CHICAGO – A small, fast-growing Indiana city is selling its water and sewer system for $91 million in upfront cash to raise cash for badly needed infrastructure projects.
The Westfield City Council Monday night voted 6-1 sell the city’s water and sewer system to Citizens Energy Group. Citizens is the same company that bought Indianapolis’ water and sewer system last year for $1.9 billion.
The Indiana Utility Regulatory Commission still needs to approve the deal. That could take up to nine months.
Westfield will use the proceeds to pay off $45 million of outstanding utility bonds, and put the rest toward infrastructure projects needed to accommodate its growing population. Located outside Indianapolis, Westfield became a city in 2008. Before that, it was a town.
“We’re positioned for explosive growth, and our transportation infrastructure is in great need,” said Todd Burtron, chief of staff to Mayor Andy Cook and the project manager on the water and sewer sale.
But the Hoosier State’s cap on property taxes -- a four-year-old law that is now part of the constitution -- limits the revenue the city can raise for capital projects.
“We’re limited in the amount of revenue that we’re able to garner through the tax structure, so we endeavored internally a little over a year ago to contemplate what we can leverage,” Burtron said. “We paid attention to the city of Indianapolis and their transfer of water and sewer assets, and we decided we would proceed down that path.”
Citizens was one of three bidders that responded to the city’s request for proposals issued in April.
The $91 million offer was $16 million above a recent market valuation of $75 million for the system.
Part of the attraction for Citizens is that the water and sewer system is new and does not require costly environmental upgrades to meet federal standards like many cities, including Indianapolis, Burtron said.
“Typically when these acquisitions take place you have a system that’s stressed, and this is not the case in Westfield,” he said.
The biggest capital costs will be tied to expansion, he added. Before the sale, the city estimated those expansion costs at around $22 million.
Oppenheimer & Co. Inc. is the city’s financial advisor on the deal. Its transaction attorney firm is Faegre Baker Daniels LLP.
Under the deal, Citizens will stick to already-scheduled rate increases for the next five years. The Indiana Utility Regulatory Commission will approve rate increases after that. The contract does not include any cap on future rate increases.