Fisticuffs over water costs in neighboring burbs

By Kahrin Deines
Medill Reports - Chicago

Look out Chicago's front window and you'll behold one of the largest freshwater lakes in the world. More than a thousand cubic miles of water at our doorstep. With the other four Great Lakes, more than 20 percent of the world's surface water.

Not much of an incentive to limit our showers or stint on washing the car.

But in these days of resource competition, even communities near the southernmost Great Lake are starting to feel the pinch of water scarcity.

In fact, concerns about the availability of water after a hot and dry summer in 2006 prompted Gov. Rod Blagojevich to issue an executive order calling for a statewide water management plan.

The plan is still in the works, and will be until at least June of 2009. The reality of increasing water demand, however, is playing out now, below ground and between municipal governments.

But nearby suburbs are engaging in mild fisticuffs over who should pay for the costs of growth and the associated surge in thirst for water.

Imagine you struck a deal with someone 30 or so years ago to provide you with an essential service at a certain cost. But now he's on your doorstep, before the contract has expired, asking you to voluntarily start paying more because he cannot afford to continue providing you with this vital service unless he ups the price.

That's what is going on right now in neighboring suburbs.

Oak Lawn, which sells Lake Michigan water to 13 other nearby suburbs, is asking those suburbs to re-negotiate what they pay for water before the contracts that set those rates in place expire.

The reason: Oak Lawn says the current contracted rates do not allow it to recoup the cost of providing the water.

Oak Lawn's service to other communities was never designed to be a for-profit venture, but Oak Lawn does need to cover the costs it incurs in shipping water south and west.

The contracts go back, in some cases to the 1960s, and Oak Lawn's leaders say they are now outdated.

"The contracts did not account for $110 for a barrel of oil, or whatever we're up to now," said Larry Deetjen, Oak Lawn village administrator.

As proof, Oak Lawn has been brandishing a consulting firm's study of its rates and costs. The firm, Virchow Krause Co., was hired last year and presented its findings in November.

"The rates for the downstream users have to be changed," said Oak Lawn Mayor Dave Heilmann. "Because if they're not, Oak Lawn simply could not afford to continue supplying water."

Oak Lawn will run up a deficit of at least $1.8 million in its water fund within the next two years if the rates aren't raised, Heilmann said.

"We simply don't have the money and we cannot underwrite growth downstream," he said.

Upstream vs. Downstream; Old vs. Young

It's a popular sentiment. Many of the older, established municipalities that Oak Lawn supplies with water agree with Heilmann that one community should not have to pay for the growth of another.

But it's their contention that Oak Lawn is asking them to subsidize the growth of younger municipalities, like Mokena and New Lenox to the south and west, by imposing the higher rates.

"We'll help you, but we're not going to take the brunt of what's going west," said Dwight Welch, mayor of Country Club Hills. "We negotiated a rate and that's what our customers expect."

Mokena and New Lenox were added to Oak Lawn's distribution network in 2002, although they technically get their Lake Michigan water from Tinley Park, which buys it from Oak Lawn. Rapid growth is forecast for both communities, in particular for New Lenox.

When Mokena and New Lenox were added to the network, the older suburbs refused to pay for infrastructure improvements related to their inclusion. Some of them now think Oak Lawn is asking for more money because of the costs it took on with that expansion.

"[Oak Lawn has] come back and said, 'All these towns that didn't pay - we'll tack it on to your contract in 2011,'" said Steve Jones, city administrator for Oak Forest.

Oak Forest's contract with Oak Lawn is set to expire in 2011. Not only are officials unlikely to entertain a rate increase before then, Jones said, they also might not renew their contract.

In fact, they have hired an engineering firm to assess whether they should pay for laying pipes to nearby Alsip instead, Jones said. Alsip also sells Lake Michigan water to several suburbs.

"[The question is] are we better off having a little bit more control over our destiny. If Mokena and New Lenox double in the next few years, what's that going to do to us," Jones asked.

Oak Forest is not alone on this point.

"I've got two other [water] systems that are right next to us," Welch said. "There are three systems in the area that don't have to enforce water bans [in the summer]."

Since the new communities to the west were added to the water network, Welch said, the system has been overtaxed during the summer months, when water consumption is at its highest.

"I'm not going to pay beyond my contracted rate till 2024," Welch said. "And as far as improvements go, you're going to have to show me how it benefits my town." Country Club Hills' contract with Oak Lawn does not expire until 2024.

Palos Park, also an old-timer on the Oak Lawn water grid, has said it will not shoulder the costs of increasing water demand in other suburbs either.

When Oak Lawn released its study of rates and costs, Palos Park brought in its own consultants to analyze the results.

The review was in general positive, said Patricia Jones, village administrator for Palos Park. But, she said, her community should be looked at differently from others in Oak Lawn's network because they are not as far away and they are not growing at the same rate.

"The issue we pointed out was the difference between these three towns - Chicago Ridge, Palos Park and Palos Hills [from the others]," she said. "And we said, 'You cannot charge us for something we don't benefit from.'"

At issue in particular is a new booster pump that has been installed in Oak Forest to increase water flow to the west, where Mokena and New Lenox are located.

Some argue the booster pump will benefit everyone on the Oak Lawn tap.

The pump will get water flowing better everywhere, not just to the communities downstream from it, said Scott Niehaus, village administrator for Tinley Park. Since it will stem demands on the main pump, there will be less drag in all the pipes, he said.

Next summer will be the booster pump's first real test, but the question of benefit may not be settled even if it does its job well.

"The way it works right now is it's only paid for by those who benefit from it," Niehaus said. "We'll do recaptures as other towns' contracts expire."

So far only Tinley Park, Orland Park, Mokena and New Lenox have paid toward the pump, Niehaus said. But the cost of installation has run beyond the initial $4 million allotted for it by $1.6 million, he said.

By recaptures, Niehaus means balancing cost overruns from the booster's installation by negotiating new water rates with suburbs whose contracts are about to expire.

Proximity and perceptions of mismanagement

Although Palos Park has bucked at being charged for growth downstream, it will still enter into a new contract with Oak Lawn, Jones said. "We have found Oak Lawn to be very good to deal with through the years," she said.

Not everyone feels the sailing has always been so smooth, though.

"There was a day when it was difficult to get information out of Oak Lawn," said John Daly, village administrator for Orland Hills, another community that gets its water through Oak Lawn.

The flow of water information has improved as of late, though, he said. "Mayor Heilmann and Larry Deetjen have done a yeoman's job in attempting to improve communication and to try and justify the rates," Daly said.

"It's a challenge," Deetjen said. "We've been faulted for not having better communications and being proactive in our communities with our customers, and I think that is a fair criticism."

It's a criticism that Deetjen, who is new as Oak Lawn's village manager, said they are working hard to change. Heilmann also is relatively new to his office, having been elected in 2005.

But perceptions of mismanagement do not evaporate overnight.

In fact, Welch, the mayor of Country Club Hills, recently wrote an editorial for the Southtown Star calling on Oak Lawn to be more transparent about its plans.

Oak Lawn promised statistics on rates and usage by suburb for the reporting of this story but, despite persistent attempts to obtain them, they were never provided.

Some suburban officials, for example, are upset by exemptions other suburbs seem to receive.

Take Chicago Ridge, one of Oak Lawn's closest neighbors. Chicago Ridge has a contract, with a specified rate, with Oak Lawn but has not paid that rate for years. Oak Lawn officials confimed this; Chicago Ridge officials declined to comment.

"I shake my head and I say, 'And they wonder why they're in financial trouble,'" said Jones, Oak Forest's city administrator. He said he first heard about the issue about six months ago.

Chicago Ridge's city clerk, Charles Tokar, declined to comment, but Oak Lawn's Deetjen said Chicago Ridge's failure to pay the full rate has been going on for a few years.

He said he did not learn about it until last fall and that they've been trying to work it out ever since. "That's what good neighbors do; good neighbors work out problems," Deetjen said.

Others think it shows that Oak Lawn has not been running a tight enough ship as the area's water steward.

"The tone has changed with respect to Oak Lawn, but what was the mindset that let them slide for years and years and years," Jones said.

It's a lingering question that may affect Oak Lawn customers' willingness to voluntarily dive into new contracts with higher rates.

"We probably won't seriously entertain [a negotiated rate increase] until they've had a longer sustained period of good management," said Niehaus, village administrator for Tinley Park.

Suburbs that are closer to Oak Lawn, however, tend to feel differently about their communication with the municipality, if not about the prospect of rising rates.

"I've always had a very good relationship with Oak Lawn and the people who operate the system," said Dave Weakley, commissioner of public works for Palos Hills. "Our level of communication is just kind of innate."

Going forward?

Oak Lawn is in a challenging position.

It has to meet the demands of new water consumers while also sustaining the good will of older customers.

"I wouldn't want to be in Larry Deetjen's and Dave Heilmann's shoes in terms of what they've inherited," said Jones, Oak Forest's city administrator.

Beyond that, however, Oak Lawn also needs to find a way to cover the costs of creating redundancy in its aging water system, said Daly, Orland Hills' village administrator. The redundancy would ensure communities would have water in the event of a system failure.

Some redundancy does already exist, but it's not in the water pipes. It's in the studies of the pipes.

Oak Lawn's rate study last year led at least two other municipalities - Oak Forest and Palos Park - to commission studies. Meanwhile, a few years back, Country Club Hills hired an engineering firm to study water use in the Oak Lawn system.

The hiring of these firms requires money, regardless of whether it is balanced out by higher taxes or higher water rates.

"You know what's a big cost for water companies is consultants, especially engineers," said Jones of Palos Park. "The consumer price index for municipalities is very high."

The consultants may indeed be doing well. But all of this deal-making and deal-breaking could lead some of the suburbs elsewhere in their search for good water and good service.

"We might be part of the solution" said Jones of Oak Forest, "or we might be part of another system."

Communities make a mistake, one official said, if they think of the water issue suburb by suburb. Edward Paesel, director of the South Suburban Mayors and Managers Association, said it's a regional issue and that to solve the problems, suburbs have to network together on infrastructure redundancy.

"Redundancy is important so that you have a variety of [water] sources and a variety of ways [to get water], especially these days with terrorism," Paesel said.

To that end, the association, Paesel said, has been trying to find some funding for a study that would look at ways to create redundancy by tying together separate water distribution systems in the area.

So far they've had no luck with funding, though.

As Oak Lawn looks for ways to meet new demand and maintain existing infrastructure, it may also struggle with coming up with the necessary capital.

"It's got all these crazy individual contracts with individual towns," Jones said.

Add to that the fact that the contracts are set to expire at different times, from now until as far away as 2024, and the matter of spreading the burden of maintenance or improvements evenly is further complicated.

"It almost seems unfair," said Weakley of Palos Hills. "How is it that anyone could have the vision to see what the future should be?"

In fact, Deetjen said he just sent out a letter informing the suburbs served by Oak Lawn that a firm has been engaged to assess the health of the system's infrastructure.

"We want to have an outreach," Deetjen said. "Our goal is to have a world-class water system here and, to do that, we have to have everyone on board."