City Council

City of Salem, Massachusetts “Know Your Rights Under the Open Meeting Law, M.G.L. c. 30A ss. 18-25 and City Ordinance Sections 2-2028 through 2-2033.” The City Council Committee on Committee of the Whole____________________________________________ met in the Council Chamber on __Monday May 18, 2026________________________ at _______6:00 PM________ for the purpose of discussing the matters(s) listed below. Notice of this meeting was posted on _________________April 15, 2026_____________________ at _________1:00 P.M.__________________ (This meeting is being recorded) ATTENDANCE COW – Merkl (Council President), Smith, Sydoriak, Turowski, King, Hapworth and Prosniewski. From the city – Mayor Pangallo, Jay Carroll, Acting City Engineer. From Senator Lovely’s office – Bob McCarthy, Chief of Staff. From SESD – Dave Michelson, Michael Parsons. From Correnti Kolick, LLP – Kristin Kolick, General Counsel for SESD. ABSENT WERE: Varela, Davis, Flynn and Holappa. SUBJECT(S) #201 Meeting with South Essex Sewer District for a presentation to the City Council regarding the SESD Operating and Capital needs Merkl – The purpose of this meeting is to receive a presentation about the South Essex Sewer District, which is located on Fort Ave., Salem. It maintains and operates a sewage system to treat and dispose of wastewater. It serves residents and businesses in Salem, Marblehead, Beverly, Danvers, Peabody, and a small portion of other towns as well. For clarity, the SESD does not bill individual users directly. They assess costs annually to the municipalities they serve based on usage. We will have Mr. Parsons starting us off with the presentation. Presentation – Parsons – I will start with the punchline, and that's that the district faces some significant financial challenges that we firmly believe threaten our ability to fulfill our mandate and provide adequate wastewater treatment into the future. Unfortunately, the solutions to that problem come at a very high price. As you'll hear from my presentation, the district is seeking an exemption from Proposition 2.5 for some of the limitations of Proposition 2.5 on our budget and on our capital program. We've made similar presentations to the other four members of the district. We've also presented it to your legislative delegation. Back in January, we made a similar presentation to a group of community leaders that provided some good insight and direction to us on how we might consider proceeding. After our board meeting on Wednesday, we will be forwarding a draft resolution for your consideration. The legislative delegation has asked that we receive support from each executive office in each legislative body in the five communities. That will be coming, hopefully, by the end of this week. Our agenda tonight focuses on our two financial needs. One is our operating budget, and the second is our capital needs. At the end, we'll talk about where we stand now with our focus on legislation. As President Merkel pointed out, we are a wholesaler of wastewater conveyance and treatment. She explained quite nicely that you take the assessments that the district imposes on each of the member communities, you work them into your sewer rate structure, and that's how your customers, your residents, pay for wastewater treatment. We thought this would be helpful for you to understand what's been going on for the last 27 years. And it all started right at the end of our major construction in the 90s to upgrade our treatment facility and add a secondary level of treatment. The top line, the red line, is the total assessments made throughout the district, not just Salem, but across the district. And you can see that they've remained relatively level at $25 million a year, all the way across. The blip that you see around 2015 is when the pipelines from Marblehead failed, and Marblehead alone had to come up with the money to fix those. The middle line, the blue line, is our operating budget, which has generally increased at 2.5% over the last 25 years, and the green line was the debt that was excluded from the limits of Proposition 2.5 when we did that major construction project in the 90s. If you add the blue line and the green line together, one was increasing and one was decreasing, and that's why our overall assessments remained essentially flat for 25 years. I want to focus first on our operating budget. The key sector in that pie chart is the lower left-hand yellow section. There are operations expenses, which does not include labor. Labor's included in that big blue sector. Operations expenses include electricity, natural gas, chemicals, and most importantly, for our discussion tonight, residuals disposal. Residuals are the solids that get removed in the treatment process. They come out in different phases of treatment, but we produce a very large quantity. Residuals transportation and disposal accounts for $4.5 million out of our $26 million budget. We are in the last year of an 11-year contract for residuals, transportation, and disposal. It started out with a 5-year contract with 3 2-year renewals at the district's option. It was indexed to the Consumer Price Index, which turned out to be a home run for the district and the member communities, but FY27 is the last year of that contract. In the fall and winter, as we get ready to prepare our FY28 budget, we will be re-bidding residuals disposal, and we know from the costs in the marketplace our costs could go from $4.5 million a year up $1.5 to 2 million dollars. It's the marketplace, it's driven a lot by very few locations for disposal, and then you may have heard about, PFAS, which is also the forever chemical that has caused certain states like Maine to ban the receipt of out-of-state residuals. The blue line on the bar chart is our Proposition 2.5 limit. I want to focus on the FY28 stacked bar. That's the last arrow to the right. The blue section is our operating budget, and you'll see that that has a big jump in it from FY27, and that's primarily due to the new cost for residuals disposal that we anticipate for FY28. The orange is debt service that was not exempt from the big project in the 90s. We have done some projects since then to replace or upgrade certain pieces of equipment, or concrete tankage, so that debt is included in our Prop 2.5 limit. The green block on top is supposed to be for capital improvements and replacements and at the left-hand side of that chart, we had significant funds available so that we could do projects and do a pay-as-you-go method of upgrading the plant. In FY28, we won't have enough money to do our basic budget plus debt service, and we must pay the debt service. That means that without some relief from Proposition 2.5, we will have to be making reductions out of our operating budget at a time when most of our equipment is aging out. It's the wrong time to start making cuts in our operating budget. On the capital improvement side, or the infrastructure side, most of the equipment is 30 years old. Replacement parts are hard to get. The money that we have been applying toward capital improvements, doesn't keep up with all our needs. Some of the pipelines in Salem and other communities need upgrades or repair. If we can squeeze more water out of the residuals, then we'll have less tonnage. One of the ways to do that, is to replace it with something more efficient. About 3 years ago, the district retained the services of two engineering consultants to come up with a 20-year plan on the district's needs so that we could approach this in a logical manner. One consultant was assigned to look at the equipment and the tankage and the pipes within the treatment plant site. The other consultant dealt with pipelines outside of the treatment plant. They've come up with a 20-year plan. All this work doesn't need to be done immediately, but a lot of it should be. They've grouped the projects into four groups. Group 1, Ideally, we would complete in years 1 to 5 with a price tag of about $150 million. Group 2 is even more expensive at almost $230 million. The assessment for each community will need to be increased significantly. A key place to start is the bottom line on the left, where you look at your FY27 assessment. It's currently $5.1 million. The operating budget increase would affect your assessment in FY28, if we got relief at about $400,000 more and increasing to about $780,000 by FY32. What we tried to do here is project out 5 to 7 years. Hopefully we have room to operate before we come back and make requests for more assistance. The capital projects Group 1, for example, the first 5 years, we anticipate only paying interest on bond notes, which starts at about $96,000 a year. Once we start paying back principal and interest, your assessment would go up $1.1 million. The numbers for Group 2 are also shown. The only grants we get now are for energy-related improvements, mainly through the utilities and their programs. This is management's recommendation for special legislation to deal with these two issues. To deal with operating costs, we’re recommending, a one-time budget ceiling increase to $30,500,000M. That is $4.5 million higher than our FY27 budget. Many costs are increasing at rates greater than 2.5%. We saw chemical costs double, since COVID, for example. There are many other communities that don’t have to deal with proposition 2.5. What happens if we don't get relief from two and a half? With the new residual’s bids and other cost increases, we won't be able to operate in the same manner. We have two large divisions. One is our operating group, and one is the maintenance group. Staffing for the operating group is mandated by the state, and they came up with a minimum staffing plan, so we would have to cut from the maintenance staff right when a lot of our equipment is aging out. We'd like to get ahead of the game and replace this equipment before it's necessary. If it does fail, we will have reduced plant reliability and performance. Permit violations were regulated very carefully by the federal government and the state. We discharge in the Salem Sound, so there would be harmful water quality impacts in the Sound, at least periodically depending on the type of failure. We've seen in other locations, and what happened to the district in the 90s, led to either monetary penalties, fines, or an EPA consent order. We hope to file the legislation before legislative session ends in July. We know that we are at the end of the sessions, but it is important to try to get legislation this year. Discussion - Hapworth - I think if I were to summarize what we heard here tonight, and as I understand it, you're here tonight because SESD believes, the financial realities of operating this facility have fundamentally changed over the last several decades. I think we'd all agree that costs are dramatically higher, the infrastructure needs are greater, the old funding assumptions probably no longer work. I think that if we agree that the economics of operating this facility have changed that dramatically over the last 30 years, would you also agree that Salem's pilot agreement, which has remained frozen at a 1993 number, with no deflation adjustment whatsoever, should also be modernized? Parsons – I understand the argument but that has been on our agenda many times and it doesn’t gain any traction. Hapworth - You're the chair of the SESD board, is that correct? Do you think that it's fundamentally fair that Salem taxpayers have absorbed the impacts of hosting a regional facility for 32 years, while a host community payment remained frozen despite inflation, rising costs, and growing infrastructure burdens? And I'd like this to be a yes or no answer. Do you think this is fair, the way Salem has been treated? For the record, you've refused to answer whether this is fair the way Salem has been treated. And I guess the last question I would have is, yes or no, do you believe this is an appropriate way to treat our host community? Mr. Parsons, I think you can understand why we, as a community, are feeling very salty about SESD right now. I think, as a board, we are reasonable, we understand that things cost more money over time, we understand that sometimes, as a group, we need to make very, very difficult decisions and have those conversations with our constituents. But I think we this is unfair, the way that Salem has been treated. This is a waterfront property. We feel as if it has been colonized by SESD, and that SESD has essentially said, too bad, this is the way it was signed, and we're not touching it. I think that before coming to us and having this ask, that I think is not an unreasonable ask, I think all of this makes complete sense. This is something that we as a community do not feel good about, has not been addressed, and I don't think you're going to get support from this group for anything that has to do with SESD before, until we get this situation rectified. Just for the record, I believe there was a version of this presentation that included Salem's ask to give to other member communities, and it was voted down by the board to even present these numbers and the ask that Salem has made here, which I find abhorrent. Turowski – Where do the ongoing disposal of residuals go now? Where is the end destination? Parsons – The contractor is Casella and they operate multiple landfills in New Hampshire, Rhode Island, etc. They split where they go between two or three locations. Turowski – Maine used to receive these solids, but they have turned them down because of PFAS. The current method for reducing the outflow stream is to squeeze more water out of it but you are always going to have outflow volume at that rate. So, you will always have something that will need to be sent somewhere. Parsons – Yes, if we stick with the current treatment facility. There are other options for disposal, there are pros and cons associated with them and a very high price tag. Now, it’s not included in our 20-year plan. Turowski – What happens in 10 to 20 years if there is another rate hike? Parsons – Recent history shows that the cost of disposal has gone up about 7% a year because of the reduced disposal locations. There is no indication that it is going to change so we might be back in 10 years. Turowski – I think that you should consider other alternative methods. Is there a plan to store funds for repairs and infrastructure maintenance over the next 30 years so we don’t see another assessment in 30 years? Parsons – Our plan is to do the improvements over the next 20 years, so the equipment doesn’t all age out at the same time. Right now, we are dealing with the major expansion that was 30 years ago where everything was done which is why much of this needs to be addressed now. We have a plan going forward to address things, so we aren’t on a 30-year cycle. Sydoriak – Going back to the pilot, why hasn’t that gained traction? Parsons – I don’t know why. At the board level, we only get the votes, so we don’t know why they vote the way they do. Sydoriak – If the legislation doesn’t go through, do you have a plan B? Parsons – Plan B will be two parts. We will have to make cuts. We have a plant to run, and we must meet permit. We will probably come back and request again. The cost inflates and there is no way to comply with 2.5 and meet our obligations. Sydoriak – With the current plan, you have a list of projects that are prioritized. Is that entire list available to the public or to the entities? How many of those projects are legally mandated? Does the contract have to be for 10 years? Is that the industry standard? Parsons – The list is on our website. And since none of the projects have failed, none of them are legally mandated. I think the legal mandate comes when you can’t meet your permit and we discharge harmful wastewater into the Salem Sound. There isn’t a legal mandate today, because we are running well. We have a lot of flexibility with the length of the contract. The last one was 5 years with 3 2-year renewals. We will hire a consultant to assist with how to assemble the contract. We have used the state revolving fund a fair amount in the last few years. The Collins Center also looked at a federal EPA loan program and general obligation bonds, because the advice we got regarding the state revolving fund is that the funding for it is decreasing and the competition is increasing. Sydoriak – When you are doing construction like fixing pipes, are you coordinating that with the city so if there is other work that needs to be done, that we aren’t digging up the road’s multiple times? Michelson – A lot of the upgrades that we are doing are on larger pipes, so they will probably be lining the pipes instead of digging them up. Most of the work is at the facility at 50 Fort Ave. The other work that needs to be done is on aquatic force mains and siphons. There’s not a lot of work being done in city streets. Prosniewski – There are 5 communities that participate. Does each pay an equal share or is it based on the population of each? Parsons – It is based on the quantity and quality of the discharge. It fluctuates from year to year. If you have a lot of new development, the cost for that community will go up, but if you have large business that closes like the Rousselot Plant in Peabody, then the cost will go down. Salem’s assessment is $5.1M. Generally, it goes up 10% on average, but it is based on what projects each community has so it could be higher or lower than 10%. Prosniewski – I agree that since Salem is the host community, we should get some sort of discount. Smith – What kind of reaction are you getting from the other communities that you have presented to? How are you measuring the use of each community? Parsons – Most recognize the need but are reluctant to support it. We measure the communities with flow meters that run continuously and we have wastewater samplers test what came through, and it is analyzed by a lab. Smith – Is this the worst-case scenario that the assessments will double in 10 years? Will the new equipment have any kind of savings to the communities? Parsons – It is hard to say for sure, but we are hoping that it is the worse case scenario. There is some equipment that has been updated as much as possible so replacing it won’t result in any savings but there may be others that will cause some savings and that savings was not anticipated in our calculations. Prosniewski – Do you know the amount that the other communities are paying? Parsons – The total is $26M. Peabody pays $8.27M, Beverly $5.3M, Danvers $4.7M and Marblehead $2.2M. Public Comment – We need to know when the study was done before we make any decisions. If it was done before the Iran war, then these numbers could be doubled or tripled since then. Also, I didn’t get an urgency in the presentation that these things must be done now. I would like to know what happens to the $500,000 that we get from the district for being the host community. Does it just go into the general budget, or does it reduce the amount that we are charged by the SESD? Discussion – Hapworth – Motion to receive and file the presentation and that the matter remain in committee and seconded by King. Motion carries 7-0. On the motion of C. Hapworth, the meeting adjourned at 7:02 P.M. Alice Merkl MBC (Chairperson)