Resolution 251217-A Exercising the City of Saugatuck’s Right of First Refusal to Purchase Wastewater Treatment Plant Capacity from the City of the Village of Douglas

City Council Agenda Item Report FROM:

Ryan Cummins, City Manager

MEETING DATE:

December 17, 2025

SUBJECT:

Resolution No. 251217-A Exercising the City of Saugatuck’s Right of First Refusal to Purchase Wastewater Treatment Plant Capacity from the City of the Village of Douglas

DESCRIPTION: As discussed at the November 19 workshop, the City of the Village of Douglas provided formal notice of its intent to sell 55,000 gallons per day (gpd) of wastewater treatment plant capacity to Saugatuck Township for $252,340, triggering the City of Saugatuck’s Right of First Refusal (ROFR) under Section 9(e) of the existing sewer operations agreement. Our engineers at Fleis & VandenBrink (F&V) have advised the City will not need “additional capacity in the reasonably near future”. However, F&V has noted the low pricing compared to the cost to construct the same amount of additional capacity. The communities are also working to update our KLSWA agreement (“agreement”) that is proposed to last 40 years and it not being done creates a dilemma. We have an opportunity to purchase additional sewer capacity at a great price now, and we don’t know what will be in the final agreement to protect our future interests. During the negotiations we have had, the City has asked for the ROFR language to remain in the updated agreement and to date, this language has not been included. It is important to note that we aren’t asking for something new to be added. Just an existing right to remain. The ROFR provisions were intentionally included in the existing agreement following prior litigation between Douglas and the City in 2008, and were adopted by resolution of both governing bodies to protect the long-term capacity needs and financial interests of the communities that constructed and funded the wastewater treatment system. At that workshop, City Council expressed a preference to not exercise the ROFR if Douglas and Saugatuck Township were willing to commit to retaining the existing ROFR language in our updated water-sewer agreement. Council viewed this as a reasonable compromise that would

protect the City’s long-term interests without requiring immediate purchase of additional capacity. Following that meeting, City staff communicated Council’s position to both Douglas and Saugatuck Township. To date, neither Douglas nor Saugatuck Township has committed to preserving the ROFR language in an updated agreement. As a result, City Council is now required to decide whether to exercise its contractual right to purchase the capacity at the current price or allow the sale to proceed without acquiring the capacity. Summary of the Attached Resolution The attached resolution would formally exercise the City’s right of first refusal and authorize staff to proceed with the purchase of 55,000 gpd of wastewater treatment capacity from Douglas at the same price and terms offered to the Township. Key elements of the resolution include: • Exercising the ROFR within the required timeframe. • Authorizing the City Manager to provide notice, subject to separate Council approval of payment. Per the existing sewer agreement, the City will have up to 90 days to make payment. If payment is not made, Douglas may proceed with its sale to the Township. o Put another way, if Council approves the resolution and later chooses not to make payment, Douglas could simply proceed with its sale to the Township. • Directing staff to continue negotiations on an updated water-sewer agreement that protects the City’s long-term interests. • Explicitly recognizing Saugatuck Township’s capacity needs and authorizing negotiations for Township use of the purchased capacity through a lease, Act 425 agreement, or similar mechanism until such time as the City requires the capacity. This approach preserves the City’s ownership and long-term control of a finite infrastructure asset while still allowing regional cooperation and near-term benefits to the Township. Pros and Cons Summary Option

Exercise ROFR (Approve Resolution)

Description

Pros

Cons

City purchases 55,000 gpd of capacity from Douglas

• Locks in additional capacity at a low price • Preserves long-term control of a scarce asset

• Requires use of City funds now • The City would own capacity not immediately needed, which, absent a lease, Act 425 agreement, or similar arrangement, could result in the City continuing to carry a proportionally larger share of certain fixed wastewater treatment plant costs.

Option

Description

Pros • Avoids reliance on uncertain future agreement language • Capacity can be leased or shared with Township in interim

Do Not Exercise ROFR

Cons o It is important to note that the City has historically held excess capacity for many years, and this circumstance was historically contemplated in the original sizing, financing, and long-term planning for the wastewater treatment plant.

• No immediate • City permanently loses opportunity to financial City allows acquire capacity at current price payment Douglas sale to • Future capacity may be significantly more • Township Township to expensive meets shortproceed • City relies on future agreement language term capacity that is not yet secured needs

Recommendation While the City does not need additional wastewater capacity in the reasonably near future, we do not have a commitment from Douglas and the Township to keep a key provision to protect our future interests. The current sewer capacity offer represents a rare and favorable opportunity to protect the City’s long-term interests. The drafted resolution is structured to balance: • • •

Responsible stewardship of a limited and increasingly valuable public infrastructure asset. Protection of the City’s historic investment and future growth potential. Continued regional cooperation that allows the Township to meet its current and foreseeable wastewater service demands.

BUDGET ACTION REQUIRED: The purchase of the sewer capacity would require a budget amendment and recommended transfer from general fund reserves to cover the cost. The purchase price is $252,340. The City’s FY 24/25 budget anticipated adding $750,000 to the General Fund (savings), while the audited transfer totaled $1,186,199. Our audited fund balance is now at $7,444,857, providing sufficient available fund balance. A separate Council action within 90 days would be required to authorize the actual payment. LEGAL REVIEW:

The City Attorney has reviewed and will be at your meeting if you have any questions. SAMPLE MOTIONS: Motion to approve Resolution No. 251217-A exercising the City of Saugatuck’s right of first refusal to purchase wastewater treatment plant capacity from the City of the Village of Douglas. Motion to direct the City Manager to notify the City of the Village of Douglas that the City of Saugatuck elects not to exercise its right of first refusal for the proposed sale of wastewater treatment plant capacity.

CITY OF SAUGATUCK COUNTY OF ALLEGAN STATE OF MICHIGAN RESOLUTION NO. 251217-A A RESOLUTION EXERCISING THE CITY OF SAUGATUCK’S RIGHT OF FIRST REFUSAL TO PURCHASE WASTEWATER TREATMENT PLANT CAPACITY FROM THE CITY OF THE VILLAGE OF DOUGLAS Council Member_______________________, offered the following resolution and moved for its adoption, seconded by Council Member_______________________: RECITALS WHEREAS, the City of the Village of Douglas (“Douglas”) has provided notice of its intent to sell a portion of its designated and allocated wastewater treatment plant capacity to Saugatuck Township in the amount of 55,000 gallons per day, for a total purchase price of $252,340.00; and WHEREAS, the City of Saugatuck (“City”) and Douglas are parties to a sewer system operations agreement that includes a right of first refusal (“ROFR”), which provides that if Douglas elects to sell, transfer, or convey any of its designated and allocated wastewater treatment plant capacity to a purchaser other than the City, such capacity must first be offered to the City on the same terms and conditions; and WHEREAS, Section 9(e) of the current sewer operations agreement grants the City sixty (60) days from receipt of such an offer to deliver a duly authorized written election to purchase the capacity, and ninety (90) days thereafter to tender the purchase price and otherwise complete the transaction; and WHEREAS, the ROFR provisions were intentionally included in the existing agreement following prior litigation between the communities in 2008, and were adopted by resolution of both governing bodies to protect the long-term capacity needs and financial interests of the communities that constructed and funded the wastewater treatment system; and WHEREAS, the City, Douglas, and Saugatuck Township are presently engaged in negotiations to update the Kalamazoo Lake Sewer & Water Authority water and sewer agreements, and the absence of an updated agreement preserving the City’s existing ROFR protections creates uncertainty regarding the City’s long-term wastewater capacity interests; and WHEREAS, during negotiations, the City has requested that the existing ROFR language be retained in any updated agreement to continue established protections tied to the City’s historic investment in the system; and

WHEREAS, despite good-faith discussions, neither Douglas nor Saugatuck Township has committed to retaining the existing ROFR provisions in an updated agreement; and WHEREAS, the City has been advised by its engineers, Fleis & VandenBrink, that the City does not require additional wastewater treatment capacity in the reasonably near future, but the City Council recognizes that wastewater capacity is a finite and increasingly valuable asset, and that protecting future flexibility and long-term interests remains prudent municipal policy; and WHEREAS, the City Council further finds that if the City were required to acquire additional wastewater treatment capacity at a future date, the cost would likely be substantially greater than the current purchase price being offered; and WHEREAS, the City’s budget projections for FY 24/25 anticipated $750,000 being added to the General Fund, and the audited transfer to savings was $1,186,199, providing sufficient available fund balance to cover the cost of the proposed capacity purchase; and WHEREAS, at its November 19 workshop, the City Council discussed this matter and expressed its preference to forgo purchasing additional capacity if Douglas and Saugatuck Township committed, by resolution, to retain the existing ROFR provisions in an updated water and sewer agreement, as a reasonable and equitable alternative to immediate acquisition of capacity; and WHEREAS, such commitments were not forthcoming by the requested deadline, requiring the City Council to act to protect the City’s long-term wastewater capacity interests through exercise of its contractual rights; and WHEREAS, the City Council recognizes Saugatuck Township’s current and projected wastewater service needs and desires to remain a cooperative regional partner and good neighbor, and further recognizes that the Township and City would realize near-term benefits from the Township’s use of additional wastewater treatment capacity; and WHEREAS, the City Council finds that the City’s acquisition of the capacity does not preclude the Township from utilizing such capacity in the interim, and that mechanisms such as a lease arrangement, Act 425 agreement, or other lawful contractual arrangement may provide a fair and mutually beneficial means for the Township to use the capacity until such time as the City requires it for its own purposes, while preserving the City’s long-term ownership and control of the asset; NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Saugatuck, Allegan County, Michigan, as follows: 1. Exercise of Right of First Refusal. The City Council hereby elects to exercise the City’s right of first refusal under Section 9(e) of the current sewer operations agreement to purchase 55,000 gallons per day of wastewater treatment plant capacity from the City of the Village of Douglas on the same

terms and conditions offered to Saugatuck Township, at a total purchase price of $252,340. 2. Authorization of City Manager. The City Manager is authorized and directed to provide written notice of the City’s election to purchase the capacity and to take all other actions reasonably necessary to complete the purchase within the timeframes set forth in the agreement, subject to subsequent Council authorization of payment. 3. Future Agreement Negotiations. The City Manager is directed to continue negotiations with Douglas and Saugatuck Township regarding an updated water and sewer agreement and to return to the City Council if future agreement is reached that includes provisions that adequately protect the City’s long-term interests. 4. Interim Use of Capacity by Saugatuck Township. The City Council affirms its understanding of Saugatuck Township’s wastewater capacity needs and its intent to act as a cooperative regional partner. The City Manager is authorized to engage in good-faith negotiations with Saugatuck Township regarding a lease, Act 425 agreement, or other lawful arrangement that would allow the Township to utilize all or a portion of the purchased wastewater treatment capacity on an interim basis, subject to terms and conditions that protect the City’s long-term capacity interests, financial investment, and future operational needs. 5. Payment The City Manager shall return to the City Council within ninety (90) days to confirm authorization of the $252,340 payment required to complete the capacity purchase. YEAS Council Members: NAYS: Council Members: ABSTAIN: Council Members: ABSENT: Council Members:

ADOPTED this _____ day of __________________, 2025. CITY OF SAUGATUCK BY: ________________________________ Holly Anderson, Mayor BY:________________________________ Jamie Wolters, City Clerk

CERTIFICATION I, Jamie Wolters, the duly appointed Clerk of the City of Saugatuck do hereby certify the foregoing is a true and complete copy of a resolution adopted by the City Council at a regular meeting held _______________________, 2025. Signed: ____________________________ Jamie Wolters, City Clerk

August 25, 2025 Douglas City Council and City Manager City of the Village of Douglas 86 W. Center Street Douglas, MI 49406 Request to Purchase Wastewater-Treatment Capacity Dear Mayor and Council Members, Saugatuck Township greatly values our partnership with the City of the Village of Douglas and appreciates our joint commitment to solving regional challenges. As the Council may be aware, the Township is rapidly approaching its allotted capacity in the regional Wastewater Treatment Plant (WWTP). There is sewer infrastructure in the Township sufficient to carry wastewater to the WWTP, although the Township lacks necessary contractual capacity in the plant for treating wastewater. At present, the plant is operating at 47% of its design capacity, leaving substantial treatment space unused. With the City of Saugatuck essentially built-out, future population growth and economic development will be divided chiefly between Douglas and the Township. Accordingly, the Township seeks to purchase additional treatment capacity to meet immediate capacity needs while delivering long-term financial and operational advantages to Douglas. The Township respectfully requests to purchase 55,000 gallons per day (gpd) of Douglas’ unused treatment capacity. Consistent with the valuation method jointly adopted by our three communities, we are prepared to remit $252,340.00. 1 Background and Capacity Rationale The Township’s immediate challenge is straightforward: projects already approved or pending will raise our flow to roughly 98,617 gpd within the next 18–24 months. Beyond committed capacity, we project a need for an additional 36,575 gpd for parcels previously reserved capacity that have yet to connect and parcels that will have sewer access upon an extension of the sewer system to serve a new residential development.

Valuation of sewer capacity was calculated by adding the value of KLSWA capital assets ($5,162,136) with sewer cash reserves ($2,055,939), subtracting the outstanding debt ($2,630,090) and dividing by the plant design capacity (1 mgd). Capacity is valued at $45,879.85 per 10,000 gpd or $252,340.00 for 55,000 gpd.

Per the existing Tri-Community Sewer Agreement, once a community exceeds 75% of its sewer allocation, a good faith effort must be made to secure additional sewer capacity from a municipality with unused excess capacity. To stay ahead of that threshold, the Township secured a 14,000 gpd lease from the City of Saugatuck—raising our total capacity to 104,000 gpd—but leasing is a temporary measure. Douglas currently owns 496,000 gpd of treatment rights, yet the WWTP is running at 47 percent utilization. Transferring 55,000 gpd to the Township would satisfy the Township’s immediate capacity needs and provide a modest buffer to accommodate existing properties with reserved capacity while the feasibility of a plant expansion is studied. After the transfer, Douglas would retain 441,000 gpd, supporting its long-range growth forecasts. To support Douglas in evaluating this request, the Township commissioned an independent Wastewater Capacity Study, which is enclosed with this proposal for Council’s review. Making Best Use of an Under-Utilized Plant The WWTP can treat 1 million gpd and is currently operating at 47% of that capacity. Making unused capacity available to the Township has strong advantages for Douglas: •

Add new user-equivalents. Every new Township account broadens the revenue base and eases future rate pressure on Douglas residents.

Provide funding to establish sewer project fund. The $252,340.00 payment for acquisition can be used to establish a Douglas Sewer Capital Fund devoted to main replacements and long-term system planning, protecting the General Fund from utility costs.

Shift future liabilities fairly. By increasing its ownership stake, the Township will assume a proportionally larger share of any major repair or expansion costs, thereby reducing Douglas’ fiscal exposure.

Preserve a unified, sewer-served growth pattern. Granting capacity keeps development in the Township on public sewer; without it, new projects would default to community-septic systems, eroding KLSWA revenue and leaving Douglas residents to shoulder rising plant costs alone.

We believe this proposal puts existing infrastructure to work, lowers long-term costs for Douglas residents, and supports balanced regional growth. Thank you once again for your partnership and for considering this request. We strongly believe that we can solve even the most challenging of issues facing our communities with a collaborative, regional approach. I would be pleased to answer any questions or to meet with Council at its convenience.

Sincerely,

Daniel DeFranco Township Manager