More than 80 percent of voters in the most recent Peoria election opposed the city buying the water company. Based on this alone, should the city stop pursuing the acquisition? Many would say yes. Certainly, it's important for public officials to listen to their constituents. However, it's equally as important-if not more so-for public officials to make the tough decisions that sustain and improve the quality of life in the community. Think for a moment what would happen if government decisions were based solely on public referendums:
- Would a referendum ever have approved building the Civic Center?
- Should there be referendums on the Med-Tech District, expanding the Glen Oak Zoo, building the museum, and all other major community initiatives?
- What if there was a referendum saying Peoria's property tax should be repealed-should the Peoria City Council follow that?
Clearly, an informed electorate is one vital source of information for elected officials when they make decisions. But it's just one source and can't be the final deciding factor.
The decision on whether to buy the water company needs to be a business decision-not a political one. We strongly encourage the city council to utilize this opportunity for real due diligence to determine if the cost of the system, its condition, operating expenses, and future revenues provide the city with a positive return on its investment. If so, then the acquisition should proceed.
The analysis performed by city consultants and members of the Peoria Area Advancement Group show there's a real opportunity here for significant short- and long-term economic benefit for the city. Clearly, there's no doubt our city government needs to seize every viable option available for enhancing the city's economic future. The water company acquisition may, in fact, be one of the most viable and sustainable opportunities for a strong economic future the City of Peoria will ever have. Political posturing shouldn't get in the way of the community's future.
Here are the basic assumptions that lead us to believe the water company buyout works. Run your own analysis and come to your own conclusion.
- Bond issue approximately $250 million ($220 million purchase price plus costs and capitalized interest).
- Interest rate forecast of 25 basis points over current rate-approximately 5.5 percent.
- 35-year bond term, graduated debt service growing with revenues.
- Annual capital reserves of $3.5 million.
- Net income after operating costs of $16.36 million in the first year.
- Revenues growing at 3 percent per year, operating costs growing at 3 percent per year.
The city always has a cumulative surplus in this fund and, in all but a couple of years, has positive annual cash flow. This type of financing structure is extremely common in communities across the country. This isn't a general obligation of the city, would have no possibility of resulting in higher property taxes, and doesn't affect the city's ability to complete other projects (correcting a misstatement by one council member).
Basic business economics demonstrate this is a good investment. It's also a fair purchase price. The city's consultant was wrong when he suggested the system could be bought for under $100 million. Basic business economics tell you a $16.3 million net income, on a very safe investment, produces a value well in excess of $200 million. Illinois American still believes it's worth more than $300 million. That's why they continue to fight this acquisition.
Some elected officials believe the purchase price will go down in the future-that the state might enact new legislation changing how the valuation occurs. That would be great if there was any real possibility of it occurring. Instead, it's simply a distraction to the question at hand: should the city proceed with due diligence now?
Many people have said they'd vote against the water company buyout-not because the city shouldn't own the system, but because they didn't trust the city to operate it right. Even a Peoria City Council member said this on the council floor. We disagree. We, and the members of PAAG who gave the city $1 million to pursue the buyout exploration, trust the council to manage the system correctly because they'll hire a professional management team to run it. We also know they're ultimately accountable to the electorate. We can't run away from the future of Peoria because we don't trust elected officials to govern well. What type of future does that leave the community?
In early to mid-June, the council will determine whether to allocate funds to conduct due diligence. A "yes" decision is the right decision. It may not be the politically correct decision in the short term, but it's the right decision for the long-term future of Peoria and central Illinois. IBI