Water supply task force January 28, 2o16

1. Water supply task force January 28, 2o16

2. TODAY’S PANEL • Russ W. Prekwas, PE Robinson Engineering, Ltd. • Aaron E. Fundich, PE Robinson Engineering, Ltd. • Robert J. SchillerstromIce Miller, LLP • James Snyder Ice Miller, LLP • Dan Donahue JDSS, LLC

3. Presentation overview • SSJAWA Concept Plan • Project Implementation Plan • JAWA Formation as Legal Entity • Required Member Commitments • Financing / Bonding Considerations • SSJAWA Takeways

4. CHICAGO RATE HISTORY • As recently as 2006, Chicago wholesale rate was $1.33/1,000 gal • Double-digit annual increases in 2007-09, and again in 2012-15, nearly tripled the rate over past decade to $3.82/1,000 gal in 2015 • Rate increases prompted formation of the SSJAWA in 2011, and this SSMMA Task Force in 2015 • From 1980-2015, Chicago wholesale water rate increased an average of 6% annually. For 35 years.

5. SSJAWA CONCEPT PLAN • Construction of independent water system from Lake Michigan to south suburbs • New Lake Michigan intake structure in Hammond • Raw water pump station & transmission to Illinois • New water treatment facility in Illinois • Finished water transmission system to towns • Independent system controlled by SSJAWA • Rates independent of Chicago & Hammond • SSJAWA legally formed in 2011-12 by seven south suburban municipalities • Member Communities / Water Usage • Project Elements / Costs • Project Implementation Plan • Hammond Deal Structure • Projected User Rates

6. 15 Towns, Total Average Usage: ~22 MGD SSJAWA CONCEPT PLAN • Village of Alsip • City of Blue Island • Village of Calumet Park • City of Harvey • City of Markham • Village of Midlothian • Village of Robbins Serves Homewood, Flossmoor, Hazel Crest, East Hazel Crest, Dixmoor & Posen Serves Palos Heights & Crestwood

7. april 2014 AMENDED JAN 2016 FOR SSMMA TO DEMONSTRATE EXAMPLE OF A JAWA OPTION FOR REGIONAL WATER SUPPLY

8. Presentation topics • Expected Member Benefits • Hammond Water Supply Agreement • Project Delivery Plan • Short-Term Financing • Milestones Critical to Agency Continuation • SSJAWA Status 2013-14

9. EXPECTED Member benefits • Complete independence from water sources controlled by others • Water rate equal or less than Chicago rate in Year 1 • Water rate at end of financing term (Year 34) projected to be less than half of Illinois customers of Chicago or Hammond* • Economic development advantages for Southland communities * Presuming future Chicago increases of 3% annually (half of annual rate since 1980)

10. EXPECTED Member benefits

11. EXPECTED Member benefits What does this mean to average customer? EXAMPLE: Savings for typical family using 8,000 gal/month If Chicago increases 5% annually

12. EXPECTED Member benefits $6.22 $3.25

13. Ssjawa TIMELINE

15. Hammond water agreement • Long negotiation process [2013-14] • SSJAWA to own all infrastructure in perpetuity • For negotiated Transfer Fee, Hammond to allow SSJAWA access to Lake, City rights-of-way, waive permit fees and assist in all SSJAWA efforts to complete project Year 11 $0.33 CPI Year 33 $0.46 200% Year 34 $0.92 CPI Year 43 $1.06 125% Year 44 $1.32 CPI Year 53 $1.52 125% Year 54 $1.90

16. Member benefits Hammond pre-paid first 10 years Hammond Fee +200% +125% +125% $6.22 $3.25

17. Hammond water agreement • Upon agreement execution, Hammond prohibited from negotiating with SSJAWA Members or Customers for 24 months • Critical for SSJAWA to secure project financing • Hammond non-compete becomes moot when long-term supply contracts executed by members and customers • SSJAWA remits $1 million Cooperation Fee within 60 days of agreement date (non-refundable)

18. Hammond water agreement • Similar ‘non-compete’ provision exists for SSJAWA with existing Hammond customers

19. Hammond water agreement • SSJAWA expandable to other [non-Hammond water] area communities as customers • Upon agreement approval, time is of the essence to secure construction funding • First 10 years of $0.33/1000 gallon transfer fee due 15 months after agreement execution ($15,000,000) • Three 1-month extensions available @ $60K/mo. • Must proceed with engineering, land acquisition, water supply agreements & obtain construction bids ASAP

20. Project DELIVERY • Hammond agreement sets schedule for project financing to occur within 15-18 months • Major bond issue planned Fall 2015 • IEPA has indicated potential for low interest loan funds for Illinois portion of project • Likely a multi-year loan beginning in 2016 • To meet Hammond agreement timeframe, work needs to begin immediately • Engineering contracts for consideration next month

21. Project schedule 60 DAYS BOND RE-FI PROPERTY OPTIONS MARINE GEOTECH WATER SUPPLY AGREEMENTS

22. project delivery Estimated Construction Cost: $300,000,000 \2016 IEPA Low Interest Loan Fall 2015 Bond Issue 60 MGD Peak Flow Capacity

23. Project delivery • Numerous alternative delivery methods exist, including but not limited to: • Design – Build (DB) • Design – Build – Operate – Maintain (DBOM) • Construction Manager at Risk (CMAR) • Integrated Project Delivery (IPD) • Detailed discussion of delivery options reserved for future meeting

25. SSJAWA STATUS 2013-14 • Initial soil borings and very preliminary engineering studies began per initial program approach in Jan 2013; suspended March 2013. • SSJAWA updated professional team Dec. 2013; improved project delivery approach delivered April ‘14 • Design & bidding for Marine Geotechnical investigations occurred April/May 2014 • Bids received late May 2014; low bid within budget, but contract never awarded due to other issues • SSJAWA short-term financing fell apart August 2014 • SSJAWA Board hasn’t formally convened since

26. JAWA LEGAL ISSUES • Establishment under Intergovernmental Cooperation Act • Drafting and Negotiation of Intergovernmental Agreement among Agency and Members • Political Factors • Member Commitment

27. JAWA LEGAL ISSUES • Agency Leadership • Indiana/Interstate Legal Issues • Discussions with Illinois and Indiana Departments of Natural Resources and the Great Lakes Commission. • DuPage Water Commission and South Suburban Joint Action Water Agency Examples

28. JAWA Financing • Bonds issued by a Joint Action Water Agency are attractive to investors. • Water revenue bonds have lien on water revenues (favorable in post-Detroit bankruptcy era). • Each member of JAWA agrees to purchase from JAWA water requirements of its customers. • Obligation of JAWA member under water supply contract are revenue obligations, with a claim for payment limited to members of municipal water systems.

29. JAWA Financing • Other requirements: • Debt Service Reserve Fund • Rate Covenant • Member Default Coverage • Construction Risk and Operation Risk • Bondholders want to know project will be built and operated so sufficient water revenues collected.

30. JAWA Financing • Financing of Upfront Organization, Engineering and Initial Costs • Need financial commitment of Members • Agreement to Fund • Small Bond Issue supported by General Obligation of Members • South Suburban JAWA issued low floater bonds of $5,500,000 supported by bank letter of credit backed by general obligation of Member. • Low Interest • Efficient short term • Pre-payable at anytime

31. SSJAWA TAKEAWAYS • A JAWA is the only feasible mechanism for south suburban communities to control their own destiny with respect to future water costs • The SSJAWA project is technically and financially viable, and a potential economic development driver for south suburban communities • The SSJAWA project was politically viable with the City of Hammond, with agreement framework in place for a 60-year period. This remained true as recently as May 2015. • The SSJAWA project failed due to ill-advised early planning, timing of short-term financing prior to source agreement, financial issues with its largest member, and political changes within its Member communities

32. SSJAWA TAKEAWAYS • Establishing a JAWA is lengthy and expensive. It takes several years to actually get water through the spigot. • Long-term member commitment is essential • Water supply contracts must be executed prior to project design and financing • A JAWA requires considerable planning, legal, financial and engineering professional services at the onset. • Sufficient short-term financing is necessary • And then, hundreds of millions to construct. • A successful JAWA would require strong, effective leadership transcending 4-year election cycles • Regionally and within member communities

34. Water supply task force January 28, 2o16