Walloon Lake Water System customers closer to a deal

WLWS

Benjamin Gohs

News Editor

Nearly 30 Walloon Lake Water System customers recently voted to go forward with a plan to purchase the system for $1.3 million.

The Melrose Township Board of Trustees convened Tuesday Feb. 25 to give customers—of the water system currently owned by Dennis Lee Hass—a rundown of potential costs to buy the system … as well as conditions proposed by Hass.

“We are pretty close to an agreement,” said Melrose Township Supervisor Vern Goodwin.

Goodwin presented the public with a lengthy pro forma—financial statement—document compiled by Performance Engineering concerning the water system.

According to the proposed agreement, Melrose Township and Walloon Lake Water System customers would lease the system at $7,721 per month with a down payment of $130,000 due at signing.

There would be an option to buy the system at $1.3 million less the down payment and any monthly payments made, and the lease would be good for 10 years.

A notice of 12 months must be given before any decision to buy the water system is made.

“The option price would be calculated as though the lease payment was principal and interest on a $1,170,000 amount at five percent with the option price being the balance of the amount,” Goodwin said.

If the deal goes through, Melrose Township would technically be the owner of the water system.

“The township as a whole will own the system,” Goodwin said. “However, the township as a whole will not pay for it. The only ones that will pay for it are those that are hooked onto it.”

But, Goodwin said, the township will help secure the plan.

“To get this started, the township’s going to have to loan $170,000,” said Goodwin.

The $170,000 cost includes a $130,000 down payment and $40,000 to start a fund to cover user fees, for the first month, and other potential costs.

The average monthly water bill under new ownership could be roughly $76 per customer.

Though Hass did not attend the meeting, Goodwin read from a document which detailed Hass’ expectations:

Hass’ conditions included free water for personal use for he and his heirs for life.

The township would pay for mortgage insurance or a bond payable to the seller upon default.

Five acres would be split to allow the township space for well isolation.

If the water facilities at 2053 North Shore Drive are ever abandoned, Hass would have the option to buy back the system for one dollar.

Hass has agreed to meet township officials in a closed meeting to discuss pertinent details about his water system. However, a list of attendees must be pre-approved by Hass.

Several snorts of derision arose from the audience, especially at the idea of giving Hass and his family free water forever.

And, on several occasions, Goodwin reminded attendees that Hass is not required to put his water system on the market.

“He does not have to sell. You have to keep that in the back of your mind,” Goodwin cautioned meeting attendees… “There is no real impetus for him to sell the system.”

Another person took issue with water system’s $1.3 million price tag. He said he felt the value of the system was closer to $750,000.

According to Goodwin, the $1.3 million asking price is a firm number that will not change.

“The last one (valuation) that Wade Trim did for us, when we were talking about building a system versus buying one was that there was approximately $440,000 value … if we didn’t build our own system,” Goodwin said. “Now Dennis’ claims are that the data we were using was incorrect. Unfortunately the data we were using was the data he gave the DEQ.”
Goodwin added that the DEQ does not know if the valuation is correct either.

“Again, how much do you want to pay to get rid of him?” Goodwin said. “That’s what it boils down to.”

Goodwin said the outcome of last week’s meeting would determine whether Walloon Lake Water System owner Dennis Hass would go forward with looking at creating a purchase agreement.

Goodwin went through the pro forma, explaining potential costs like monthly bills, how money will be allocated and for what it will be used.

Costs were calculated by averaging the residential monthly fee plus purchase and upgrade costs per gallon and total number of gallons used. The commercial rate used the same formula with the addition of a commercial rate.

There will be fees for service calls, miscellaneous fees and other charges as well.

The figures offered are based on a water system of 190 customers, though there are at least 200 currently.

“There’s quite a few that are being charged two services on one meter,” Goodwin said. “A guy might have a bathroom in a garage—he’s paying a second service on it. We’re going to eliminate that practice.”

He added, “One service, one meter … not one meter, two services.”

Goodwin said purchase and upgrade fees give a total income of $203,772.

Goodwin then discussed user fees and the services necessary to operate the water system.

Electricity – $4,200

Remote monitoring service – $200

Laboratory analysis (water testing) – $11,000

Tank cleaning inspection – $4,500 (occurs in 2018)

Other fees include service calls, Miss Dig, billing, office supplies and liability insurance.

A reliability study must also be undertaken to determine the state of various pieces of hardware.

There will also be a monthly debt payment, which is applied toward the total amount which would be owed to Hass.

If purchased, the system would be financed at five percent interest over 20 years.

Goodwin said the intention is not to take the full 20 years to pay off the water system.

“The whole idea behind this is we want to make enough money to rebuild the system and it’s your system,” Goodwin said.

Goodwin said there would be nearly $39,000 per year leftover to help pay for upgrades and emergency fixes on the system.

“We have to have a positive cash-flow that builds a reserve,” he said.

In 2017, the water system will begin spending some of its reserves on upgrades.

Some of the upgrades will include burying waterlines deep enough to prevent freezing and breaking; and, customers will no longer be liable for repairs beyond their property line.

It was at the end of the meeting that Goodwin asked the room full of several dozen people if they wished to proceed toward the purchase of the water system—most said “yes” and none were opposed.

One woman, whose name was withheld to avoid the possibility of retaliation against her should the purchase not go through, said: “The prosecutor let us down. Is the attorney that’s working with his (Hass) attorney aware that Dennis is … Dennis, and that we will not get screwed again? I know it makes us all mad to have Dennis come out on top.”