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$7 million settlement is far less than loss but avoids a lawsuit

The Portland City Council is poised on Wednesday to approve a financial settlement in the water bureau computer billing system fiasco.

But the money the city is expected to receive from the settlement Ñ $7 million Ñ is not enough to cover the unexpected costs of running the system.

The city is spending between $3.6 million and $4.2 million a year to pay 60 additional employees to operate the problem-plagued system. Although the council has agreed to replace the system, it will take at least two years to bring a new system online.

On top of that, the settlement between the city and Severn Trent Systems calls for the city to pay the Houston company $385,000 a year to maintain the system for the next three years.

The settlement falls far short of covering the city's total losses on the system, which could reach $35 million Ñ including the original $6.5 million purchase price, uncollectable bills and lost interest payments.

'It's the biggest disaster I've ever seen in the history of the city,' said Dan Bourbonais, president of ALSCO American Linen and a member of the Portland Water Users Coalition, a group of large water users concerned about rising water rates.

Bourbonais is especially outraged with the settlement because the system still is not working correctly. His company has not received a bill for five months. Bourbonais estimates that he owes the city approximately $100,000, but cannot get anyone to send him a bill.

'I called in October to complain, and they said they would get right on it, but I still haven't received a bill. If I owe the city $100,000 and can't pay it, how many other people aren't paying, either?' he asked.

Lawsuit would cost city

Despite the criticism, city Commissioner Dan Saltzman said the settlement is a good deal.

'I'm pleased with the settlement. We didn't get everything we wanted, but they didn't either,' said Saltzman, who noted that the city withheld some payments to Severn Trent after the problems emerged.

Although Saltzman acknowledged that the settlement won't cover the bureau's ongoing cost overruns, he said suing Severn Trent in court would be a lengthy, expensive process in which the city could lose.

'The bottom line is, the city at least has $7 million in hand,' he said.

John Wish, a member of the Portland Utilities Review Board who was an early and persistent critic of the system, agreed.

'Commissioner Saltzman needs to be congratulated for having the courage to make the tough decision to replace the system,' Wish said. According to Wish, the city repeatedly changed its requirements for the system before it was installed, making it hard to prove what caused all the problems.

The billing system is owned and operated by the Portland Water Bureau. It computes and mails combined bills for both water and sewer services.

Trouble from the start

City Commissioner Erik Sten was in charge of the bureau when the council decided to replace the system in 1996 because it was outdated and could not handle additional service charges and discounts.

The bureau purchased the new system Ñ called Open Vision Ñ in 1997. It was activated Feb. 22, 2000. Problems immediately arose with 40,000 of the bureau's 186,000 customers, and that caused collections to drop abruptly.

City officials knew there would be problems before the system was activated. A six-page internal memo written 16 days before it was turned on listed 49 software problems that had not been solved. The memo, written by the bureau's test team, said the software 'as a whole is not stable and continues to perform inconsistently.' Among other things, the memo said the debt recovery program 'is not working.'

After the memo surfaced publicly, Sten said he had not seen it before approving activation of the system. Sten demanded that water bureau Administrator Mike Rosenberger resign in June 2001. The council increased water rates 1 percent that month to cover the billing losses.

The bureau subsequently was forced to cut spending on maintenance projects to pay for unexpected system operating costs, including assigning 60 additional employees to it, doubling the size of the normal crew needed to run the system. Water bureau officials estimate the cost per worker is $60,000 to $70,000 per year in wages, benefits and equipment.

Mayor Vera Katz reassigned the bureau to Saltzman in June 2002. Five months later, Saltzman said the system had to be replaced. The bureau estimates a replacement system could cost $25 million or more. It has proposed increasing rates again next year to pay for it.

The bureau has asked for proposals from private companies for a replacement system. They are scheduled for submission by the end of this month. It could take several more months before city officials make a final choice.

Contact Jim Redden at This email address is being protected from spambots. You need JavaScript enabled to view it..

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