Wednesday, January 20, 2016

Response to the Aubrey, TX the 5.5 Million Dollar Bond Proposal 2016


Below is a list of recommendations that the Aubrey City Staff is providing to justify not pursuing other options for the Aubrey water system.  Below each of these justifications is a response indicating why the recommendations are not valid or accurate. 

Why don’t we look at outsourcing our water system?

While outsourcing or selling the City’s water system is a choice that can be made, it is not one that is recommended by staff or any professionals advising the city.  This is the case for several reasons: 

1)      It is not a wise financial decision.  Outsourcing would include what is called a “franchise fee” for serving water, which is often a percentage of revenue gained.  A franchise fee of 5% for example would mean that the City is giving up 95% of its revenue.  And this is revenue that the City could use to ensure the same quality operations it currently enjoys.

This answer is false. 

Currently we have about 2.7 million dollars of debt associated with the water/wastewater system. This debt should be paid from water revenue; however, for some reason the bonds for this debt were sold as tax supported bonds, and therefore this debt is paid by property taxes.  We pay somewhere in the neighborhood of $ 300,000.00 annually for this debt.  This is in addition to fees and other expenses associated with the water system, such as the annual fee to Upper Trinity Regional Water District. 

If we sold our system to Mustang, they would assume this entire 2.7 million dollar debt. Also, we require developers to remove themselves from Mustang's CCN, the Jackson Ridge Developers just paid over a million dollars to Mustang for their CCN in that subdivision. If we sold out to them, that million dollars would also be returned. Additionally we would get at least a 5% franchise fee from Mustang, which would become pretty significant over time. This in itself would wipe out a significant amount of the city's debt, and more than double the amount of property tax funds that goes into the general fund. Which would give Aubrey the freedom to pay our police and fire departments what they deserve, as well as lower property taxes and invest more in the community. If we continue down the same path we're going, by taking on more and more debt, it will be decades, if ever, before we can do anything positive financially.

Currently the only money that goes into the general fund from water revenues is a franchise fee.  This amounts to a total of approximately $ 81,989.00 for the current year.  The rest of the water revenues go to maintain the water system and the salaries of the water system employees.  The current budget projects a $ 115,244.00 loss from the water system for the current year. 

Aubrey currently has over 5 million dollars in debt.  This amounts to over $ 1,800.00 per capita, greater than Houston which is speculated to be the next Detroit because of its financial situation.  Spending an additional 5.5 million dollars that we do not have will more than double our current debt.  It should be unacceptable for the government to operate in this manner.  We are continuing to amass debt that our children and grandchildren will have to pay for.  None of those who are suggesting this massive additional debt will be responsible for paying for it.  Furthermore, most who are advising this debt will in fact either directly or indirectly benefit financially from it. 

Aubrey currently has approximately 1,100 water connections, while Mustang has over 11,000.  The economies of scale make Mustang a much more effective and efficient water system.  Furthermore, Mustang only does water and waste water, which also makes them more effective and efficient.  This would not only allow a significant reduction in debt, but also allow our limited staff to work on more pressing issues.    

2)       The City would lose its ability to ensure quality of service.  Currently, if the level of service is not meeting community expectations, the City Council can take action to directly address those problems.  If outsourced, the city could not directly affect or guarantee with quality of responsiveness of service.  Aubrey would be at the mercy of a third party who would have little vested interest in meeting the community’s needs. 

This answer is inaccurate and misleading.  The service from the Aubrey Public Works is in fact exceptional.  However, Mustang is considered a Superior Water System by the state of Texas, which is the highest rating a water service provider can achieve.  Furthermore, Mustang only provides water and therefore does not have other distractions.  If Aubrey sold its system to Mustang, Aubrey citizens would be eligible to serve on the Mustang Board of Directors.  Therefore, Aubrey citizens would have representation to redress any grievances with water supply or service issues, and not be at the mercy of a third party vendor.  

Mustang is a mature and sophisticated water service provider that has far greater resources, equipment and personnel than Aubrey currently does.  The economies of scale allow Mustang to provide high quality service at a lower cost.  There is no foundation to make the assumption that the quality of service would decrease should Mustang take over the Aubrey water system. 

Through unscientific polling, I have found no complaints with the level of service from Mustang.  However, I would recommend that a document be drafted outlining the high performance expectations that our citizens deserve.  Furthermore, there would have to be a mechanism in this document that outlined consequences for not meeting these expectations.  .

3)      Development becomes slower, less responsive and more bureaucratic.  Any third party utility organization would be another level of red tape for developers.  Quality developers and businesses often require a community to be very responsive to do business with them.  By adding another regulatory authority to their checklist, Aubrey would become less business friendly. 

This answer is false.  The area along US 380 has seen dramatic growth over the last decade.  Mustang has added over 8,000 connections to this area in that timeframe.  This far surpasses any development that has been accomplished by Aubrey or any other small town in this area.  Furthermore, Mustang entirely serves 3 cities in this area, all of which have had larger growth than Aubrey.

The Jackson Ridge development off of FM 1385 has been significantly delayed by Aubrey forcing the developer to decertify from Mustang’s Certificate of Convenience and Necessity (CCN) or service area.  This action was taken so that Aubrey could provide water service to the residents of Jackson Ridge.  Aubrey forced the developer to decertify from Mustang, and then forced them to build a complete water infrastructure including a water tower in the development.  However, Mustang has a water tower 60 feet from the Jackson Ridge property line.  Therefore, this tactic has not only delayed the development by many months, but the new Aubrey Citizens who purchase homes in Jackson Ridge will have to payback millions of dollars for unnecessary water infrastructure.    

An agreement was reached with Mustang in the acquisition of the water system, which required the developers to pay Mustang over a million dollars to acquire the CCN for Jackson Ridge.  If Mustang had chosen not to settle, this could have been delayed for years.  Once again the money paid to Mustang was acquired through bond debt, which will be repaid by the Aubrey citizens who purchase homes in Jackson Ridge.  If Mustang were to acquire Aubrey’s water system, this money would be returned and construction would begin immediately.  As it stands a water connection to the Upper Trinity Regional Water District and elevated storage must be built before construction can begin in Jackson Ridge. 

Most of the area east of Aubrey is in the Mustang CCN, and therefore part of Mustang’s service plan.  When Aubrey forces a developer to decertify from Mustang’s CCN, this disrupts the Mustang service plan, which requires additional lines to be installed, storage constructed, etc.  This adds redundancy and additional time as listed above.  If Mustang was able to retain their CCN, there would be more consistency and orderly development.  Over the last decade the area covered by Mustang has experienced significant growth, and they have been able to effectively manage this growth. 

The timeline for the approval of the Jackson Ridge development by Aubrey took over two years and construction has yet to start.  Even a traditional development must have plans approved by engineers, planning and zoning, and then with the city council.  Furthermore, Krugerville, Crossroads and Oak Point, uses Mustang for its water service and does even have a sewer system, yet all of these cities currently have significantly more development, both commercial and residential taking place than Aubrey does.  

Under the current status quo, as is the case in Jackson Ridge, Mustang and Aubrey are duplicating efforts in the same area, and the operation is redundant.  Having one water provider in this area would not slow down development, but rather make for more appealing and orderly development.  To suggest that getting water service set up through Mustang would take longer than the current city application process is not accurate. 

4)      It results in Aubrey users subsidizing non-Aubrey users.  If outsourced, rates paid by Aubrey users would not be spent solely for operations in Aubrey.  They would be used to serve customers in Pilot Point, Celina, Oak Point and so forth.  Keeping utility operations in house means that all of the revenue collected by Aubrey will be spent in Aubrey. 

Misleading.  While a portion of your water may go to maintain other parts of the Mustang system that requires maintenance.  The same will happen when Mustang’s system inside Aubrey needs to be repaired; money from other areas will be used to repair our system.  The economies of scale of having a larger system, will ensure that the overall efficiency and quality of the system will remain higher at a lower cost.  To put it in simple terms, Mustang will always have greater resources to maintain the system more effectively than Aubrey will by itself.  Currently Aubrey cannot keep up with needed maintenance and upgrades to our water system, if we were part of the Mustang system, they could better keep up with this need much more effectively. 

People who live in Aubrey Corporate limits will be eligible to serve on the Mustang Board of Directors.  This will ensure that Aubrey has a voice and is represented within Mustang, and resources are allocated to our system. 

5)      There are safety concerns.  Cities carefully construct their water system to ensure sufficient water for fire-flow.  Turning the management over to an entity that is not in the business of providing fire flow risks not having water when first responders need it most, and that would put the City’s ISO 2 rating in jeopardy. 

This could be a valid concern, but the effects are dramatized.  We should mandate that any water provided in Aubrey corporate limits must meet fire flow.  This should be part of any agreement between Aubrey and Mustang.  However, this should not be an issue, the current water system in Aubrey provides fire flow, and this is the same system that will continue to service this area.  Any expansion of the system should be mandated to maintain fire flow. 

The Aubrey fire department services a huge area, and the corporate limits of Aubrey is a small portion of that.  Therefore, Aubrey is unable to mandate that fire flow be maintained in these areas.  However, a large part of the Mustang service area does meet fire flow.  If the current Aubrey meets fire flow in all areas, I am certain that Mustang would agree to meet fire flow to any development in our corporate limits. 

The safety impact of this is being dramatized in an attempt to scare the public into supporting the 5.5 million dollar bond package. 

1 comment:

  1. In full disclosure...I was elected to the Mustang Water Board 3 years ago. Moving to Cross Roads I wanted to understand more about our water in this area. Mustang gets about 40% of their water from wells and the other 60% from the Upper Trinity Regional Water Authority (UTRWA). Basically everyone north of Fish Trap is on well water and south of Fish Trap is on UTRWA. The first thing I discovered was Mustang had a "take or pay" contract with the UTRWA that requires Mustang to pay for 2.8 million gallons a day whether we use it or not. The next thing I discovered was the UTRWA rate per gallon was six times more expensive than our well water. SIX times more expensive. I discovered that these regional water authorities (like toll road authorities) have the ability to issue tax exempt bonds without any voter approval. They just raise the rates they charge the cities. The UTRWA has been raising the rate at least 10% a year and there is no end in sight.
    This brings me to Jackson Ridge. The developer has paid Mustang to "opt-out" of the Mustang service area. I assume this money came from the PID bond that Aubrey has taken out to pay the developer for "infrastructure" costs. This means that 100% of Jackson Ridge will be on UTRWA water and sewer which we know is six times more expensive than well water. So the new residents of Jackson Ridge will not only be paying off the $55 million in PID bonds (which works out to be over $40,000 per homesite) but will also be paying much higher water and sewer rates. (Keep in mind that the current Aubrey rates are 28% higher than Mustang...and Aubrey is 100% on well water...go figure that one out)
    I know that the consultant has said that Aubrey's PID bond is a non recourse loan, and if the developer goes under or sales stagnate (ala 2008) that the bond holder can foreclose on the property and put a lien on the property. I assume there will already be a first lien, so the bond holder will become the second lien holder...good luck on getting anything back on that investment. Celina recently issued some PID bonds that were priced at 8.5%. I think the consultant said Aubrey would get PID rates around 2.5%...but all that aside, here is the real issue: Aubrey will have to sign a "take or pay" contract with the UTRWA. This will be based 'x' gallons per day...if sales of homes is slower than projected, or we go into another housing depression, or if the developer goes bankrupt, or whatever happens Aubrey will be on the hook to make this payment to the UTRWA. This could be a financial disaster. Peter Carrothers

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