Sue Reed is angry. The monthly fee she pays to the private company that manages Lawrence’s water and sewer utility has increased steadily since a series of annual rate hikes started taking effect last year. “I’ve had a $120 water bill for each of the past two months,” says Reed, who lives on Vernon Avenue in Lawrence. “My co-worker has a family of five and she pays only $38 a month to the Indianapolis Water Company. I don’t understand it.”
Setting — Republican-controlled City of Lawrence, where Democrats believe they have their best-ever chance to gain the Mayor's Office and council seats Time — Preparation for Election Day, Nov. 4 The Players — Democratic mayoral candidate Deborah Cantwell, who says incumbent Mayor Tom Schneider broke state law and did a disservice to Lawrence citizens by turning over management of the city's water utility to a newly-formed company headed by Schneider's former deputy mayor. Lawrence Mayor Tom Schneider, who is running for his fifth term, says he merely made sure the water utility would be operated by a locally accountable business whose operators knew the utility well. Lawrence resident and former Schneider supporter Sue Reed says the no-bid deal and rising water rates will cause her and many other Lawrence Republicans to oppose Schneider on Election Day.
"Where is the lawsuit from Lawrence employees? It’s not there because we are taking care of our employees, we are doing the right thing," says Michael Lawson, former deputy mayor and now president of the company operating the Lawrence water utility.
Reed says she also does not understand why Lawrence Mayor Tom Schneider awarded a contract to manage Lawrence’s water utility — without accepting other bids — to a newly-formed corporation headed by Schneider’s former deputy mayor. “To me, it was done in a sneaky way,” Reed says. “I don’t know why it had to be privatized and why our former deputy mayor’s company is the one running it.” When she votes for Lawrence’s mayor and City Council next month, Reed says she will break away from 30 years of supporting Lawrence Republicans and vote for Schneider’s Democrat opponent, Deborah Cantwell. And Reed is convinced that other Lawrence Republicans will do the same. “People are angry, and people think he [Schneider] has been there too long.” Reed’s words are music to the ears of Lawrence’s beleaguered Democrats, who have never won a mayor’s race in the history of the city, which at a population approaching 40,000 residents, is now Indiana’s 17th largest. Lawrence Democrats are counting on voter fatigue with Schneider’s 15-year tenure, along with the residual distaste from Schneider’s disastrously unsuccessful 2002 race for Marion County sheriff against Frank Anderson. “We have never had an opportunity like this,” says Stan Hirsch, president of the Lawrence Township Democrat Club. “What is happening in Lawrence is a lot like what happened in Indianapolis in 1999 [when Bart Peterson’s victory ended 30 years of Republican dominance of city government]. Demographics have changed a lot. And just like a lot of Republicans voted for Peterson because they thought the Indianapolis Republicans had been in for too long, a lot of Lawrence Republicans think it is time for a change here, too.” Exhibit A in the Democrat’s case for a change in Lawrence leadership is Mayor Schneider’s choice for privatized management of the city’s water utility. The utility holds a monopoly on a commodity necessary to every Lawrence voter, and insider contracts and controversial rate hikes offer a platform to argue that Schneider and his Republican allies have grown too comfortable holding unchallenged power in Lawrence.
Up until December of 1998, the City of Lawrence both owned and operated its own water utility. But that month, Schneider signed and the Lawrence council approved a contract with the Indianapolis Water Company to manage the Lawrence utility and purchase it for $24 million over a 20-year period. After the contract was signed, Schneider’s former deputy mayor, Michael Lawson, left the city payroll to work for the IWC, which was then owned by NiSource. Two years later, as it became clear that the Securities and Exchange Commission was going to order NiSource to sell the IWC, Schneider decided he wanted Lawrence out of the deal. After a protracted period of negotiations that resulted in the City of Lawrence agreeing to return a $4 million deposit to IWC, the agreement was terminated. (See sidebar, “Privatized and Super-Sized: How Lawrence Changed Its Water Management and Increased Its Rates”) Within days of the agreement to terminate the IWC contract, former Deputy Mayor Lawson filed papers with the Indiana Secretary of State’s Office forming a corporation called Lawrence Utilities LLC. Mark Branaman, who serves as Lawrence city engineer on behalf of Congdon Engineering, and John Johnson, an accountant and consultant for the city of Lawrence on the original IWC contract, also became officers and partners in the new company. In a period of less than 30 days after the termination of the IWC contract, without issuing any requests for proposal or accepting any other bids, Schneider signed an Operating Agreement with the new corporation to manage the water and sewer utilities. The contract was for a period of 20 years with three automatic 10-year renewals, and assumed water rate increases of 30 percent in 2002, 30 percent in 2003 and 25 percent in 2004. The City of Lawrence retained ownership of the utility and collects a monthly payment from the corporation, currently set at $237,000 for the water utility. In return, the new corporation collects and keeps the Lawrence customers’ utility payments. Almost immediately, those payments increased substantially. After an October 2001 report by the consultant firm Crowe Chizek called for the same rate increases listed in the July contract, the Lawrence City Council unanimously approved the increases in December 2001. Since the City of Lawrence opted out of oversight by the Indiana Utility Regulatory Commission in 1988, during Schneider’s first year in office, there was no regulatory oversight of the rate increases.
“Their own personal cash cow”
The water company operating agreement is a complicated deal, and Deborah Cantwell objects to every comma and paragraph. “The city [of Lawrence] cancels the contract with IWC, which had a proven track record and has not increased its rates, and enters into what amounts to a 50-year contract worth millions of dollars with a company that did not exist. Let alone the conflict of interest issues. Where is the due diligence in selecting the company? And was it the best and final offer?”
"To me, it was done in a sneaky way," says former Tom Schneider supporter Sue Reed of the mayor's awarding of the water management contract. "I don’t know why it had to be privatized and why our former deputy mayor’s company is the one running it."
Shortly after Lawrence pulled out of its contract with the Indianapolis Water Company, the City of Indianapolis purchased the IWC. Like Lawrence, the City of Indianapolis decided to turn over management of its utility to a private company. But unlike Lawrence, Indianapolis opened the process to public competition. A Request for Proposals was issued and a team of mayoral and council appointees reviewed five different proposals before submitting a recommendation to the city’s Waterworks Board. In 2002, Indianapolis chose U.S. Filter. Kobi Wright, general counsel for the city’s Department of Waterworks, says the city interpreted the Indiana Public-Private Partnership Act as requiring that a request for proposals be issued before the contract was awarded. Cantwell says Mayor Schneider should have followed the same open procedure Indianapolis did. Provisions under Indiana’s Public-Private Partnership Act appear to guarantee some measure of competition by requiring local governments to make a public request for proposals for operation of a public facility. “The mayor did not follow that law by any stretch of the imagination,” Cantwell says. Al Stone, a Democrat candidate for an at-large seat on the Lawrence City Council, has also researched the Indiana statutes and also criticizes Schnieder’s failure to issue a request for proposals. Stone says his concern about the deal goes beyond its legality to the quality of the Lawrence water service. “By putting an RFP out, would our rates be lower? Would our services be better? There are a lot of unanswered questions out there.” Former water plant foreman John Mascari echoes Democrats’ concerns about a new corporation’s ability to operate the Lawrence water utility. Mascari worked for the utility when it was managed by the City of Lawrence, the Indianapolis Water Company and Lawrence Utilities LLC, before being dismissed last fall. “I didn’t think the utility was being run very well by the private company,” Mascari says. “It really needs to go back to municipal operation. They [the owners of Lawrence Utilities LLC] are more into how much money they can make than how they can make the water better.” How much money the owners of Lawrence Utilities LLC are making is not clear. Because the utility is operated by a privately held company, some financial information is not public record and has not been disclosed, despite multiple requests by Cantwell and others. Lawrence Utilities’ Lawson refuses to name his salary but says he makes the same salary as he received while working for NiSource. A December 2002 income statement shows Lawrence Utilities LLC not yet turning a profit. But Cantwell says that Lawrence water customers should be able to see salary information and other company details for themselves. “We should be allowed to know this information,” Cantwell says. “Any public employee — the mayor, the deputy mayor — their salaries are known and set by ordinance. If there is nothing improper going on, why do they have to turn a utility with the same employees as they had when it was public into a private company with some information now kept secret?” Cantwell says Lawrence voters should question why the owners of Lawrence Utilities LLC — what former employee Mascari calls “the political cronies” — are so closely tied to Schneider. Campaign finance records show that former Deputy Mayor Lawson contributed over $4,000 to Schneider’s two most recent campaigns, and John Johnson contributed $1,200 in the same period. Mark Branaman was listed as Lawrence city engineer in City Council minutes well after the water management contract was awarded, and still works on city contracts for Congdon Engineering. Over the course of Schneider’s sheriff campaign and last two mayoral campaigns, Branaman has contributed $5,360. Cantwell adds up these political connections and the secrecy of the private corporation’s financial information and comes out with a lot of suspicion that she is freely airing on the campaign trail. She admits to looking into records of high-priced Florida condominium purchases by the principals of Lawrence Utilities LLC, trying to discover whether utility fees are subsidizing a high-end lifestyle. “It appears they have set this up to be their own personal cash cow,” Cantwell says. “Why else would they have a 50-year contract with exorbitant rate increases? It is almost like they have used public money to set up a trust fund for their children and grandchildren.”
“Not rocket science”
Mayor Schneider and Lawrence Utilities’ Lawson say that the only thing motivating the privatization deal was a desire to keep the Lawrence water company under local ownership and management. When Schneider learned in 2000 that the Indianapolis Water Company was likely to be sold, he says the news only added to ongoing concerns about a lack of maintenance being performed by IWC on Lawrence facilities. “One of the provisions of our contract was that if the IWC were to be sold, the City of Lawrence had to approve of the sale of the company. So obviously when NiSource decided they wanted to sell it to a French company, I wasn’t going to call Marseilles, France, just because I wanted a water main fixed,” Schneider says. “It was absolutely necessary to do what we did at the time if we wanted to maintain the water utility, and the community told me in no uncertain terms that they wanted to keep it here.” Schneider says the fact that the IWC was eventually purchased by the City of Indianapolis — and managed by U.S. Filter, a subsidiary of Paris-based company Vivendi Environnement — doesn’t make him regret the decision. “I didn’t want to be a part of the IWC that was owned by the City of Indianapolis either,” he says. “I didn’t want the City of Indianapolis controlling the economic development aspect for the City of Lawrence in terms of infrastructure.” Schneider says that awarding a private contract to manage the utility saved the city money that otherwise would have gone to putting new utility staff under public employee retirement benefits. Because the termination of the agreement with IWC left only a 30-day window of time before the City of Lawrence had to re-take control of the water utility, Schneider says he had to act fast. “This was a decision I had to make very quickly and I didn’t want inexperience. We got the utility back in the middle of the summer, which is peak pumping season. That’s all I needed was a bunch of inexperienced people trying to run a utility they didn’t know anything about.” Schneider says the 30-day deadline did not allow him enough time to seek bids or issue a request for proposals, although the mayor says he did have a conversation with a Southern Indiana water company who declined to make a proposal under Lawrence’s terms. Ice Miller attorney Phillip Bayt, who represented Lawrence in the transaction, says the city’s interpretation of Indiana’s Public-Private Partnership Act is that a request for proposals is optional rather than required. So Schneider chose Lawson’s and Branaman’s newly-formed company, and he cites their collective experience in operating the utility, as well as their ability to entice IWC employees to keep operating the Lawrence water system, as making the decision an easy one. “This is business, it doesn’t have anything to do with friendship. When I looked at the overall picture, I had confidence in Mike Lawson and Mark Branaman to run that utility which they had been doing for 10 years,” Schneider says. “It wasn’t rocket science for me in making that quick decision.” Water rate increases were inevitable given Lawrence’s growing population and aging utility equipment, says Lawrence Utilities’ Lawson. “We’re pumping in the summertime almost 400,000 gallons a day more than our rated capacity just to keep up with demand,” Lawson says. “We have got to increase our capability to pump, we’ve got to sink new wells, we’ve got to build a new water tower. We’ve got to have more water available for the continued growth of the community.” Lawson says the quality of Lawrence’s water — which comes from underground wells rather than reservoirs — is superior to Indianapolis’ water, which has struggled with algae-related taste and odor problems during recent summers. Lawson and Schneider also point to the fact that Lawrence water utility employees have never made any concerted protest about the switch in management, something that has occurred with similar changes to IWC and IPALCO. “Of the utilities I am aware of who have changed ownership in Indianapolis, the lawsuits being brought are being driven by the employees because they feel like they have lost retirement funds and other benefits,” Lawson says. “Where is the lawsuit from Lawrence employees? It’s not there because we are taking care of our employees, we are doing the right thing.” One of those employees is Marianna Wanner, the office manager for Lawrence Utilities LLC. Like John Mascari, she also worked for the utility under city management and IWC management. Unlike Mascari, she has no complaints about the utility’s operation by the private company. “It didn’t really matter to me whether it was public or private, as long as it was coming back to Lawrence,” Wanner says. “And it feels the same as it was [under city operation] to me.”
Time for a change?
Mayor Schneider says that the questions about the water company are not surprising to him. “It is an election year, and I understand that,” he says. But he also knows that voters are never happy to see substantial increases in their water bills, and that the situation needs explaining. “I feel very comfortable with what we’ve done,” Schneider says. “We’ve done it very cost-effectively and the utility is operating very efficiently. When you sit down and explain that to people, believe you me, they understand it.” But back on Vernon Avenue, the longtime Lawrence Republican Sue Reed, who actually hosted a coffee meeting for Tom Schneider when he first campaigned for mayor in 1987, is not so understanding. “Over the last couple of years, my water bills have just kept going up and up,” she says. “My mother may roll over in her grave, but I’m voting Democrat for the first time in my life. It’s time for a change here in Lawrence.”
Privatized and supersized: How Lawrence changed its water management and increased its rates.December 1998 — City of Lawrence signs contract with Indianapolis Water Company to operate Lawrence Water Utility and purchase utility over a 20 year period. June 28, 2001 — Articles of Organization filed with Indiana secretary of state for Lawrence Utilities LLC. Incorporator is Michael Lawson, former Lawrence deputy mayor. Other shareholders and officers are John Johnson and Mark Branaman, Lawrence city engineer and engineer with Congdon Engineering. June 30, 2001 — Agreement between Indianapolis Water Company and City of Lawrence terminated at City of Lawrence’s request. July 1, 2001 — Operating Agreement for Lawrence Utilities signed between Lawrence Utilities LLC and City of Lawrence, for a period of 20 years with three automatic 10-year renewals. No other bids were taken, no requests for proposal issued. Agreement assumes water rate increases of 30 percent in 2002, 30 percent in 2003 and 25 percent in 2004. Oct. 29, 2001 — Crow Chizek and Co., LLP issues a Rate and Financing report calling for Lawrence water rate increases. Dec. 3, 2001 — Lawrence City Council unanimously votes for the rate increases contemplated in the July contract with Lawrence Utilities LLC. Sources: Indiana Secretary of State’s Office, Mayor Tom Schneider, Lawrence City Clerk’s Office