Whitesburg KY

Veolia wants more money to operate city’s waterworks

Multi-national firm says it will quit if city can't come up with $188,687

Veolia Water North America is demanding an extra $188,687 a year to continue its management of the City of Whitesburg’s water and sewerage systems.

Tony O’Brien, area vice president for Houston-based Veolia, said the company needs the extra money just to break even on its contract with the city. O’Brien pressed the Whitesburg City Council for an answer to the company’s demands during a special meeting last week, but Mayor James W. Craft said no decision would be made before the council’s regular monthly meeting scheduled for September 11.

Veolia’s demand for the extra money was included in a “scope change” submitted to the council that calls for Veolia to begin receiving a fixed annual fee of $713,791. O’Brien said Veolia still won’t be making a profit if the council agrees to the increase.

O’Brien said Veolia must have wants the company to continue to operate its water treatment and distribution system and its sewerage system. He said the company could not go on losing money at the present rate.

“We can’t stay and pay you to be here,” said O’Brien. “These are the numbers. There are two years left on the contract. If I can just get to zero, I will be OK.”

O’Brien pressed the council for an immediate decision on Veolia’s request and said if he had to go back to his boss without a signed agreement, the company might revert to its original position of billing the city for financial losses of $32,035 in 2005, $100,540 in 2006, and a projected loss of $172,339 for 2007.

“If I go back and tell him I don’t have a signed agreement, I don’t know what will happen,” said O’Brien. “My boss may pressure me to get more than I’ve asked for tonight.”

Craft told O’Brien the council would need until the next scheduled meeting on September 11 to examine his report and to look at available options before reaching a decision.

“We have to have two weeks,” said Craft. “I won’t ask the council to consent to $188,000 tonight.”

O’Brien told the council that Veolia, which began operating the city’s water and sewerage systems in 1999 when the company was known as US Filter, has lost money continuously since 2005 because of longer working hours and having to maintain more equipment since the city began selling water to the Letcher County Water and Sewer District.

Craft said one possibility of getting the money Veolia needs is to raise the rates being charged to Letcher County customers, but cautioned that the city would first have to be granted permission from the Public Service Commission (PSC). Craft said he would call the PSC’s chairperson to ask about raising the rates for county customers.

Several council members spoke out during last week’s meeting against the possibility of raising the city’s water and sewer rates.

“We’re going to have to raise the county’s rates,” said council member Jimmy Bates.

Council member John Williams said the PSC set the rates for selling water to the county three years ago. City Clerk Garnett Sexton told the council it already costs more to produce a gallon of water than the city receives under the rate allowed by the PSC.

Veolia Water’s local manager, Jeff Kilgore, told the council the company is currently producing 32 percent more water than is called for under its contract with the city, and that the city has added 217 new customers to the system aside from the county customers who are accounted for and billed by the Letcher County Water and Sewer District. Kilgore said state and federal regulations have become more stringent, and that new pumps, tanks, lift stations, and other equipment have become necessary because of the increase in production.

When council member Williams pointed to “salaries, wages, and benefits” as the leading expense for 2007 at $375,954 – over 40 percent of Veolia’s projected operating cost of $925,671 – O’Brien said the company’s workers are putting in 132 hours a week of overtime to keep up with the demand in services and to stay in compliance with state regulations. Williams suggested to O’Brien that the company would be better off hiring additional workers instead of paying the inflated overtime costs.

O’Brien said Veolia also incurs extra costs from having to haul sludge from the city’s sewage treatment plant to a certified landfill. The original contract called for the city to provide a piece of property where the treated sludge can be spread out be absorbed into the ground where it will act as fertilizer, O’Brien said.

According to Veolia Water, Whitesburg’s water system consists of 28 miles of distribution lines, pump stations, and water storage tanks. The company says the sewage system comprises 15 miles of collections lines, lift stations and sludge disposal.

Veolia is the world’s leading water and sewage management company, with operations in 59 countries. The company serves 600 communities in North America. The largest systems Veolia operates are in Indianapolis (1.1 million inhabitants) and in Shanghai/Pudong in China (2 million inhabitants).

The council got a second dose of bad news last week when Mayor Craft reported that the city has been presented with a huge cost increase in insurance coverage for city workers and their families.

Craft said the cost will rise to $204,000 for the next year. He said a number of options for dealing with the increase are available, including asking workers to pay a percentage of their health care and that of their families, and changing companies, which would change rates for co-pay on doctor visits and hospital stays.

City Clerk Garnett Sexton, who has her health insurance through the city plan, told the council that while she didn’t like the possibility of changing companies and having higher co-pays that might be the only way to preserve the current level of coverage to workers and their families.

Council member Williams said he and his fellow workers at Mountain Comprehensive Health Corporation (MCHC) in Whitesburg have had to assume a share of their own insurance. Council member Robin Watco replied that most MCHC workers make much more money than city workers.

Sexton, the city clerk, said city workers earn from $5.85 to $11 per hour, and that city-furnished insurance is one “perk” that has made it possible for the city to attract loyal and dedicated workers.

Sexton said the other insurance plan the city has examined would cost the city $166,964 annually, and that the council will have to make a decision soon to lock in those rates.

Council member Bates suggested charging employees for part of their insurance and then giving them raises to offset the additional costs. The motion did not receive a second, however. Sexton said that raises have hidden costs and that a raise of $1 per hour would actually cost the city $1.50.

“I don’t know how it got to where it is,” said Mayor Craft. “Insuring employees’ families has never been approved. It has gradually taken over. There you are. That’s the problem we have. I’ve really struggled with it in my heart and mind these last months. It’s $204,000 if we continue. It’s $122,000 just to insure the employees (aside from family coverage).”

Craft told the council he doesn’t participate in the city’s coverage although he is eligible to as mayor. He said the alternative plan was the closest thing he and Sexton could find in conversations with Tom Childers, the city’s current insurance agent.

Craft said he would instruct Sexton to provide information on the insurance plans and the insurance needs of employees to each council member so they can deliberate on the matter until the September 11 meeting. He said the issue must be decided then. Craft also discussed the possibility of laying off city employees, but did not endorse it.

“I don’t know how our budget can handle an additional $300,000 a year (the additional water rates plus the increased insurance rates),” said Craft. “Alternatively I can lay off a bunch of people. We could do without five police officers. Do you want to live in a city like that? It’s in the eye of the beholder what is necessary. I will meet with the employees and get their input and furnish statistics to the council. We will decide on the 11th. I will make a recommendation to the council, painful as it may be.”

The council also last week conducted the first reading of an ordinance which will raise tax rates on abandoned, blighted and deteriorated, and vermin-infested property which has become a public nuisance and a danger to public health to the maximum tax rate allowed by the state of $.75 per $100 assessed value.

Craft said the ordinance is aimed at getting property owners to do something about such properties. Craft said that if the owners do not act, the city has no choice but to increase the tax rates to offset additional police and fire protection costs as well as the possibility of damage to public health resulting from the properties.

Craft told the council the second reading of the
ordinance would be conducted at the September 11 meeting.

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