Millions spent in duplicating South Elgin water service

The Otter Creek Water Reclamation District exists essentially on paper alone. There is no staff. There are no headquarters. Its services are almost entirely handled by South Elgin.

But it does have millions of dollars of debt and a well-paid lawyer.

If South Elgin has its way, though, the district will cease to exist before the year is out.

The village board is buying out the water district, which serves about 1,500 South Elgin households in the Thornwood neighborhood on the village's southwest side. It's a political maneuver allowed under the intergovernmental agreement that created the water district more than two decades ago.

Village officials believe they can save taxpayers millions of dollars by refinancing the district's debt with lower interest rates and eliminating duplicated services — like the $1.3 million in legal fees the water district's attorney was paid between 2000 and 2010.

Some Otter Creek officials are putting up a fight. They argue residents would have to cover millions of dollars in fees associated with the refinancing plan. A letter from the chairwoman of the paid three-member Otter Creek board urged Thornwood residents to sign a petition that would put a question on the November ballot about the purchase, which could delay the buyout and torpedo the plan altogether.

The village's takeover of Otter Creek's debt would also put an end to a lawsuit between the village and the water district that has about 20 percent of the village's population essentially suing themselves since they pay taxes and fees to both government bodies.

“It makes sense for the village to do this now to save money,” said Derke Price, South Elgin's attorney. “Even if we refinance and it winds up costing $20,000 more a year than it does now, we'd still eliminate about $200,000 in duplicated administrative costs a year.”

Another $100,000 would be saved by eliminating the service contract that currently has Otter Creek paying South Elgin to operate and maintain the district's water system. Additionally, $18,000 would be saved on the $6,000 annual salaries paid to the three board members.

Those savings would go toward paying down principal on the debt, Price said. That's something that, until just a few months ago, hasn't been done since Otter Creek officials first borrowed nearly $19 million in 1999 to build the water system.

Otter Creek's water system was built to accommodate many more residential properties. But when those anticipated parcels annexed elsewhere and the expected additional revenue never came, the district was forced to refinance to keep water and sewer rates down.

That happened in 2006 and the loan amount was increased to $23.4 million with a scheduled payoff in 2039. Otter Creek attorney Greg Dose said the district pays about $1.5 million a year toward its debt, often digging into its reserves to cover those costs. At that rate, district customers would pay more than twice the loan amount to pay back the borrowed funds.

Price believes Otter Creek will be forced to refinance its current debt even if the village doesn't buy it out because of the dwindling reserves.

“If nothing happens there's going to be a day of reckoning for those bonds,” Price said.

Water district revenues are only slightly higher than the debt payments. Over the past five years, the water district has averaged roughly $1.6 million in fees. A minuscule property tax of roughly $16 a year for the owner of $300,000 home brought in just under $23,000 in revenue for the district in 2011.

Dose defended the district's financial history and his role within the district.

“I serve as the general manager as well as the attorney,” he said. “While we don't have any personnel of our own, I manage the personnel of the village that does work for us. I handle the myriad reports to the (Illinois Environmental Protection Agency). I deal with the financial reporting and other things just like the management of any other sanitary district.”

Dose's billing invoices were made available through a Freedom of Information Act request filed as part of the ongoing litigation between Otter Creek, South Elgin and a commercial developer.

Dose billed the district more than $164,000 for his 524 hours of work in 2004, the year he was paid the most. That translates to about 66 eight-hour work days that year, the records show. His lowest billing year came in 2007 with a little more than 305 hours billed, costing Otter Creek customers just under $72,000, according to the invoices.

Dose's law firms made thousands of dollars more in additional fees and charges from Otter Creek on top of the hours the lawyer billed, the invoices show.

Lynn Dillow, the longtime chairwoman of the Otter Creek board, said the board has been satisfied with Dose's work. She believes South Elgin's plan to take over the water district will cost more than it needs to and she worries that Thornwood residents will be charged more than other South Elgin residents for water service.

“I just want to make sure it's done in the most cost-effective way,” she said.

But her plan would call for the district to remain in operation, something the village wants to avoid.

The village board recently passed a resolution outlining plans to unify water rates, which are currently fairly similar, when the purchase of Otter Creek is complete and a water rate study is compiled.

Many village officials were upset by Dillow's email attack on the village. Price blasted Dillow for sending the email to Thornwood residents.

“The idea that the OCWRD board has to protect its customers from the village board is obscene,” Price said. “It's without any foundation. It has no merit. And it's insulting.”

Dillow said she sent the correspondence as a “resident of Thornwood” and not a representative of the Otter Creek board. She also said she's not gathering signatures to get the issue on the November ballot and hasn't seen any petitions herself.

“The perception is that it was some grand attack and that's incorrect,” she said. “I was just presenting an option.”

The board members do not receive pensions and are appointed by the chairman of the Kane County Board. Current Board Chairwoman Karen McConnaughay did not return calls seeking comment about South Elgin's takeover plans and her office's oversight, if any, of the board.

Thornwood is in state Rep. Timothy Schmitz' district. The Batavia Republican said he's had limited contact with the Otter Creek board in the time he's been in office when a church complained a connection fee the district charged to hook up to the water system was too steep. He doesn't object to the district being abolished.

“We've got layer upon layer upon layer of government in Illinois and maybe when it was created it made sense,” he said. “But for an organization with so few individuals, that was a lot of red tape.”

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