Lawrence Water Deal: Crime Pays

If you didn't think crime pays, you haven't taken a look at the proposed sale of Lawrence's water utility to Citizen's Coke & Gas. For those of you who need a little refresher course, former Lawrence Mayor Tom Schneider (R) decided it was in the best interest of Lawrence water users to privatize the water utility. He illegally awarded a privatization deal to a company founded by two of his former city employees and close political allies for a $1,000 investment. The deal required the city to funnel more than $4 million in cash and city-owned assets to the private company, which promised all kinds of savings to the taxpayers. Instead, their water bills skyrocketed.

When Deborah Cantwell took over as mayor after Schneider, she challenged the legality of the privatization contract. She was particularly upset that the city's long-time legal counsel, Ice Miller, had written the contract while representing Lawrence Utilities, LLC, the private entity which took over the water utility. State law requires privatization deals to be undertaken through a public, RFP process, which gives prospective bidders notice and an opportunity to bid on any proposed privatization deal. Lawrence, upon the advice of counsel, ignored that law and struck the deal with Schneider's buddies behind closed doors.

A Marion Superior Court struck down the privatization agreement because it had been entered into in violation of Indiana law, a case which is currently pending on appeal before the Indiana Court of Appeals (See Indiana Law Blog for more). During the litigation, Lawrence attorneys sought to remove Ice Miller from representing Lawrence Utilities because of their obvious conflict of interest. To the amazement of Indiana's legal community, Ice Miller attorneys defended their dual representation on the grounds that it had served as a mere scrivener in its role drafting the contract on behalf of the city. If something has a familiar ring here, there is a reason. Ice Miller has performed legal work for Center Township for many years. It also represents the investors of 300 East to whom Center Township Trustee Carl Drummer leased space in the Julia Carson Government Center without entering into a formal lease as required under Indiana law. Ice Miller partner, Lacy Johnson, is also an investor in 300 East.

Despite an Indianapolis Star expose' on the deal and a lengthy federal investigation, the Star reports today that the criminal investigation has concluded, paving the way for the proposed sale of the utility to Citizens Coke & Gas. For those of you connecting all the dots, our U.S. Attorney in Indianapolis is a former attorney for Ice Milller. The sale would net the City $51.3 million for the assets. Unbelievably, it would pay Lawrence Utilities, LLC $7.6 million. As the Star' Kevin Corcoran reports today:

A controversial water company deal that prompted a federal investigation and left Lawrence residents paying some of the highest rates in the metro area appeared to be nearing an end Tuesday.

As the FBI closed its investigation without charges, Lawrence and Citizens Gas & Coke Utility officials announced they want to form a public charitable trust that would own and operate Lawrence's water and sewer utilities.

The proposed agreement with Citizens Gas would lead to a reduction in the combined water and sewer rates that nearly 15,000 residential and commercial customers pay by an average of 20 percent, saving ratepayers $3 million a year.

The plan emerged from months of court-ordered mediation and would end a
lawsuit brought by Lawrence officials and ratepayers to regain control over the waterworks from a private company, Lawrence Utilities LLC.

City officials approached Citizens Gas officials this summer about buying the utilities should the city regain control of them. Under the agreement, Citizens Gas would form a nonprofit trust called Citizens Water of Lawrence to assume ownership of the utilities.

The nonprofit trust would restore Indiana Utility Regulatory Commission control over water rates, which would be set on a break-even basis.

Lawrence would get about $40 million in cash for the utilities' land, buildings and equipment. By placing the assets in an irrevocable trust, the waterworks would be removed from political control or the possibility of a private sale.

Then-Mayor Thomas D. Schneider, a Republican, handed control of the utilities to three of his political supporters in mid-2001 without taking bids. Company records show the men invested $1,000, and Schneider provided a $4.84 million infusion of cash, vehicles and assets to help launch their startup company.

Customers have criticized Schneider's pact, which could extend for 50 years, because it included three hefty water rate increases in less than two years, doubling Lawrence's rates.

And you thought crime didn't pay. Let the word go out, if you want to engage in public corruption, move to Indianapolis. We are officially worse than Arkansas now. And Tom Schneider and his buddies did get the last laugh.

CORRECTION: Okay, Mayor Cantwell and Sen. Maria Cantwell (D-WA) are not sisters as reported earlier--stupid mistake on my part. Maria is, however, a native of Indianapolis and the daughter of the late Rep. Paul Cantwell (D-Indianapolis), who was an uncle of the Mahern brothers, Ed and Louis.

Also, here's an archived Star story and lots of other information on the original privatization deal.