The Lake County Board of County Commissioners met in special session on Tuesday, May 31, 1994, at 10:00 a.m., in the Board of County Commissioner's Meeting Room, Lake County Administration Building, Tavares, Florida. Commissioners present at the meeting were: Catherine C. Hanson, Chairman; Welton C. Cadwell, Vice Chairman; G. Richard Swartz, Jr.; and Don Bailey. Commissioners not present at the meeting: Rhonda H. Gerber. Others present were: Barbara Lehman, Chief Deputy, Finance & Audit Department; Frank Gaylord, County Attorney; Peter F. Wahl, County Manager; Ava Kronz, BCC Office Manager; and Toni M. Riggs, Deputy Clerk.

Commr. Cadwell gave the invocation and led the Pledge of Allegiance.

Commr. Hanson announced that the main purpose of the special meeting was to discuss public/private partnerships.

APPOINTMENTS-RESIGNATIONS/COMMITTEES/ORDINANCES

Before the Board began its discussion on public/private partnerships, Mr. Pete Wahl, County, Manager, informed the Board that Mr. Bruce Duncan, Assistant County Attorney, and Chief Craig Haun, Fire and Emergency Services, were present, due to a situation that had occurred on Thursday where a child was bitten by an animal. Mr. Wahl stated that the Board had authorized the formation of the "Dangerous Animal Board of Appeals". He stated that Mr. Duncan was requesting that the Board initiate a temporary Board, until such time that the advertising can be done and a permanent Board can be put into place, so that the County can move forward with hearing any appeals related to dangerous animals.

On a motion by Commr. Swartz, seconded by Commr. Cadwell and carried unanimously, the Board approved to place the item being requested by Mr. Bruce Duncan, as stated above, on the agenda as an emergency item.

On a motion by Commr. Swartz, seconded by Commr. Bailey and carried unanimously, by a 4-0 vote, the Board approved for the following individuals to serve on the Temporary Animal Control Board of Appeals, as requested by Mr. Bruce Duncan, Assistant County Attorney:

District 1: Janine Peters

District 2: Richard Sturdivant

District 3: Marie Zaman

District 4: Jane Scovill

District 5: Lois Wilhelm

Commr. Gerber was not present for the discussion or the vote.

PRIVATE/PUBLIC PARTNERSHIPS

Mr. Pete Wahl, County Manager, explained that, in March, 1994, staff had brought to the Board a request from Greater Utilities to look at the potential of a public/private partnership. The Board directed staff to move forward and begin to explore that option. He stated that staff had indicated to the Board that, while staff could complete the process in a five to six month time frame, it felt it would be appropriate, rather than committing to an expensive expenditure, to bring back to the Board a recommendation at the end of May, or the first part of June, relative to whether or not this would be a beneficial activity for Lake County. Mr. Wahl stated that the Board had two items before it today. The first was a Memorandum of Understanding, which was not a final agreement, but lays out the parameters which the final agreement will be developed. At no point in the process, up to and including ten years out, under the proposed agreement, was the Board obligated to anything other than what was stated in the Memorandum of Understanding. The Memorandum of Understanding lays out the conditions with the anticipation that staff would be able to bring back to the Board for its consideration, a final agreement between 60-90 days from this date. Even though the final agreement would lay the parameters for the action of the Board, or the action of the County in the future, the Board would be agreeing to an option agreement that would give the County the right, at three different intervals, ten years, 13 years, and 16 years, to exercise an option to acquire that utility, if it seemed to be in the best interest of the County at that time. Mr. Wahl stated that he felt the County was moving forward with a positive recommendation based on the fact that within a public/private partnership there ought to be "wins" for everybody. He explained that Lake County would "win" with the agreement, because there would be no financial requirement up front, and it would give the Board the option, at specific points in time, of acquiring and entering into the operation and management of water and wastewater services in Lake County. The agreement would be a benefit to the utility, because of specific business benefits, which are to be expected, and the residents would benefit, because they would see a reduction in some of the charges that currently go into making up the rate structure for the utility as a private operation. Mr. Wahl stated that this would basically be in the gross tax applied to donated capital facilities in the form of lines when a developer joins that utility right now. The Memorandum of Understanding includes an encouragement for the utility, where practical, to use Industrial Development Bonds for tax refinancing.

Ms. Lavon Wisher, Public Financial Management, Inc. (PFM) and Financial Advisor to Lake County, appeared before the Board and presented a brief summary of PFM's Report: Lake Grove Utilities, Inc. - Public/Private Venture to Provide Water and Wastewater Facilities. Ms. Wisher explained that, when PFM received this assignment, it reviewed many documents to make its report and prepare the analysis. She stated that PFM reviewed the documents that are before the Public Service Commission, which has been the regulatory agent under which this utility has been operating, and its budgets and expenditures. In order to determine what would be best for Lake County, Ms. Wisher stated that PFM looked at four alternatives, as follows: 1) you leave the utility as it is; there is no participation by the County, and it would not enter into the Memorandum of Understanding; 2) whether or not it would benefit the County to enter into an agreement with a not-for-profit corporation, which PFM determined would be under the rules and regulations of the Internal Revenue Ruling 63-20, in which you have citizens that make up the Board for that purpose; they would own and operate the system; there would be a transfer of assets at that time; and they would enter into agreements with the developer for the purpose of construction, etc; 3) the benefits of the County owning the system and entering into other agreements for the purpose of this construction; and 4) had discussions with five of the insurance companies, because there was one called guaranteed risk.

Ms. Wisher stated that, through discussions and review with Lake Grove Utilities, Inc., it was determined that there are less than 200 existing connections at this time. Looking at the Cash Flow in 1994, there would be a negative cash flow from the standpoint of a governmental operation. She stated that PFM did not find any insurer that would be willing to insure this paper under a 63-20, and they would not insure this piece of paper under County ownership without the County assuming an additional risk, which means that, if the construction did not occur, there would be an underlying pledge either from a covenant, or another non ad valorem assessment, and the County would have to be willing to make the payments on the bond. Ms. Wisher stated that PFM did not feel, at this time, that it would be appropriate for the County to undertake that risk, both from the construction risk, and the interest that would have to be paid if there was not development as proposed. In reviewing the County's Comprehensive Land Use Plan, one of the goals in the area of water and wastewater was that the County would encourage other private ownerships.

Ms. Wisher stated that PFM looked at the benefits of the County getting into the public/private ownership and eliminating the risk and placing the risk with someone else, and yet have the benefit to the users of the system. In the Summary and Conclusions, on Page 11 of the Report, it indicated that, if the County entered into the agreement, it would have the benefit of the contributions of aid and construction from that point on that the County entered into the agreement, and the County would own title to both internal lines. In turn, the County would lease them to the developer for the use and delivery of their service to the customers. The benefit then to the County, at a given point, when it feels it would be advantageous, with the elimination of the construction risks and the elimination of the risk of the bonds, would be to have a system that could very well, not only pay the operation and maintenance expenses, but it could have a good cash flow that could be used for future capital expansion of the system to serve areas that are not presently within the service area, or through the cash flow, a benefit could be given to the users of the system. Ms. Wisher informed the Board that certain assumptions had to be made for the future, and PFM tried to be conservative, as to what would occur in the future. Therefore, the year 1998 was used, which was when Lake Groves Utilities, Inc. had projected that the capital expansion would occur. Ms. Wisher stated that the key issue in the Report, no matter what the debt capacity on that date would be, the Memorandum of Understanding guides and says that the County will pay no more in the placement of less depreciation.

Commr. Swartz addressed Tab III, the Thirty Year Debt Capacity In 2001, which indicated a Maximum Annual Debt Service in the amount of $747,912.50, with Funds Available for Payment in the amount of $7,453,273.86. He also addressed Tab II, which indicated a Utility Operating Income in the amount of $1,039,671.00 for the year 2001.

Ms. Wisher informed the Board that PFM projected 2,752 ERCs in the year 2001. The figures were projected by using historical figures, which indicated 178 for the year 1994. Ms. Wisher informed the Board that she would provide a schedule, which was furnished to PFM by Lake Grove Utilities, Inc., that gives the breakdown as to where they occur by development.

Commr. Swartz questioned whether Lake Grove Utilities, Inc. would still require backing of the County, or would the bonds be issued as investment grade without the backing of the County.

Ms. Wisher stated that, based on all of the analysis in the Report, including the year 2001, which has been modified, Lake Grove Utilities, Inc. would meet the intent of the cash flow to get an investment grade, and to get the paper insured.

Mr. Bill Sundstrom, Rose, Sundstrom and Bentley, P.A., appeared before the Board and gave a brief overview of the Memorandum of Understanding. He addressed the objectives that were established for each side of the issue, which were used to develop the Memorandum of Understanding. At this time, Mr. Sundstrom answered questions of the Board.

Ms. Wisher clarified that PFM used the historical year before on the basis to develop the debt capacity shown in Appendix A, Tab II.

Commr. Swartz questioned Page 3 of the proposed Memorandum of Understanding, which indicated that the "County shall provide a competent Operator to operate and maintain such facilities for as long as the private/public partnership referenced herein shall exist."

Mr. Sundstrom explained that the central components will be operated by the utility, and the utility will have the Department of Environmental Protection (DEP) operating permit. He stated that there has to be a mechanism to insure that the lines in the ground are repaired, and it envisions a five year management contract back to the utility to perform that function, with the right to extend.

Commr. Swartz questioned Section 2. Timetable, on Page 3 of the Memorandum of Understanding and the execution date of August 31, 1994.

Mr. Sundstrom explained that there was no other significance to the August 31 date other than to keep Lake Groves Utilities, Inc. from delaying taking action on the proposal.

Commr. Swartz discussed whether there was any other way for the County to ensure the quality of infrastructure.

Mr. Sundstrom stated that the County could promulgate an ordinance containing regional development standards.

Commr. Swartz questioned the status of the County adopting the utility construction specification standards that were provided by PBS&J at least one year ago.

Mr. Wahl explained that Mr. Jim Barker, Director of Environmental Management, has forwarded the standards to each of the utility providers in the County and received comment back, and has had discussions with them.

Mr. Barker stated that the standards have been promulgated, and they need to be brought back to the Board for approval. He estimated a 30 day time frame.

Mr. Mark Walsh, PBS&J, addressed the Board and explained that the standards were provided to the County, as part of its contractual agreement with PBS&J, at the same time that the first master plan was presented, which was in 1992.

It was noted that the standards were reviewed and passed around to the municipal users and others in the industry in 1992, and they are being passed around again.

Mr. Sundstrom explained the issue of condemnation, and the standards used in determining the value of the utility. He made reference to court cases currently going on in St. Lucie County and Charlotte County, where the County was arguing that the value of the utility should be something less than the replacement costs, and developer contributions should not figure into the valuation of the asset.

Mr. Walsh, PBS&J, appeared before the Board and explained that, in 1998, Lake Groves Utilities, Inc. would be adding water and wastewater facilities, in terms of wells and wastewater provisions to the plant. He explained what currently exists at the plant.

Ms. Wisher explained that there will be four pieces of capital improvements that would be done within the 15 year period, in 1994, 1995, 1998 and 1999, and that two others were projected within the 15 year period. It was noted that Lake Groves Utilities, Inc. had provided PFM and PBS&J with a schedule of the projects.

Mr. Walsh noted that PBS&J had evaluated the operating expenses in PFM's Report. He stated that the Report involved a one year history, and he would have had a much better comfort level with a five year history. The projection was based on "rules of thumb" for these types of expenses. Mr. Walsh explained some of those expenses at this time.

Commr. Swartz questioned when, by using the utility operating income date, would be the time that it would be most advantageous for the County to acquire the facility, if it was going to acquire it.

Mr. Walsh stated that the time would be when the County starts achieving a positive cash flow that allows the County to sell bonds with enough coverage that makes the insurers and other agencies comfortable. He stated that, with the projection, it also reflects that the coverage level of revenues would be on an upward swing, which would be the time to do it.

Ms. Wisher directed the Board's attention to Appendix A and stated that, from a historical basis for the year before, this would be the net cash flow on an annual basis. If you consider Lake Grove's future expansion, they are doing their pertinent expansion, which will yield one million gallons per day, in the years 1996, 1997, 1999, and 2001. In 1999, you begin to see sufficient cash flow that might be able to start amortizing the capital that they have expended. She stated that basically the cash flow would not be in a real good positive position until about the year 2001.

Ms. Wisher explained that, when PFM was considering 63-20, Lake Grove Utilities, Inc. had given them what the cost of the plant had involved, plus their losses to date. They had given them a schedule of not only the contribution of assets, but also the amounts of capital that would be ongoing. She further explained that, when PFM began talking with the insurers, from their standpoint of letting them have a return of the capital (only considering cash flow), it was 1998. She stated that she was trying to give the Board a measure of when the cash flow becomes positive and the utility can have a return upon their investment.

Commr. Swartz stated that the report indicates, in the 2001 scenario, which is not the first option date, if there was a required debt service, even at that time, of approximately three quarters of a million dollars based on a payment of approximately $7,500,000, but in 1997, with the report showing over $300,000.00 available for debt service assuming other things, it might be very likely that an earlier buy out would be much more advantageous to the County, with less costs than at a later date.

Ms. Wisher stated that PFM believes that the time for the County to acquire the utility would be around 1998. It was noted that the County's first option would be 2004, which Ms. Wisher explained was a negotiated option date between the County and the developers.

Commr. Swartz understood that 1998 would be a date that the County might want to consider as a good date for the County, and perhaps for the rate payers.

Ms. Wisher stated that, in 1998, based on the information that PFM has received, the County could assume the debt with no risk.

By waiting until 2004, the construction risk remains with the developer; their development agreements are then adhered to; the County does not have to assume those agreements; and the County does not regulate it and see that they are in place.

Mr. Sundstrom discussed what would happen if the County postponed taking ownership until 2004, or some other time, and stated that the capital requirements of the utility around that period are important to the development of the utility, and with the 2004 option date, the utility retains those capital obligations, with monies having to be spent by the owner at that time. He stated that the original drafts of these documents had earlier year option dates, and the utility flatly said "no" to an earlier option. Mr. Sundstrom explained that the developers want to control the utility build out of the projects, which was a ten year window. He stated that the figures clearly indicate that the longer it goes, the more it is going to cost; however, the cost per dwelling unit comes down, because you achieve economies of scale. He explained that utilities involve an extremely large capital and operating cost per unit in the early years, and as they get bigger the cost for service goes down and the capital costs go down. He stated that the optimum purchase date for this utility would probably be 2001, but 2004 was simply the best date he could bring to the Board.

Commr. Bailey questioned whether it was the assumption that the County was going to eventually buy the utility.

Commr. Swartz questioned why, if this was not a strong possibility or consideration from the Board, would the Board be considering it.

Commr. Hanson and Commr. Bailey felt that the issue remains an option to the Board, not a commitment.

Commr. Swartz stated that it was clear to him why the owner of the utility was pursuing the agreement, to avoid the tax liability contributed to the lines, etc., and as to the date they would allow the County to buy the utility, it is to them an optimum date to allow such an acquisition. He stated that, if he were to enter into an agreement, it should have something in it that provides the County the ability to buy at a date that was a more optimum date to the County than just to the utility. Commr. Swartz stated that he found in reading the recitations in the Memorandum, it talks about trying to avoid the proliferation of wastewater plants, and that is true, but actually the County would be getting into a system of a package plant, and adding onto the package plant, which would be inconsistent. Then some time in the future, maybe 2004, the County would acquire a package plant, at a fairly significant cost, when it might have been better to put in the ground a non-package plant. He stated that, if the Board was moving forward with this issue, it better be with the intent of buying, because there was no other reason for the County to get into it.

Commr. Hanson stated that the agreement makes it easier for the system to go into place.

Commr. Swartz stated that the agreement did not make it easier, but only saves the utility tax dollars in the early years.

It was noted that Mr. Bob Mandell, Lake Groves Utilities, Inc, was present in the audience and available to answer questions of the Board.

Commr. Cadwell stated that, after consulting with Mr. Wahl and reviewing the Report, he determined that the County was not ready to get into the utility business, but if it decided at some point that it did want to get into the business, there would be a formula in place for the costs. He stated that Mr. Mandell would benefit from a public/private partnership, and the County and the taxpayers would benefit. He further stated that the County does not have money to get into the business themselves, therefore, this would be the best option for the County. Commr. Cadwell felt that the development trends would stay the same in this area and the utility will thrive, and at some point, the County may want to get into the business. He stated that he agrees with Commr. Swartz that the County does want to get into the business at some point, and this would give the County the vehicle to do so.

Commr. Bailey questioned whether the agreement would infringe on any of the City of Clermont's service area.

Mr. Wahl explained that he met with the representatives from the City of Clermont and talked specifically about its service area, and there would be no conflict between the parties involved with the agreement.

Commr. Cadwell discussed the buy out times and stated that this was an agreement that has been developed by all parties, and has been balanced between all parties and would benefit everyone involved.

Commr. Hanson stated that this would be a "win-win" situation for all involved. The County has no up front costs, and it is planning that would work well into the County's Comprehensive Plan. The County would have the oversight of the utility, and the utility would have to take care of the day to day operations, and there would be no requirement for purchase. It was an option and there was a very good likelihood that in ten years the County would be in the utility business, but the County was not ready today. She stated that the County does not have the risk up front by doing it this way.

Mr. Wahl stated that Commr. Gerber had requested, prior to leaving, that staff contact DEP and the Florida Public Service Commission to inquire as to complaints. There were a couple of minor complaints over the last several years, some of which were found to be unjustified, or had been resolved. He noted that DEP has had no complaints at all about Sanlando Utilities within the last year, which is an operation of Lake Grove Utilities, Inc. in Seminole County. Mr. Wahl stated that the Board needed to approve the Memorandum of Understanding, and to direct staff to continue working with the consultants to bring back a final agreement on or before August 31, 1994.

Commr. Cadwell made a motion, which was seconded by Commr. Bailey, to approve the Memorandum of Understanding, and to direct staff to continue working with the consultants to bring back a final agreement on or before August 31, 1994.

Under discussion, Commr. Swartz made several points as to the discussion on the issue. He stated that, to move the agreement the way it was being done, and as quickly as possible setting a deadline of August 31, 1994, was reminiscent of another agreement that was rushed through, and if for no other reason, he would not take part in it. He stated that he would be comfortable with getting the Board to sit down and decide whether or not it wanted to be in the utility business and how it wanted to be in the utility business. He stated that it was clear that there was confusion as to whether or not the Board wanted to be in the business and under what circumstances, and to put the County under a contractual deadline by approving the August 31, 1994 deadline, was to put the County under an arbitrary timetable that was not necessary. He would much rather see the Board put together a group, which may include the Commission, or others, to look at whether or not Lake County was going to get into the utility business, and not try and do something in 60 days. He stated that this agreement smacks the same type of pressure and the same type of rush and deal that existed with the incinerator. Commr. Swartz stated that the date of August 31, 1994 was one that ought to raise some concern among the Board. He would be far more comfortable with the Board deciding what it wanted to do, because confusion has been expressed among the Board members.

Commr. Bailey stated that he was free enterprise oriented, and he would like to see the private sector of the business do what it can. He stated that this Board could not continue to wait to see what future Boards would do. This Board provides the option to move forward, and if other Boards want to continue to move the process along, and one day eventually buy the system, that would be fine.

Commr. Swartz stressed that the County would have to buy the utility under the terms that this Board signs.

Commr. Hanson stated that the benefit of the private/public partnership was to allow you not to get completely into the utility business. It was a gradual step, and the Board has made a decision to go forward.

Commr. Swartz stated that a couple of years ago the County had the opportunity to plan for utilities in that area, and to put in the ground utilities, not more package plants, and this opportunity was bypassed by the Board. Two years have gone by and the County has yet adopted standards for water and wastewater infrastructure. Commr. Swartz addressed the purchase option, which would be available in the years 2004, 2007, and 2010. The County's consultants have told the Board that it was clear that somewhere between 1998 and 2001, from a cost point of view, the best times for the County to acquire this utility. He was concerned with the County entering into an agreement that does not optimize, and would cost the County and the ultimate users more for the system. He further addressed his concern for the option price, which was based on the debt capacity method. Commr. Swartz addressed Page 9 of the Memorandum of Understanding, Section 14. Right of First Refusal, and stated that, if somebody comes along and offers to buy the facility, it forces the County to make a decision and make a decision within ninety (90) days and to close on the acquisition within 120 days. He then addressed Page 11, Section 17. Tax Ruling, which indicates that, in the event the utility receives an adverse private ruling letter from the Internal Revenue Service, the whole agreement shall terminate. He suggested that, if the Board was really interested and knows what it wants to do, the County would structure an agreement that was very clear as to what time the County would take over the facility; it would be at a time that would be advantageous to the County; reasonably advantageous to the utility, although the ability to avoid the income that would be derived from the donated infrastructure would be a benefit to the utility, if it was based on a time frame that was reasonably optimal for the County.

Commr. Hanson questioned whether Commr. Swartz was suggesting that the option portion be removed from the agreement and the agreement be made into a contract.

Commr. Swartz responded "no" to Commr. Hanson's question and explained that he was suggesting that the first date that the County should have the option to buy the utility ought to be a date that was a lot more optimal for the County than just what was optimal for the utility. He stated that he has been saying for the past six years that he has no fear of getting into the utility business, while previous Boards have vacillated back and forth over the issue.

Ms. Hope Lamb appeared before the Board and requested information regarding the consultants, their recommendations, and who was responsible for their fees.

Mr. Wahl explained the process used by the County to hire consultants and how the budget was established for their services.

Commr. Cadwell stated that, in regards to the agreement presented, the Board should continue to move forward.

The Chairman called for a vote on the motion, which was carried by a 3-1 vote. Commr. Swartz voted "no", and Commr. Gerber was not present for the discussion or vote.

It was noted that Mr. Barker would bring back to the Board within 30 days the criteria for the standards, as discussed.

UPDATE ON CONDITIONS AT CRIMINAL JUSTICE FACILITY

Mr. Pete Wahl, County Manager, stated that Mr. Mike Anderson, Director of Facilities and Capital Improvements, had prepared a summary pertaining to the leaks that have been a problem at the Criminal Justice Facility.

Mr. Anderson appeared before the Board and explained the leaks and water intrusion that have occurred over the last year and a half at the Criminal Justice Facility. The contractors have been paid for their completed work, and now the Construction Manager and the Architect have been working on the problems at their expense. Mr. Anderson explained the location of the leaks and intrusion in the facility and stated that 17 locations have been identified. Mr. Anderson stated that, after a year and a half, staff has requested Barton Malow and Hellmuth, Obata & Kassabaum (HOK) to get together and join forces to try and find the source of the leaks, and to come up with a solution. As a result of the testing, which took place during the months of April and May, a pattern was revealed as a result of the tests. Mr. Anderson explained the conditions to the Board, and explained the suggestions that have been made to resolve the problems. He stated that the majority of the problems can be resolved, with the major problem being the Exterior Insulation Finishing System (EIFS), which is the "exterior skin" of the building. He discussed the suggestions that have been made to approach the major problem. Additional lab tests are being run, and once the results are known, a solution would be determined to handle the problem. Mr. Anderson stated that the air quality has been monitored, and there was no indication that there was any kind of airborne mole or bacteria. He stated that the problems that Lake County was experiencing are the same water intrusion problems experienced in Polk County, but that was where the likeness stops, because the design of the building and the use of the materials in the building are completely different than what was used on the building in Polk County. Mr. Anderson stated that Lake County was not experiencing chronic problems, and the costs are being borne by the contractors, and the County was not paying for any of the testing or repair work. To the credit of both Barton Malow and HOK, Mr. Anderson stated that he has been very impressed with the fact that they have taken full responsibility for the issue, and have apologized for the inconvenience. He further stated that it would probably take most of the summer for the problems to be resolved. Mr. Anderson stated that he was very much satisfied with the cooperation he was receiving.

Commr. Bailey discussed the time period in which HOK was hired by the Board. He requested that staff be directed to give the Board a monthly update of this issue.

Mr. Anderson stated that he is receiving weekly reports and he would send Mr. Wahl copies of the reports.

Commr. Swartz stated that Mr. Anderson has informed the Board that there are a number of solutions to the major problems, and as the Board is provided with the updates, and prior to entering into any agreement with Barton Malow, or the architect and/or the subcontractor, that it be brought back to the Board, so that it knows what is being approved as a solution. He stated that it is important that the solution is for the long term maintenance and operation of the building, and not because it is a lower cost option for any of those parties that are responsible.

There being no further business to be brought to the attention of the Board, the meeting was adjourned at 11:45 a.m.

CATHERINE C. HANSON, CHAIRMAN

ATTEST:

JAMES C. WATKINS, CLERK

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