Peoria Council Approves $400,000 Water Appraisal, Faces $5–7M Deficit
PEORIA, ARIZONA — October 16, 2018

Peoria Council Approves $400,000 Water Appraisal, Faces $5–7M Deficit

City council engaged in critical budget debate addressing $5-7 million annual deficit through multiple revenue and service reduction scenarios, with significant controversy over water company acquisition, pension funding mechanisms, and various proposed fees.

Water Company Appraisal Agreement Unanimously Approved Amid Fierce Budget Debate and Legal Uncertainty Over Revenue Use

Peoria's City Council voted unanimously on October 16, 2018, to receive and file an appraisal assistance agreement with the CEO Council, committing the city to explore purchase of Illinois American Water Company with up to $400,000 in external funding. Yet the same vote exposed a profound fissure: whether Peoria, drowning in a $5–7 million annual general fund deficit, can legally or prudently use water utility revenues to pay for core services. Over a five-hour meeting dominated by budget crisis management, Council members alternated between pursuing creative revenue options and cutting staff, while Illinois American Water and municipal reform advocates clashed over the city's financial future.

Key Speeches

"We're paying twice as much as the national average for our water. We live next to a river and we sit atop a shallow aquifer full of excellent water. Why are we paying all of that money? Why is that revenue source going out of our community when it should be retained right here?" — Tom Fleek, CEO Council (on water acquisition rationale)

"All revenues derived from the operation of a water supply system shall be set aside as collected and deposited in a special fund designated as a municipal water fund… the funds shall be used only for the purposes of paying the cost of operating and maintaining the water supply system… We've been told by many in the CEO council group that this is the pot of gold that we've been looking for. But if the state law says you can't use it for those things and we have a report back from Corporation Counsel that says we can use the proceeds for overhead costs and operational costs but we're not gonna be able to hire more police officers with this money, how did that work?" — Timothy Riggenbach, raising Illinois non-ad valorem statute concerns

"You can use it. You can use money from the water company and you can apportion time from employees to the extent they work on water operations. But you can't, as Councilman Riggan Bach said, hire police officers with water company money." — Corporation Counsel, attempting to clarify legal constraints

Timeline

Opposition

Number of speakers against: 2 (Joe Connor, Illinois American Water; Roger Goodson, employee union perspective)

Main concerns:

  1. Process timing: Connor (Illinois American) questioned why the eight-month delay before presenting the agreement, and why the city had only three weeks before the November 1 deadline to notify the water company of purchase intent.
  2. Appraisal cost escalation: Connor asserted that $400,000 "will not be enough" based on 20 years of experience; noted absence of budget projections from potential appraisal teams and warned the city cannot stop the process once it begins even if the appraisal comes in unfavorably.
  3. Compounding of past losses: Connor and Goodson referenced the city's obligation to repay ~$2 million to the CEO Council and Peoria Area Advancement Group from the 1998 failed water purchase attempt, citing poor decision-making history.
  4. Employee and public opposition: Goodson cited union concerns about repeated five-year buyout cycles wearing on workers; noted 2003 referendum rejection (82% voted no) and current public opinion research showing sustained opposition to buyout.
  5. Fiscal irresponsibility in crisis: Both opponents questioned the wisdom of spending $400,000–$700,000 on appraisal fees when the city faces immediate layoffs and service cuts.
  6. Affordability risk: Goodson predicted purchase price well over $300 million (2003 appraisal was $220 million), far beyond city's financial capacity.
  7. Competing priorities: Connor and Goodson emphasized the city has "many more important priorities" than a buyout distraction during budget emergency.

Most compelling arguments: Connor's statement that the agreement "forces you as a council to vote to take over the water company" per franchise agreement and that "you cannot stop the process" even if the appraisal shows the deal unfavorable; this locked-in liability resonated with Councilman Riggan Bach's repeated follow-ups. Goodson's citation of the 2003 referendum result and public opinion research undercut buyout advocates' claims of community appetite.

Organized groups: Illinois American Water Company (corporate opposition); Illinois American union (employee concerns); public opinion strategies polling firm (anti-buyout research cited by Goodson).

Support

Number of speakers for: 4 (Helen Keeney, neighborhood resident; Cheryl Basinski, League of Women Voters; Gail Faffered, legal/municipal expert; Anthony Walraven, citizen advocate)

Main concerns and arguments:

  1. Due diligence imperative: Basinski and Walraven stressed that the city has no obligation to buy even if appraisal is favorable; merely conducting due diligence does not commit to purchase. Basinski invoked September 29, 2016 special committee meeting emphasizing transparency and control as voter concerns.
  2. Revenue escape analysis: Keeney, Faffered, and Walraven noted that ~$15 million in annual profit currently exits the city to out-of-state shareholders (Vanguard, BlackRock, T. Rowe Price, State Street) of Illinois American's parent corporation. Walraven itemized the hedge-fund ownership structure to illustrate the city's loss.
  3. Legal authority for profit reuse: Faffered cited Rick Joseph (attorney for municipal water systems, counsel to East Peoria and Illinois Central College) asserting that Illinois Municipal Code Section 11-139 expressly authorizes combined water/sewer systems and permits surplus use for storm sewer improvements, rate relief, or general fund transfer—contrary to Illinois American's narrative.
  4. Precedent in peer municipalities: Faffered and Walraven noted that most Midwest municipalities own water systems without budget crises as severe as Peoria's; East Peoria (mentioned by Councilwoman Jensen during council debate) combines water and sewer revenues without restriction.
  5. Stormwater fee alternative: Faffered and Walraven explicitly proposed using water surplus to fund or abolish the stormwater utility fee, turning the water acquisition into a fee-relief mechanism rather than general fund subsidy.
  6. Long-term fiscal responsibility: Walraven criticized the city's pattern of short-term decision-making ("six inches in front of our face") and urged Council to consider 10–20 year horizon: "Are we going to look at what's going to affect the city ten years down the road?" He challenged whether further employee cuts were credible alternatives.
  7. Democratic accountability: Walraven and Faffered emphasized that Council members can be voted out; hedge-fund shareholders cannot, making municipal ownership superior to private monopoly.

Most compelling arguments: Faffered's citation of Rick Joseph's municipal law analysis (Section 11-139) and the precedent of East Peoria combining water/sewer systems without legal restriction; this directly countered Corporation Counsel's hedged interpretation and will likely drive the written opinion Council demanded. Walraven's itemization of hedge-fund ownership ($15 million exit annually) and the comparison to peer municipalities' water ownership.

Organized groups: CEO Council and Peoria Area Advancement Group (promotion and funding); League of Women Voters (endorsement of due diligence); pro-water-acquisition citizen speakers.

Project Details

Vote Breakdown

(Individual votes not stated in transcript; unanimous vote presumed from roll call and motion passage announcement.)

Outcome & Next Steps

The City Council voted to receive and file the appraisal assistance agreement, meaning the framework is accepted for discussion but no final commitment to purchase has been made.

Immediate actions:

Conditions attached: Section 10 of agreement amended to clarify CEO Council and individual members cannot sue city for breach; CEO Council's role limited to consultation on appraiser selection with no veto power; unused funds must be returned to CEO Council.

Controversies & Context

Water Company Acquisition Legality

The deepest unresolved question is whether Illinois state law restricts water utility revenues to water operations only, or whether Peoria's home-rule charter permits broader use. Corporation Counsel offered a cautious middle position: the city can apportion employee time and overhead costs to the water fund (providing some general fund relief) and can realize a "reasonable profit," but cannot use water funds to hire police officers or fire fighters. Councilman Riggan Bach explicitly challenged this interpretation, citing the non-ad valorem statute. Public commenters (Gail Faffered, Rick Joseph citation) asserted that Illinois Municipal Code Section 11-139 permits combined water/sewer systems and profit use for other municipal purposes, contradicting the Corporation Counsel's restrictive reading.

Corporation Counsel promised a written opinion before October 30, but the disagreement signals a fundamental risk: if the appraisal proceeds and the appraisal supports purchase, but the written opinion reveals the city cannot use water profits for general fund relief, the entire financial rationale for the acquisition collapses. Councilman Riggan Bach will not support the purchase option without clarity; he stated, "I really think that we have to make sure we have a good solid answer."

1998 Failed Purchase Attempt and Sunk Costs

Both Illinois American's Joe Connor and union representative Roger Goodson referenced the city's approximate $2 million obligation to the CEO Council and Peoria Area Advancement Group stemming from the 1998 failed water purchase. Connor remarked that the city must now deal with "decisions that were made then" and must "pay for it through property tax or cuts." This history haunts the 2018 discussion: some Council members view it as evidence of past poor judgment and reason to avoid the present appraisal; supporters view it as evidence that the city should have completed the purchase in 1998 and now faces worse fiscal conditions because it did not.

2003 Referendum Rejection (82%)

Goodson cited the 2003 referendum in which 82% of Peoria voters rejected a water company purchase at an appraised value of $220 million. He stated: "No good reason to throw money at a buyout and repeat this history." This referendum result was alluded to by Mayor Ardis as well; it signals strong historical public skepticism. Buyout advocates did not directly address the referendum outcome, instead framing the 2018 effort as a fact-finding mission, not a purchasing mandate.

Employee and Union Opposition

Roger Goodson, representing the Illinois American Water union, raised the toll of repeated five-year purchase-option cycles on employees' families, calling it "unfair" despite acknowledging the quality of service provided. He also cited union-commissioned public opinion research showing sustained resident opposition to buyout, mirroring the 2003 referendum.

2008 Legal Opinion by Former Corporation Counsel Randall Ray

Councilwoman Jensen requested that staff provide the full text of an opinion from former Corporation Counsel Randall Ray (pre-2018) opining that "a reasonable profit could be obtained" from municipal water operations. Corporation Counsel acknowledged familiarity with Ray's opinion but stated he had not reviewed any opinion from Ray permitting use of water funds for non-water purposes. This discrepancy invites further legal research and may inform the October 30 written opinion.

Competitive Disadvantage from Illinois American's Ownership Structure

Anthony Walraven and Gail Faffered pointed out that Illinois American Water is a division of American Water Works, a multinational publicly traded corporation with major shareholders including Vanguard (top holder), BlackRock (hedge fund), T. Rowe Price Associates, and State Street (which received TARP funds in 2008). Walraven noted that this hedge-fund ownership structure is fundamentally at odds with local control and creates incentive for asset extraction (e.g., Nestlé-style water bottling) that a municipal owner would prevent. Goodson countered that the city should focus on its own budget crisis rather than external shareholders' profits.

CSO (Combined Sewer Overflow) Settlement and Green Infrastructure

Councilman Grave raised a parallel federal mandate: an impending EPA Clean Water Act settlement over combined sewer overflows (CSO) that may cost the city significant funds. However, Grave noted that the settlement could also fund green infrastructure projects rebuilding approximately one-third of rights-of-way in CSO areas, creating jobs and neighborhood improvements. The City Manager confirmed settlement discussions are underway. This unfunded federal mandate was cited by Grave as an example of state/federal government shifting costs to municipalities; some supporters of the water acquisition saw the water revenues as a potential funding source for CSO compliance.

Skepticism of "Pot of Gold" Narrative

Multiple Council members (especially Councilman Riggan Bach and Corporation Counsel) pushed back against the CEO Council's framing of the water acquisition as a financial "pot of gold" or panacea. Corporation Counsel's insistence that reasonable profit is limited, and that employee costs must be directly attributed to water operations, substantially reduced the projected general fund relief compared to Tom Fleek's $15 million annual figure. This legal reality check may dampen Council support for the purchase option vote on October 30.

Duration

Other Notable Items

Council Member Benefit Elimination (18-301): Council unanimously approved first reading of resolutions excluding Council members from IMRF pension (eliminating unverifiable 1,000-hour requirement) and health plan participation, plus ordinance reducing at-large salary from auto allowance from $400 to $100/month. Councilman Rodriguez argued Council must set example during budget crisis; Councilman Kissinger noted he has not participated in IMRF benefits; motion passed 9-0 for first reading. Savings: ~$62,000 in 2019, growing annually.

2019 Revised Budget and $5–7 Million Deficit Crisis: City Manager presented scenarios showing projected $5 million general fund deficit in 2019 (revenues $93.6M vs. spending $98.6M). Over five years without intervention, deficit grows to $23.1 million. Root cause: public safety pension costs rising faster than revenues (21.7M annually = 1/4 of general fund). Council must choose between revenue increases (property tax, fees) or service reductions (equivalent to cutting entire departments). Scenario modeling showed property tax rate rising from $1.55 to $1.75 per $100 assessed value over five years if pension costs not addressed via alternate revenue. Multiple revenue options discussed below.

Package Liquor Tax (2% on home consumption alcohol): Motion passed 7–2 to explore 2% tax on package liquor (not restaurant/bar sales). Estimated revenue: $700,000. Councilman Euler and Councilwoman More supported exploration; Councilmembers Rock Regal, Sear, and others noted caution on potential unintended consequences (e.g., retailers at Peoria/Heights border disadvantage). Vote: Passed 7–2 (Mayor Ardis and Denis Cyr voted no).

Motor Vehicle Registration Fee ($30/vehicle, modeled on Chicago): Councilwoman Jensen proposed $30 annual city sticker fee (modeled on Chicago City sticker program), estimated $1.6M gross revenue but ~$1M net after enforcement expenses. Councilmembers Sear, More, Rock Regal, and Akos opposed, citing: (1) disparate impact on low-income residents with multiple vehicles; (2) enforcement concerns and potential discriminatory traffic stop disparities; (3) timing (recent stormwater utility fee hike); (4) difficulty monitoring non-residents. Councilman Grave and Akos noted potential to capture revenue from non-resident commuters using city streets. Motion to explore failed 3–6 (Councilmembers Jensen, Akos, Grave voted yes).

Public Safety Pension Parcel Fee ($50–$100 per parcel): After Councilman Sear's initial motion to remove pension fee option failed 3–6, Council voted 6–3 to explore parcel-based fee for public safety pensions ($50 = $2.2M revenue; $100 = $4.4M revenue; affects ~43,500 parcels, modeled on Danville precedent at $267/$600 per parcel). Supporters (Councilmembers Jensen, Grave) noted fee directly addresses largest budget pressure (21.7M annual public safety pension costs). Opponents (Councilmembers Sear, Rock Regal, C. Regal, Denis Cyr) objected to additional burden on taxpayers already facing stormwater fees and garbage rate increases. Councilman More noted fee would have unintended consequences (elderly/fixed-income residents). Motion passed 6–3 to explore further.

Business Registration Fee/Process: Councilwoman Akos proposed creating business registration system for city data collection and business association formation, potentially with fee. Opposed by Councilmembers Riggan Bach, Rock Regal, C. Regal, and Grave, citing: (1) timing—already burdening businesses with stormwater fees (37% of stormwater revenue from businesses); (2) staff time and expenses unjustified during budget crisis; (3) historical pattern of fees never being reduced once imposed; (4) alternative sources available (Secretary of State LLC registry, chamber). Akos noted long-term value but acknowledged budget constraints. Motion to explore failed 4–5 (Councilmembers Akos, Grave, and Euler voted yes; motion failed, but Council directed staff to return with more information after budget passed).

General Fund Balance Restoration to 25% Over 10 Years (~$2M/year): Councilman Regan Bach moved to restore general fund balance to 25% policy (historical standard) over 10-year period at ~$2M/year. Councilwoman Jensen challenged, citing peer cities (Bloomington, Champaign, Normal) maintaining only 10–15% reserves and suggesting lower target more realistic given budget constraints. Regan Bach argued maintaining 25% policy historically protected city during economic downturns (2008–2013 recovery pattern) and strengthens bond ratings. Motion passed 8–1 (Councilmember Grave voted no; Councilmember More abstained or not recorded as voting).