The Star Valley Town Council approved the purchase of the local water company Tuesday night, fulfilling a promise made six years ago at incorporation, councilors said.
“Next to founding our town, this is probably the most important moment that this town has made as far as determining our future,” said Councilor Gary Coon.
The council hopes to close on the $775,000 deal with Brooke Utilities in January after going through “friendly” condemnation proceedings.
The town would then take over operation of the 396-hookup system shortly thereafter. The town did not get an appraisal of the system or an inspection, so Councilor George Binney said, “we are buying this blind.”
After Tuesday’s vote, handshakes and congratulations were given around the council table. Few residents attended the meeting, a disappointment for some council members.
“The town of Star Valley was formed because of water and by doing this we have come full circle, we have now pretty much fulfilled that obligation, although this is the first step of that,” said Mayor Bill Rappaport. “I am just sorry that there are not more people from Star Valley here to see what is going on because this is spectacular.”
Councilor Vern Leis, who attended negotiations with Town Attorney and Manager Tim Grier, said the sale justifies the formation of the town and opens the opportunity for future growth.
In 2005, residents worried Payson’s Tower Well would suck their water supply dry. Area leaders rallied and formed Star Valley, believing through incorporation they could stop the pumping. They later learned they could do nothing to stop Payson’s plans and could do even less without the area’s water rights, which Brooke Utilities held.
Frustrated, town leaders went after Brooke and filed court papers to acquire the water company through condemnation.
In condemnation, a superior court judge listens to both sides and sets a nonnegotiable value for the system. Six days out from that decision, the town learned through market analysis that the price could rise as high as $1.2 to $1.4 million and backed away quietly.
That was four years ago and dreams of owning the water company washed away as the town focused on other tasks. Last year, the council had nearly 90 percent of the town’s roads paved.
In addition, the council helped finance a local Meals on Wheels program, senior transportation and the Gila County Mounted Posse — all this while consistently adding to the town’s reserve fund. Currently, the town has nearly $3 million in cash reserves.
A once-contentious relationship with Payson turned positive when Star Valley agreed to form a Separate Legal Entity with Payson to build a four-year college campus. Payson also agreed to supply backup water to Star Valley in the event of an emergency and Star Valley paid for two unused Payson wells.
This last agreement rekindled talks with Brooke. With Payson agreeing to supply emergency water, Star Valley needed to get Brooke Utilities President Robert Hardcastle on board. Since Hardcastle owned the piping Payson would hook into, the town needed his approval.
When Grier and Leis met with Hardcastle a few months ago, Hardcastle unexpectedly asked if the town still wanted to buy the system.
They said yes and the town began negotiations “in earnest,” Grier said.
After a few meetings, both sides agreed on the $775,00 price.
Despite a negative reputation, Grier said Hardcastle was a pleasure to work with.
“I really did find Bob a professional, a good business person and the negotiations went forward successfully because it was a business deal and it was one that he obviously wanted to make and we wanted to make for different reasons, but I think we ended up with a very fair price,” he said.
The town plans to acquire the company through “friendly” condemnation. With Brooke and the town agreeing on a price, a judge should approve the deal by Jan. 15, Grier said. The town has not decided what account it will pull money from. Possibilities include the capital improvement fund or rainy day account. The town may also finance the sale through the Water Infrastructure Finance Authority of Arizona.
The council agreed that the price was fair based on data from past water company sales and the value of owning the water rights to the area or Certificate of Convenience and Necessity (CC&N).
Grier analyzed water sales data from the past dozen years and found the average selling price per hookup was $2,877.
Brooke’s system currently has 362 active hookups with an additional 34 inactive. That put a potential value on the system of $1.04 million to $1.14 million.
At $775,000, the town paid $2,140 per active hookup.
Applying the same logic to the Pine-Strawberry purchase of Brooke Utilities’ 3,300 customers, where the system cost $3.5 million, the Pine-Strawberry Water Improvement District paid $1,060 a hookup.
“We looked at those numbers and felt confident about the $775,000 price,” Grier said. “I believe the value of the CC&Ns are probably invaluable.”
Without the CC&N, Star Valley cannot deliver water to residents.
That means the town could do nothing with water from three wells it bought from Payson earlier this year. In addition, the town could not apply for a share of Blue Ridge water.
“We have a unique reason that the water company had value to us, which goes back again to the CC&Ns and that we had to have those CC&Ns if we were ever going to do anything,” he said.
“I don’t know if people will understand that the purchase of the water company is just an important first step that allows for a sustainable future with water.”
Star Valley plans to run the water company and not hire an outside management firm.
Grier would oversee operations with building official Joe Janusz running day-to-day water business. Town finance administer Chancy Nutt would likely take on billing duties.
“If we don’t manage it correctly, then the cost of water is going to go up and so will our costs,” Grier said. “We don’t want to have the taxpayer subsidize it, so effective management is going to be critical.”
The town anticipates sprucing up the aging system and possibly adding new infrastructure, but is looking to keep costs low to keep rates stable.
“We understand that (the customers) are not going to be happy if their water rates rise,” he said. “At same time, there is some infrastructure that needs attention.”
Grier acknowledged he has heard few complaints from Star Valley water customers about their service from Brooke.
Nonetheless, with the town owning the system, it can finally assure residents that they will have a “forever sustainable water source.”