Another Option - Domestic Water Improvement Districts
The current mindset is that the only resolution to the ongoing water problems with the McLain-owned water systems seems to be the purchase of the systems by Algonquin Water. Everything seems to be leading in that direction whether it is the best solution for the frustrated customers or not. It appears to be the County's only game plan right now.
Algonquin may decide to walk away if the valuation isn't set as high as possible. Yes, they want to pay as close to $1,000,000 as they can even if the water companies are not really worth near that much. I know that sounds counter intuitive, but the reason is that the rates will be set by the ACC based upon the purchase price that Algonquin pays. The higher the purchase price, the higher the rates that Algonquin can charge. The rates never go down so Algonquin obviously wants to be able to start with the highest rates they can reasonably get.
The valuation decision by the ACC has been delayed until mid-January. The ACC is fighting to keep the valuation, and therefore the rates, low while Algonquin, McLain's creditors, and the County are fighting to keep the valuation high.
In the meantime, if the delays continue, the interim manager ASUA may quit and walk away leaving the water customers without anyone to run the "worst water systems in the state".
So, what is Plan B?
During the ACC Town Hall held in Sierra Vista in July, Tom Schelling, who is the County Director of Elections and Special Districts, approached me and put into my hands the Cochise County handbook on creating Special Districts. He suggested that frustrated customers may want to consider forming a Domestic Water Improvement District.
Since then, I learned about precedent already set in Cochise County in resolving a situation somewhat similar to the one facing the McLain-owned water companies. It involves Sulger Water #1.
The details are still a little sketchy, but here's what I've been able to gather by talking to some people who are very close to the situation. Paul Sulger owned Sulger Water #1 which is located in the Whetstone area. Sulger was not an educated man and was quite stubborn had several businesses and investments and achieved little success. He tried to develop an area near Whetstone which he called Sulger City and he purchased the old housing from Fort Huachuca and moved the buildings to his development. Asbestos was discovered in those old buildings and there was a legal tussle with the County which resulted in the buildings being demolished by the County but the bill sent to Sulger along with an order to clean up the contaminated properties. Long story short, Sulger sued the County and collected a large settlement. Sulger owned several other businesses to include a cab company, a bus line, a real estate company, and two water companies. He was not very business savvy, lacked any sort of professionalism, and frequently flouted laws and regulations either out of ignorance or sheer stubbornness.
In 1987, his water companies were a mess. They were as bad or worse than the McLain-owned water companies were then and now. The largest of the companies was Sulger Water #1 which serviced around 110 homes. Apparently, either because the system was so poorly designed or because angry water customers refused to pay their water bills, Sulger's method of dealing with nonpayment of water bills was to shut the whole system down. This did not set well with customers or the County. Sulger didn't care and left the customers without water for lengthy periods of time.
Cochise County stepped in and bought out Sulger Water #1 for approximately $160,000. They formed a Domestic Water Improvement District called Whetstone Water Improvement District and the original board of directors for that district was the County Board of Supervisors. The County made several improvements to the water systems to include the installation of a 6 inch water main in one area. They also purchased some capital equipment for the water district. A federal loan from the Farm and Home Administration (now part of the U.S. Department of Agriculture) was obtained in the amount of $260,000 for repairs, replacement, and construction. At some point in time, management of the system was done by Southwestern Utility Management (the company initially chosen by the ACC to act as interim manager of the McLain-owned systems).
The problems started to be resolved as repairs and replacement took place. The interconnections to Sulger Water #2 were cut off and the County put in additional lines and made further improvements. The Board of Supervisors approved the district's tax levy, but it was never imposed on the district. Too many people living within the district's boundaries were not on the water system or owned their own wells and objected to paying an additional tax. Despite that, the district succeeded in resolving the water problems, replacing or repairing the terrible water system, paying off the federal loan, and they even grew in size from 110 initial customers to 330 customers now.
In fact, the Whetstone district even considered and inquired about purchasing the two McLain-owned water systems in the Whetstone area. They were told, however, that the water companies could not be broken up and that all of them would have to be purchased together.
The current situations with the McLain-owned water systems and the Sulger-owned water system in 1987 do bear some resemblance. Only, in this case, beyond a couple dozen water tanker truckloads dumped into the system and some supportive words from the County Supervisors, the County has not similarly stepped in and attempted to solve the problems. Instead, they seem to have put all their eggs in the Algonquin purchase basket and are doing everything they can to grease the skids for the Algonquin purchase.
I think that the formation of Water Improvement Districts is an option that needs to be explored in depth. If the County can do this for 110 customers in Whetstone, they can do this for the 1,200 customers throughout the McLain-owned systems. Further, McLain already owes the County $600,000 in taxes while the system is likely to be given a valuation at or below that amount. Could the county simply seize the water companies to pay for the back taxes and then split them up and turn them over to Water Improvement Districts? I checked the Arizona Revised Statutes and even inquired of one of the Corporation Commissioners and there is no law that prevents the County from seizing a water utility for back taxes.
As for paying for the repairs and replacement of the water systems, if a water improvement district can get a federal loan for $260,000 in 1987 dollars for improving a water company servicing 110 customers, I'm sure that federal loans can be obtained for at least the $1,000,000 estimated by the ACC and Algonquin for repairing or replacing the current systems. In addition, a Water Improvement District only has to go to the County Board of Supervisors to raise or lower rates and any rate increases for repairs and replacement of the systems can be made very temporary by the Supervisors. Also, the district only need to get approval from the Supervisors to temporarily levy taxes on the district to help pay for fixing or replacing the systems. While rates may go up initially to pay for necessary fixes and replacement, they won't necessarily go up as high as Algonquin would have them raised and the increases could be made temporary.
This may be the best option, even better than the Algonquin purchase. But, right now, there may be no way to get out of the Algonquin purchase if water customers and the County did decide to pursue this option. Certainly, it could serve as the basis for a Plan B if the Algonquin purchase is held up or falls through entirely. What needs to happen is the Supervisors need to look at this option, fill in the details that may have been missed, and explain why this option may or may not be possible and what some of the issues may be. I am by no means an expert on any of this. I'm just a frustrated water customers looking for solutions and trying to get my elected officials to act upon the best solution.