The LITH Sanitary District Consolidation Report by Village Staff

Some have expressed interest in the cost-benefit study regarding the Lake in the Hills Village Board’s assuming control over the LITH Sanitary District conducted by Lake in the Hills.

It is difficult to find on the village web site, so it published below with thanks to the staffer who pointed me to it:

INFORMATIONAL MEMORANDUM

MEETING DATE: February 21, 2017

DEPARTMENT: Village Administrator’s Office

SUBJECT: Consolidation of the Lake in the Hills Sanitary District

EXECUTIVE SUMMARY

At the February 9, 2017 Village Board meeting the Village President proposed the dissolution of the Lake in the Hills Sanitary District (District) and presented several advantages in the consolidation of the District including reduction of expenses, increasing efficiencies, and eliminating the District’s current property tax levy.

The Village Board then deliberated on the subject matter.

The Village Administrator indicated that staff would be presenting its findings to the Village Board at a future Committee of the Whole meeting (COTW).

Therefore, staff has presented the attached staff report demonstrating its findings, demonstrated benefits of consolidation, financial and operational impacts, and the proposed consolidation process timeline.

The Village Administrator will present this information to the Village Board at the February 21, 2017 COTW meeting.

FINANCIAL IMPACT

None.

ATTACHMENTS

1. Staff Report from the Village Administrator Pertaining to Consolidation of the Lake in the Hills Sanitary District.

SUGGESTED DIRECTION

Authorize staff to prepare an Intergovernmental Agreement with the City of Crystal Lake, the Village of Huntley, and McHenry County, and prepare the requisite Resolution for consolidation of the Lake in the Hills Sanitary District all for consideration at the March 23, 2017 Village Board meeting.

Staff Report

TO: President Mulcahy and Board of Trustees

FROM: Douglas J. Petroshius, Village Administrator

DATE: February 17, 2017

SUBJECT: Consolidation of the Lake in the Hills Sanitary District

In 1963 the Lake in the Hills Sanitary District (District) was established to provide wastewater collection and treatment services to properties in southeastern McHenry County (County).

At the time of the District’s creation the Village of Lake in the Hills (Village) consisted of 246 people according to the 1960 census.

Although the District included the Village’s name, the District spanned a large area of unincorporated properties.

Over time, the Village expanded its corporate limits through annexation thus incorporating virtually all of the properties currently served by the District.

Staff estimates the District maintains the following accounts in the following areas:

 729 accounts in Crystal Lake in the approximate area of Alexandra Boulevard, Randall Road, Miller Road, and Swanson Road

 510 accounts in Huntley in the approximate area of Haligus Road, Lakewood Road, Reed Road, and Miller Road

 9,406 accounts within the Lake in the Hills corporate limits

Although the District has the ability to levy property taxes and adopt Ordinances, the District is not a conventional unit of local government.

Instead of being governed by three trustees elected at large by residents, the District is governed by a board comprised of three trustees appointed by the County for three-year terms.

According to the April 30, 2016 District Comprehensive Annual Financial Report, the District had eight full-time and nine part-time employees and an annual budget of $4.3 million dollars along with debt obligations and established reserves.

Further, the District levies approximately $600,000 in property taxes with the remaining revenues deriving from a flat sewer charge to all properties in the District.

District Dissolution

The State of Illinois contains approximately 7,000 units of local government which is more than any other state in the United States.

In January 2015, the Illinois Lieutenant Governor led a Task Force on Local Government Consolidation and Unfunded Mandates.

The Task Force produced a report in December 2015 with recommendations to reduce the number of local governments through the process of consolidation and eliminating unnecessary state mandates with the goal of reducing the property tax burden for Illinois taxpayers.

In August 2016, the Illinois Compiled Statues were revised to allow county government to dissolve certain units of government under their authority through a new streamlined process, including sanitary districts.

If a county proceeds with the new process, the unit of local government is permanently dissolved and all Chapter 11 is used in business reorganization responsibilities, monies, and operational responsibilities are transferred to the respective county initiating the dissolution.

Village Consolidation of the District

In December 2016 and at the direction of the Village President, a staff team consisting of the Village Administrator, Assistant Village Administrator, Public Works Director, and Finance Director researched the possibility of consolidating the District into the Village through the new process of dissolution created by the State.

This new law contemplates a process by which the County is able to dissolve and assume all authority and responsibility of the District.

Staff contacted the County’s leadership who indicates that the County has no interest in assuming such responsibility but offers to administer the District dissolution process defined in the law and enter into an intergovernmental agreement (IGA) among

  • the County
  • the Village of Lake in the Hills
  • the Village of Huntley, and
  • the City of Crystal Lake

where the County would transfer all responsibilities of the District to the Village of Lake in the Hills.

Through the IGA the Village would serve the respective residents of Crystal Lake and Huntley that are currently served by the District.

The Village desires to create an IGA that is amenable to all parties involved.

District Consolidation Timeline

Below is the proposed timeline for consolidation of the District which is estimated to be a six to seven month process.

This includes Village Board consideration, consideration of the IGA by Crystal Lake, Huntley, and the County, County consideration and public hearing processes, and State-required hearing processes.

Staff outlined the following tentative 2017 schedule for District consolidation into the Village, assuming the Village intends to proceed in the near term:

 February 22 – March 16 – Village of Lake in the Hills coordinates with Crystal Lake, Huntley, and McHenry County to Develop IGA

 March 23 – Village of Lake in the Hills, Crystal Lake, and Huntley adopts IGA and Resolution requesting District consolidation

o due to County March 30

 March 30 – County creates Ordinance of Dissolution of Lake in the Hills Sanitary District

(Ordinance)

 April 3 – County Ordinance reviewed by Law and Government Committee

 April 18 – County Board Meeting, 30 Day Review Period begins

o Notice of Ordinance published in newspaper and County website

o Open House is scheduled and announced to receive public input on consolidation

 April 18 – County commences with audit of District per State Law

 April 18 – IGA must be provided to County

 May 16 – October 13 – 150 day dissolution process

 May 16 – June 16 – Optional referendum can be requested

 June 16 – October 12 – County must appoint State-required “Trustee of Dissolution” during this time

o Trustee of Dissolution is a State-required position who is compensated and provided with sole responsibility of the District

 October 13 – District is consolidated into Village through IGA adopted by Village, County, Huntley, and Crystal Lake

It is important to note that work will be performed in advance of the deadlines outlined above (i.e. County will have prepared Ordinance of dissolution for Village review prior to March 30).

Financial Impact

The District receives revenue from two sources: property taxes and user fees.

The majority of the revenue is received from fees. The property tax revenue funds, general expenditures, pension costs, audit costs, public liability insurance, and similar expenses.

Fee revenue is deposited into an enterprise fund which accounts for the District’s “business” operations of the sanitary sewer system and pays the majority of costs related to operations, maintenance, personnel, capital assets, and debt service.

Staff has identified the following expenses to be eliminated as a result of District consolidation into the Village:

Expense Potential Savings

  • Personnel $258,000
  • Administrative $100,000
  • Contractual Services $10,000
  • Operating and Maintenance of Plant $28,500
  • Total $396,500

 Personnel savings would be realized through a reduction of salaries, taxes, insurance and pension costs

o These costs are currently funded through the District’s property tax levy

 Contractual Services savings would be realized through a reduction of the annual auditing expense

o This cost is also funded through the District’s property tax levy

o The Village would incorporate this operation into its annual audit contract at a lower fee than the District experiences through a separate audit contract

 Administrative savings would be realized primarily through a reduction of postage and billing and collection expenses

o These costs are currently funded through user fees paid by customers located within the District

o The Village would realize postage and printing savings by adding the sewer charge on its existing bills that are mailed

o Additional Administrative savings would be realized through efficiencies from the Village administering:

 office supplies, equipment, community affairs, membership and dues, treasurer’s bond, and professional services

 Operating and Maintenance of Plant savings would be realized through a reduction of emergency communications and building and ground upkeep expenses

o The Village would leverage its contract with SEECOM to provide after-hours emergency dispatching services

o The Village would also reduce the amount currently charged to the District for garbage collection services through the established Village contract

In addition to operational cost savings, District customers would receive savings through the elimination of the current District property tax levy of nearly $600,000.

Assuming a property is valued at $200,000, this would result in approximately 1% ($56) being eliminated from the property tax bill.

The Village would rely on user fees charged on the sewer bill to fund operations of the sewer system. These fees would be substantiated by conducting rate studies in the future. Until such time, staff recommends maintaining the District’s current flat sewer fee to ensure adequate revenue is received.

Consolidation would also allow for the Village to exercise its home-rule authority to refinance the District’s 2008 debt certificates, which carry higher interest rates, to general obligation bonds.

It is estimated that refinancing would yield $70,000 in savings due to the lower interest rates of the general obligation bonds.

Finally, the Village’s auditor recommends creating a new enterprise fund known as the Sanitary Fund which would operate using the same accounting methods the Village uses for its other enterprise funds (Water Fund and Airport Fund) where the fee revenue is used to pay for the expenses to provide the service.

These costs will be contained in Sanitary Fund and not be transferred to other Village funds for non-sanitary related purposes.

Proposed Operating Structure

According to what information the Village has available, the District employs eight full time and nine part-time employees.

Staff anticipates that no part-time staff will be required to operate the sanitary system.

Further, the Village of Algonquin operates a comparable sized sanitary system that staff has reviewed for comparison purposes. The proposed operating structure for the Village sanitary system closely mirrors the Algonquin structure which is a function of their Public Works Department, Utilities Division.

Therefore, staff recommends hiring seven full-time staff to provide sanitary system services thus creating the following new union positions that will report to the Village’s existing Water Superintendent:

 One Full Time – Wastewater Operator 2

 Two Full Time – Wastewater Operator 1

 One Full Time – Laboratory Technician

 One Full Time – General Utility Worker 2

 Two Full Time – General Utility Worker 1

Further, the Village of Algonquin Public Works Department has offered to assist the Village
with the transition in establishing a sanitary division.

The Village may hire existing District staff in order to retain institutional knowledge of the sanitary system. All other employees of the District would be laid-off.

It is unclear at this time whether this is a responsibility of the Village or the County.

Preliminary discussions with the County imply that the County would receive direction from the Village pertaining to such matters.

Benefits of Consolidation

Should the County dissolve the District and enter into an IGA of consolidation with the Village and the City of Crystal Lake and the Village of Huntley, staff identified the following benefits could be realized:

 Consolidation of government

o Customers receive one bill for water and sanitary instead of two bills

 For Lake in the Hills customers only

 Huntley and Crystal Lake customers to receive a sanitary bill from Village of Lake in the Hills and a water bill from their respective municipalities

o Less coordination required for developers connecting to the system

o Increased transparency

o Elimination of duplicity resulting from multiple financial and administrative staff and equipment purchases

 Elimination of a property tax levy

 Future cost containment

 Village provides enhanced debt collection

It is important to note that the purpose of consolidation is to eliminate property taxes, reduce expenses, and achieve efficiencies that are realized by providing sanitary sewer services under the operation of the Village’s Public Works Department, as is typical in most area municipalities.

The Village is not considering consolidation due to any concerns of the current District Trustees or staff.

Impacts of Consolidation on Crystal Lake and Huntley Residents As discussed earlier in this document there are 729 District accounts in the City of Crystal Lake and 510 District accounts in the Village of Huntley.

Staff anticipates these District accounts will experience no negative impacts resulting from District consolidation into the Village of Lake in the Hills.

Staff intends to provide Crystal Lake and Huntley accounts the same high quality service level and benefits that Lake in the Hills accounts will receive.

Staff further recommends maintaining the same sewer fee charges to Crystal Lake and Huntley accounts as charged to Lake in the Hills accounts.

The only significant difference a resident from either Crystal Lake or Huntley will experience is that they will receive billing from the Village of Lake in the Hills for sanitary sewer services instead of the Lake in the Hills Sanitary District.

= = = = =
Here is commentary by Scott Coffey on the report:


Comments

The LITH Sanitary District Consolidation Report by Village Staff — 11 Comments

  1. How about asking for a response from the Lake in the Hills Sanitary District.

  2. An obvious question is what is the cost of the 7 union employees that would be hired.

    Why is that not listed in the report.

    And it is a report, not a study.

    It’s not a comprehensive report, and it was done by an employee that has subsequently been fired by the village, so if savings don’t materialize, they can just blame the fired guy.

    Apparently no study was done.

  3. Daily Herald

    August 24, 2017

    Lake in the Hills Sanitary District’s Legal Battle Over

    “Sanitary district officials now have agreed to cease annexation efforts, Franks and McHenry County state’s attorney Patrick Kenneally said Thursday.”

    “Lake in the Hills village trustees must approve of any consolidation.

    Sanitary district residents also could force the issue through referendum.”

    http://www.dailyherald.com/news/20170824/lake-in-the-hills-sanitary-districts-legal-battle-over

  4. Wow. Scott saw right through that fictional work of accounting.

    The District already explained this part of it.

    Most of the savings in the Village report resulted from the District having a higher IMRF rate than the Village, but the Village and County never asked why.

    They (he) just kept repeating we’ll save $400,000,we’ll save $400,000.

    The higher District rates account for District time payments for past early retirements that were offered to retire senior people and their higher salaries, according to the manager.

    It’s a interest-free way to pay the employer’s portion of the buyout instead of a lump sum.

    They are saving us customers money.

    Guess what?

    The village would pay the same thing.

    Simple mistake by the Village and County; only a few hundred thousand dollars.

    OR was it a mistake??

  5. Now that the two new Trustees, hand picked by Jack Franks, are in place as of last night, and the new attorney, I would assume also hand picked by Jack Franks, is in place as of last night, it would seem that the Sanitary District will start to crumble from the inside out.

    I am not optimistic with the new leaders in place that accurate details will be revealed avoiding the consolidation.

    Once the judge handed out the injunction Shelby Key really didn’t have much recourse – not a fitting end to a gentleman who has devoted over 30 years to the Sanitary District.

    The research Scott Coffey has been doing is a good start though……………..will anyone listen?

  6. 729 accounts that have no legal representation on the board that determines sewer rates?

  7. The nob – agree.

    Look at the people that are in the County that get the water from the Village of Lake in the Hills, 150% surcharge.

  8. With respect to the IMRF rates, the Sanitary District’s higher rate is driven by the aforementioned retirements which helped push the pension funding status down to about 70% (or a $932K unfunded liability).

    The village’s funding status looks to be about 82.5%.

    If the Sanitary District is absorbed, that liability has to go somewhere.

    The village may find their current favorable IMRF rate negatively impacted.

    The County and Village will have to pull the IMRF lawyers into the process to figure out where the liability gets distributed to.

    Having reviewed the Sanitary District’s audit report from last year, I’m curious as to where all the $39 million of net Assets will go to.

    A rather significant portion of that is Cash.

    Do these assets land on the County’s books or the Village’s?

    What happens to all of the Cash?

    Cash and Capital Assets that were accumulated through the collection of taxes and fees from the taxpayers of LITH, Huntley, and Crystal Lake, may now be out of their control and perhaps used for purposes other than the maintenance and operation of the Sanitary District.

    The temptation may exist for the acquiring entity to “raid” the Sanitary District’s balance sheet and use that Cash for other purposes at the County or Village level.

    The outstanding bonds are still problematic.

    Property taxes are a part of the revenues pledged to make the annual debt service payments.

    Today, these taxes are abated with a resolution filed with the County Clerk and the debt service payments are paid with District funds.

    Exclusive of the debt issue, I’m not sure the math works for the Sanitary District to lose revenue of $604K by eliminating its tax levy and only reduce spending by $396.5K.

    And before this moves forward, I’d recommend reviewing the labor cost savings estimates.

  9. Coffey. Remember there is no $396,500 in savings.

    It doesn’t exist.

    The Village will absolutely have to pay the same, unless since the County actually would own the District, while the Village operates it through an IGA, the County may have to assume the unfounded liabilities.

    Won’t the County tax payers love that.

    Either way, no savings.

    Then there is Village union labor rates vs district personnel rates.

    Also note the Village does not have a superintendent of wastewater in their calcs.

    They have supers for streets,parks,water, etc.,but they don’t figure to have one for wastewater?

    Come on!

    Based on the other superintendents, that’s another $100k plus they will end up having made a “mistake” on. Their numbers are bogus.

    Based on what I’ve seen, the “savings” could be overstated by $350-$400k.

    The real problem is the columnist for the NW Herald keeps quoting the Village numbers like gospel.

    What else is will the public believe other than the NWH political propaganda they call news?

  10. Full text of Jack Franks’ second robo-call to LITH residents Friday evening:

    “Hi, this is McHenry County Board Chairman Jack Franks with some good news for the taxpayers of the Lake in the Hills Sanitary District.

    We fought against the District’s unethical land grab, to stop any talk of consolidation, and I’m happy to report that the taxpayers have won. We stopped their land grab cold. Their attempt to annex land over the county lines was rescinded, and our new majority of reform-minded Sanitary District trustees has been seated. We will now begin open and honest discussion of potential consolidation.

    I promised you that when I ran for office, that I would fight to lower your taxes, and fight for transparent and ethical government. Together, we chalked-up a big win. Thank you, and have a wonderful weekend.”

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