The City of Milwaukee has edged one step closer toward executing a long-term lease of its water utility, the Milwaukee Water Works.
The city has received proposals from 17 teams in response to its request for a sell side advisor to assist it in examining the viability of leasing out the water works in exchange for an upfront monetisation payment.
“We didn’t expect that many responses,” said Mike Daun, deputy comptroller for Milwaukee.
Daun would not share the names of the responders. He said the city will aim to move quickly to evaluate the proposals and recommend an advisor to the city council in 60 to 90 days, at which point all the responders names will be made public.
If the transaction is ultimately successful, it would be the first asset monetisation of a public water utility by a major US city.
Milwaukee will consider other options besides monetisation. Daun said the comptroller’s office is currently biased in favor of this option since it would help it fix a “structural imbalance” in the city’s slowing revenues and rising expenditures.
Unlike other large cities which have undertaken such measures, such as Chicago, Milwaukee does not have the authority to charge its residents a local sales tax or an income tax, leaving dwindling property taxes as the only major source of revenue for the city of 630,000 going forward.
“Down the road, we see a problem. And if we were able to pull this off, we’d get $25 million or so a year that would be a material
If we were able to pull this off, we'd get $25 million or so a year that would be a material source of revenue.
source of revenue [for the city],” Daun said.
The $25 million would come from interest on a trust fund created from the monetisation proceeds, which Daun estimated in the mid-$400 million to mid-$500 million range. He said it would be up to the council to decide how to use the proceeds.
Milwaukee’s motivations for exploring a monetisation of one of its infrastructure assets are different from other localities and states that have taken similar steps in recent years.
In neighboring Indiana, Governor Mitch Daniels opted to lease the 157-mile Indiana Toll Road because it was “a hopeless wreck”.
“It was losing money, it was covering its operating expenses but not coming close to its capital costs [and] deferred maintenance,” Daniels said in a recent interview with Infrastructure Investor magazine.
Daun insists that this is not the case with the Milwaukee Water Works.
“They’re in solid shape. The physical plant is in good shape . . . eight or nine years ago we spent almost $100 million in installing an ozonation system, extending pipes and filtering capability”, Daun said.
And in Pittsburgh, Mayor Luke Ravenstahl is pushing for a long-term lease of the city’s 11 parking garages as a way to shore-up its pension system, which is only 36 percent funded.
“That wasn’t our motivation. Our motivation was simply, looking down the road, we saw this structural imbalance and wanted to come up with some solutions,” Daun said. The Milawukee Employees Retirement System was until recently over-funded and is now 92 percent funded, he added.
The Milwaukee Water Works provides water to 15 communities in southeastern Wisconsin. Its revenues topped $70 million with expenses of nearly $60 million in 2006, the most recent annual figures published on its website. As of 31 December 2006, it had total outstanding debt of $41.3 million.