Markham Mayor David Webb is chairman of the South Suburban Joint Action Water Agency / Credit: Chicago Sun-Times

Fed up with Chicago’s rising water rates, a group of south suburbs got together and borrowed nearly $5.6 million in 2012 to study if and how they could build their own water supply system.

A year later that money – the proceeds from that public debt offering – is evaporating faster than a puddle on a hot sidewalk. And the municipalities that are on the hook for bond repayment still don’t know if the proposed project is a pipe dream, the Better Government Association has found.

Since August 2012, more than $2 million has flowed – often via no-bid contracts – to politically connected companies and attorneys to study the implementation and cost effectiveness of bringing Lake Michigan water to the communities through a new filtration and piping network, the BGA found.

Come the end of April 2014, it’s projected that less than $1 million of the $5.6 million could remain, according to interviews and budget documents, raising the possibility the money could be gone before a thorough study of the proposal is even completed.

“This is very disturbing to me,” says Sharon Rybak, mayor of Midlothian, one of seven towns that comprise the South Suburban Joint Action Water Agency. “How long are we going to sit around doling out money before someone is held accountable?”

Markham Mayor David Webb, the agency’s chairman, acknowledges that officials could’ve been more cautious with finances but says they’re now determined to save money by shaving legal costs and suspending a $45,000 payment to the project manager, among other steps. “We’re trying to do the right thing,” he says.

Municipal water coalitions are nothing new. A group of Lake County towns, for example, teamed up in the late 1980s to build their own Lake Michigan water supply system.

The south suburban agency formed in June 2011, with only Markham and Robbins. Alsip, Blue Island, Calumet Park, Harvey and Midlothian soon followed.

All seven towns now buy water from the City of Chicago – which collects Lake Michigan water, treats it at one of two purification plans, and then delivers it throughout the city and suburbs via a network of pumping stations and pipelines.

Sharon Rybak, mayor of Midlothian / Credit: Brett Roseman~Sun-Times Media

But those communities would no longer be Chicago customers under a proposal to build a system that would pump, treat and transmit water from the Indiana shore of Lake Michigan, at an estimated construction cost of up to $300 million.

The communities would then set their own rates to charge residents and businesses.

The project, to be funded by revenue bonds, would likely consist of an intake facility in Lake Michigan, a main pipeline, a water treatment plant and more.

From the beginning, officials said they would proceed only if the project would result in lower or at least stable water bills for their residents. Under Chicago Mayor Rahm Emanuel, water rates charged to other municipalities jumped by 43 percent since 2011, and more increases are in store.

To put this in perspective, the Village of Alsip paid Chicago $6.3 million for 2.42 billion gallons of water last year, Alsip Finance Director Deborah Freischlag says.

It’s unclear right now whether the south suburban plan makes good financial sense.

The water agency raised nearly $5.6 million in an August 2012 bond sale, with the money earmarked for a study to gauge, among other things, its cost-effectiveness. But that study is on hold, officials say, mainly because the towns still don’t know where in Indiana the lake water would be pumped from, a critical step in the process, despite years of talks with three different northwest Indiana towns.

Officials say they’re close to an agreement with the City of Hammond, Ind., though the head of that town remains circumspect.

“I don’t know if I’d say we’re close, but we’ve made progress,” Hammond Mayor Thomas McDermott says.

Meanwhile, the suburban water agency has spent about $2 million on legal work, project management, financial consulting and more, the BGA has found.

Among the companies receiving no-bid deals – approved by a board with representatives from each of the member communities – was the law firm of former DuPage County Board Chairman Robert Schillerstrom, and an insurance brokerage that since 2001 has donated $15,500 to Webb’s campaign fund.

Other BGA findings include:

  • Postl-Yore & Associates Inc. has been paid $930,000 for project management. The Rolling Meadows firm has donated a total of $2,600 to the campaign funds of Webb and Calumet Park Mayor Ronald Denson, the water agency’s vice chairman. The first donation of $600 to Webb came shortly after the agency approved Postl-Yore’s no-bid contract in June 2011, records show.
  • Two ventures led by Joseph Letke have been paid $315,933 for financial consulting and accounting work under separate no-bid deals. Letke and his companies have donated $10,000 to Webb’s fund, and $7,000 to Harvey Mayor Eric Kellogg’s since 2004, records show. Letke is the comptroller in Markham and Harvey, and his firm performs financial audits for Robbins.
  • Schillerstrom’s law firm, Ice Miller LLP, has been paid $264,630 for legal work. Schillerstrom was directly involved in early negotiations with Hammond, and while his firm still works for the agency he says he’s not involved in current talks. Schillerstrom briefly ran for governor in 2010.
  • Municipal attorney Burt Odelson’s law firm has been paid $202,296 for legal work. Odelson donated $1,600 last June to Denson’s fund and his firm works with Calumet Park and until recently Blue Island.

Webb says no contracts were awarded in return for campaign donations.

However, he concedes it “doesn’t look good” and says he plans to return the $2,100 from Postl-Yore but not cash from Letke and other vendors, with whom he has long-standing relationships.

Lake Michigan – Landsat Satellite Photo. Click to view larger image / Credit: NASA

“I don’t want this to be a conflict,” he says.

If an agreement is reached with Hammond, Postl-Yore, with the help of several engineering firms, would work to complete the long-delayed feasibility study, officials say.

If subsequently approved by the water agency board, the construction project would take an estimated three years to complete, officials say.

If determined to be too costly, taxpayers in each of the towns, many of which are cash-strapped, must pay back the bondholders. Each suburb is responsible for a percentage of the principal plus interest and other fees. All told, that will be an estimated $11.2 million when the variable rate bond matures in 2025. Harvey’s share alone would be $4.3 million, a gut-wrenching sum given its financial challenges.

Already that town and two others are deeply indebted to the City of Chicago. Harvey owes $15.3 million in unpaid water bills, while Dolton and Robbins owe $1.5 million and $9.5 million, respectively, according to the City of Chicago.

Tom LaPorte, spokesman for Chicago’s Department of Water Management, says Chicago’s water rates are among the lowest in the country, despite recent increases to pay for improvements to an aging infrastructure.

As for the south suburban plan, he says, “We believe the communities involved will agree that staying with us is wiser and far more cost-effective than building a new system.”

This story was written and reported by the Better Government Association’s Andrew Schroedter, who can be reached at aschroedter@bettergov.org or (312) 821-9035.