Mayor John O'Leary

Honorable Mention
The City of Cranston and Poseidon Resources Corporation Wastewater System Project

During the last year the City of Cranston successfully implemented an innovative 25-year lease and service agreement which addresses many important, complex issues affecting the future of the City's wastewater facilities.

Cranston's scenario is one familiar to many mayors. Twenty years ago, the City built a new wastewater treatment facility that was generously subsidized by state and federal grants. Over the past 20 years, improvements were made to the facility on an as-needed basis only; even so, these improvements added up to $26.2 million in Sewer Enterprise Fund debt. The City was attempting to keep fees affordable to ratepayers, and sporadic sewer user fee increases generated revenues that barely met operational expenses. From time to time, the City's General Fund loaned money to the Sewer Enterprise Fund to meet overruns in operational expenses; this resulted in the Fund owing $8.6 million to the General Fund.

Stricter air and water quality mandates which had been imposed by the federal government required $30 million in upgrades to the wastewater facility . at a time when state and federal grant subsides had disappeared, and at a time when Cranston's citizens had grown increasingly resistant to approving capital improvement bond referenda that could increase user fees or taxes. Public works officials had been uncertain about how they would comply with the state and federal mandates, knowing that sewer rates would have to increase nearly 100 percent over a five-year period in order to meet the financial obligations of the mandated upgrades.

During 1996 and 1997 the City conducted a procurement process that involved three private companies competitively negotiating the contract provisions and costs associated with leasing the wastewater facilities for 25 years. The private company selected would be responsible for all wastewater system activities including operation and maintenance, capital improvements, major repairs, financing, odor control, performance guarantees, air and water quality compliance, Industrial Pretreatment Program administration and costs associated with the City's wastewater treatment plant, 21 pumping stations and the 190-mile sewer collection system.

The procurement process involved several carefully planned, concurrent efforts to address the technical, legal, financial, political, regulatory, labor, and other public sector and private sector issues related to the transaction. It culminated in March 1997 with the signing, by then-Mayor Michael A. Traficante, of an innovative $400 million, 25-year wastewater system lease and service agreement with Triton Ocean State L.L.C., a subsidiary of Poseidon Resources Corporation. The agreement allows the City to meet all of its financial and capital improvement obligations and ensures compliance with all air and water quality mandates.

On the contract commencement date . September 11, 1997 . Triton provided the City with a $48 million contract payment and an additional $30 million in private financing to comply with the state and federal mandates. The Mayor used the $48 million to defease the $26 million Sewer Fund debt, repay the General Fund the $8.6 million owed by the Sewer Fund, eliminate the $6.9 million General Fund deficit, and establish a $6 million General Fund surplus.

The City is paying Triton a monthly fixed-price service fee that escalates over the 25 years in accordance with the Consumer Price Index and Chemical indices. The service fee paid to Triton ensures long term user rate stability and will save City ratepayers $35 million in comparison to the City's original projected operating costs for the contract period.

The comprehensive scope and innovative nature of this agreement have garnered national attention, and other municipalities are considering implementing some version of the ACranston Model.

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The United States Conference of Mayors

J. Thomas Cochran, Executive Director
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