OPERATION OF WATER SYSTEM MORE COSTLY; COUNCILMAN SUGGESTS CITY CONSIDER CHANGES

When the city of Cape Girardeau bought the water system from Union Electric five years ago, it hired a company to handle management chores.

But increased operating costs and almost annual rate increases concern Councilman Melvin Gateley.

Gateley suggested Tuesday that the city seek proposals from other utility management companies or look at running the water system itself.

The cost of operating Cape Girardeau's water system is projected to climb to more than $4 million this year. The city administration and its water management company, Alliance Water Resources, are pushing for a 5 percent water rate hike.

The council will consider the hike Tuesday. If approved, it would take effect Feb. 1, and produce an estimated $190,000 annually in additional revenue.

Gateley said the council needs to rein in costs. "We have got to cut spending," he said.

The city will pay an estimated $2.12 million to Alliance this fiscal year. That amounts to more than half of the total cost of operating the water system. The rest of the expense is borne by the city, including billing and debt service costs.

More than half of the $2.12 million, or $1.23 million, is for salaries and benefits for Alliance's 32 Cape Girardeau water system employees.

Since taking over the system in June 1992, the city has paid Alliance Water Resources to run it. The city owns the two water plants and the distribution system.

"We own the pipes, we own the trucks, the wrenches and the tools, and everything associated with it," said Mayor Al Spradling III.

The city even handles the billing.

Spradling said the city has been satisfied with the current arrangement, but might consider managing the system itself in the future.

When the city bought the water system, it didn't have the expertise to run it, Spradling said. At that point it made sense to hire an outside firm, he said.

The contract with Alliance was negotiated at the time of the original bond issue that funded purchase of the water system.

The city didn't take bids or seek proposals from other firms, said Finance Director John Richbourg.

The city appears in no rush to part with Alliance Water Resources: The council last month extended the contract with Alliance for another five years, effective June 2, 1997.

The dollar amount of the contract is negotiated annually, said Tom Taggart, who works for Alliance and manages the water system.

Richbourg said, "We pay them cost plus 10 percent to manage the system."

If the city managed the system, it wouldn't have to include such a profit margin.

Taggart said more cities are hiring private companies to run municipal utilities. "Generally, private firms are able to operate utilities at lower costs than municipalities," he said.

Private companies offer expertise that cities don't have, he said.

Taggart said the company buys supplies in bulk for its utility operations around the state, saving money.

Alliance Water Resources operates some 14 water and sewer systems in Missouri. The company headquarters are in Columbia.

Payments to Alliance are projected to increase by more than $263,000 this fiscal year. Richbourg said that includes cost increases of $78,000 in personnel, more than $81,000 in chemicals and about $70,000 in repairs.

Still, Taggart said Alliance runs an efficient operation in Cape Girardeau.

Taggart said the company has operated Cape Girardeau's water system at a savings of $1.75 million in the past four years over original cost projections. "We have a vested interest in obviously keeping our contract," he said.

CITY WATER SYSTEM

AT A GLANCE

-- Fiscal 1997 budgeted operating costs: $4 million, up 9.24 percent.

-- $2.12 million is to go to Alliance Water Resources, a 14.18 percent increase over last year.

-- The city paid Alliance:

$1.47 million in 1992-93.

$1.71 million in 1993-94.

$1.84 million in 1994-95.

$1.85 million in 1995-96.