Reforms bolster DuPage water agency’s financial outlook

Nearly four years after admitting the DuPage Water Commission squandered tens of millions of dollars in reserve cash, officials say they’ve made dramatic changes to correct the problems and keep the agency financially viable.

Now the entity responsible for supplying 25 municipalities with Lake Michigan water is on pace to be debt-free before a quarter-cent sales tax that supports its operation is eliminated in 2016.

“The water commission has gone from being a laughingstock to a model of where our government should be,” said Jim Zay, chairman of the commission.

DuPage County Board Chairman Dan Cronin said the water commission has become “a shining example” of how a financial crisis can become a success story.

“They have controlled costs, increased accountability and significantly reduced (the agency’s) reliance on the sales tax,” Cronin said.

Commission officials on Tuesday briefed county board members about reforms made since late 2009 when it was discovered the agency accidentally spent its $69 million reserve fund through poor accounting practices and lackadaisical financial oversight.

In addition to getting a new general manager, financial administrator and treasurer, the agency now is overseen by a revamped 13-member board.

The restructured commission implemented enhanced accounting policies, procedures, controls and oversight, officials said. It also adopted a four-year rate schedule that addresses increases from Chicago for the purchase of water and other financial issues.

When it came to how much it was charging municipalities, Zay said the commission needed a change in philosophy.

“They were selling water for less than they were buying it from the city of Chicago,” Zay said. “It didn’t make sense. They were using that sales tax to supplement the rate.”

The agency has since been forced to wean itself off the quarter-cent sales tax, which generates about $32 million of its annual revenue. That’s because Cronin, who was a state lawmaker when the scandal broke, successfully pushed for legislation that eliminates the sales tax on June 1, 2016.

To prepare for the loss of the tax, the agency is addressing its outstanding debt, which totaled $142 million in 2011. That amount includes $70 million the commission borrowed in the months following the financial scandal to pay off construction debt and restore its reserves. The reserve fund had to be replenished to stabilize the agency’s bond rating, which was tumbling at the time.

The agency’s debt has since been reduced to $54 million and will be paid in full by May 2016, officials said. The average interest rate on the loans is less than 1 percent.

In addition to increasing water rates, the agency has tried to cut costs and be more efficient. Staff, for example, has been reduced and job duties have been reorganized and redefined.

John F. Spatz Jr., the commission’s general manager, said the agency saved $275,000 annually by negotiating a new electrical supply contract in 2011. Negotiations have started for a new two-year deal that could save the commission an additional $140,000 annually.

Finally, officials say they believe the organization is more accountable and transparent. The website, for example, has been updated to make it easier for the public to navigate and get information about the commission.

“We are an efficient water utility,” Spatz said. “We’re continuously improving. I think we’re ready to meet future challenges.”