughly 4 to 500,000 dollars apart.
So, where we are - we wrote to Florida Land back in May in response to their April
letter and indicated that I needed some additional information from them and they
were to understand at this point the City posture was we did not want to look at
an asset value approach to acquire the utility. We wanted to look at a cash flow
approach, but in order to properly evaluate, they were saying their cost basis was
in that plant; they needed to give us information so that Cal and his people could
properly go in there and evaluate that plant to see whether or not there was 3.5 in
value. We also said that in order for us to properly evaluate what we can pay for
this plant, we needed to know what as is meant, especially as to the commitments
they were saying we were going to have to honor, because they have commitment agree-
ments outstanding to, we are assuming, developers for on line useage of that plant
and without having those commitment agreements in our hands, we don't know what kind
of hook in fees that we are talking about down that road; we don't know where that
revenue is going to lead us because obviously those hook up fees will have tremendous
bearing on your ability to get future financing and possibly for this one, because
if we have to go to creative financing, one of the things you might have to pledge
would be some future interest in hook up fees. So you are going to have to know what
kind of commitments are there. We wrote and asked them for the data that supported the
figures that they gave us as far as their asset base; we wrote and asked for the
commitment agreements that they had outstanding and we wrote and asked if there were
any major items of maintenance that were hanging over Florida Land that we were going
to have to assume responsibility for, because we didn't want to walk in there on say
Sept. 1 and find out that we were going to have to put another 2 million in there to
make it meet any federal guidelines or any D. E. R. guidelines.
The letter they sent back which I received on June 10 is as follows: Dear Mr. Lang:
It would seem that a purchase by the City of Winter Springs of the assets of the
NOWSCO would involve 1. an economic evaluation to support the purchase price; 2. an
engineering evaluation of the facilities; 3. evaluation of agreements and deposit
commitments to be assumed and 4. an evaluation of title, easements, etc. A great deal
of time and expense would be incurred by both the City and Florida Land in performing
these evaluations. Accordingly, it would seem appropriate that we determine initially
that we have some basis for agreement on a purchase price before expending considerable
amount of time or incurring a great deal of expense. The economic evaluation would
seem to be the first step toward an agreement. Furthermore, it would seem that we
could reach an agreement condition upon other evaluations if the economic evaluations were
satisfied. If you agree with this approach, please schedule a meeting between the
City's acquisition team and our people.
That is where we are today and we need some guidance from you because what is actually
implied in that letter is that they are going to hold the line on their asset acquisition
approach. We are going to hold the line on our cash value. We can go to the table and
talk but I would have to tell you as a City counsel, I am not sure we could make those
two meet. We might be able to but its going to require Mr. Conklin getting in there and
Workshop Meeting, City Commission, June 28, 1983
Page 3
making them move off their first demand as such, and us trying to find a way to
prove the underwriters to move the cash values up and you need to know that and
that is where we are moving. I f you have no objection to us going to the table
and holding our position on cash value and asking them to prove their asset value
that is what we intend to do. Go into negotiations with them and see if there is
not a point where our cash flow projections would support a purchase price they
could accept. I can't guarantee that we can do that. It may have an impasse just on
basic philosophy. We would like to do that at the same time moving to another area
for a second. They didn't give us those contracts but we've gone out on our own to
check with D. E. R. There are some problems with D.E.R. but there are no outstanding
citations. We've confirmed that. We were concerned about that. There has been a
history of problems. Right now there is nothing more than Cal already knew about.
There will be a problem with spray fields, in that we are going to have to confirm
that we can continue to use the golf course because that is what they use now. There
will be a problem in 1984 when the time comes to renew their certificate because we
may have some additional burdens on us to provide for effluent disposition and that
point we may have to plan in the takeover how we will finance those additional effluent
requirements. I have also been told, that there may be some further federal restric-
tions that are in the offering that we are going to have to be concerned with. I
was only told that because some one called me and said there is a clean-water act of
1983 (Cal said as long as they don't discharge, and they don't have a discharge) given
that, I think the only problem we are faced with would be compliance in 1984 in order
to get our certificate reissued and find out what it is going to cost us. There is
one pending lawsuit involving Mohawk Village. How we resolve that will probably have
to be done at the negotiating table. As to what responsibility we will take if any.
The bottom line is as to where we are is we will schedule a meeting unless you tell us
not to go any further. As long as you all~are happy with the fact that we are going to
go forward based on the cash flow projections and that is the only way we are going to
buy it and we will go to the table and see if we can reach agreement on price. I can
not recommend to you, based on what I've seen, that you would pledge any of the City's
tax dollars to acquire this. I'm not sure that would be logical. They are going to
hold the line on the other side. Cal will be the one to try to get them to move off.
There is a rate filing that is pending before the PSC; they have their interim rate
increase. They are asking for an additional rate increase sometime in July that they
are up before the P.S.C. for a hearing. If they get their increase we will once again
escalate to being one of the highest utilities as far as rate structure in probably
the entire state.
Mr. Conklin - not the State, this area.
Attorney Lang - based on what the League of Cities said, it would appear that we would
be higher than most utilities in the State if that is approved. Yet we have no control
over it; we have not played a part in asking them to do that. If that does come
through it will effect the ability to purchase it. It will obviously generate more
income that can be counted on for purposes of establishing a purchase price. The down
side from a political standpoint there will be accusations raised that that rate increase
went into effect so the City could buy and that is inconsistent with the reason for buying
because the reason for buying is to hold down rates. That is just something we will
have to deal with when the time comes. If you have any questions from any of us, we
will ne happy to answer them.
Mayor-I'm quite sure the Commission is in favor of your office continuing with the
purchase of the water company.
Workshop Meeting, City Commission, June 28, 1983
Page 4
Attorney Lang - all inquiries are being directed to me and I am responding to them
so that we do not have a lot of people trying to make public comment. Discussion
followed. Commissioner Linville asked if we are still looking cash flow vs. assets,
but we are still looking at "as is" if there is any way of check everything out?
Attorney Lang said - we will not put you in the posture that you will acquire without
knowledge. All we are really saying to you is before we continue to spend the hours
and get into it, if there is any change of heart we want to know that because it is
going to be a substantial problem, but we would not allow you to buy without having
that knowledge. If they are not willing to relinquish it, I'm going to tell you that
our position would be to advise you to walk away from the table because you would be
getting into too many problems that you would be held accountable for to the public
to acquire it without knowing what's out there.
MR. Conklin - the idea "as is" isn't too terrible; the first proposal was that they
would make a whole bunch of improvements to the system over a period of time and they
would sell it and they would continue to make these improvements as they deemed necessary.
The City did not really like that idea because we had no control over the type and
level of service and type of improvements they put in so the idea of buying it as is
originated in effect, from the City's side of the negotiations, but we are just having
a little trouble getting defined what is "as is".
Commissioner Linville - we've had a number of years letting it deteriorate.
Mr. Conklin - they have done some things.
Commissioner Linville - how much have se spent so far just in the negotiations?
Dick - since we resumed, probably about $600.00. I agree with Tom and Bill, and Cal,
with everyone here, but I think we also need to get serious about it and press ahead.
We need to do this, because I hear the same arguments I heard two, four and six years
ago, and that is the reason we don't own it now. I just don't want us to slip back
in that groove again because I really believe if we don't buy it, someone else will.
I think we owe it to our community to insure that we can develop it and grow in accord-
ance with the plan you folks adopted, not at the whim of some private company or other
governmental entity.
There was discussion on bond validation,and Attorney Lang said the Commission would
have to formally select a bond counsel.
The Workshop Meeting was adjourned at 7:01 p. m.
Respectfully submitted,
;J7~r~
Mary T. Norton,
City Clerk