AWA solicitor says plan has leaks
A day after City Council revealed plans to lease its water and sewer systems longterm to the highest bidder to help wash away the city’s financial problems, the solicitor of the agency that has operated the systems for decades argued for flushing the plan itself.
“It sounds like smoke and mirrors to me,” said Alan Krier of the Altoona Water Authority.
Griffin Financial Group of Reading made a case on Wednesday that leasing the systems for 50 years could generate between $180 million and $240 million upfront, which would enable the city to pay off its own and the authority’s debts, fully fund its own and the authority’s pension plans, lower property taxes, have money left over and help the city exit Act 47 financial distress – while retaining ownership of the systems, protecting workers and guaranteeing maintenance of water quality and infrastructure, with the help of regular oversight reimbursement.
And controlling rates, Griffin CEO Joe Harenza emphasized.
There doesn’t seem to be a downside, city officials said.
Krier isn’t buying it.
The Water Authority has an efficient operation and doesn’t take a profit, so it doesn’t make sense that a company could make an offer that fulfills all those requirements, he said.
“I don’t see how you can generate all this money to do all these things without raising rates,” especially given the debt the company would probably need to incur to make the upfront payment, he said. “You can’t manufacture money out of thin air.”
Maybe a lessor would be willing to take an upfront loss, he said.
But somewhere “down the road” during a 50-year lease, there would need to be an opportunity for profit, he said.
“And the profits are going to come from the ratepayers,” he said. “There’s no other place to get it.”
Well, there could be, he acknowledged.
The city’s watersheds include land that has the potential for Marcellus Shale gas reserves, local resident Peter Wolf pointed out to the Mirror Thursday.
The authority is protective of its watersheds but isn’t categorically opposed to fracking for gas on watershed land, if it could be done without “causing problems,” Krier said.
“[But] so far, nobody has approached the authority to lease any part,” he said.
It doesn’t mean it couldn’t happen, he said.
“Fracking might be one reason someone would put up the money,” Krier said.
Griffin’s analysis did not take into account the possibility of fracking profits as an incentive for a higher lease price – just as it didn’t incorporate the value of the water system’s excess reservoir capacity to a potential buyer.
Griffin’s presentation also doesn’t reflect the value of the authority’s current $2.9 million annual contribution to the city for “services” – a contribution that would be lost if the city leases the systems, according to American Federation of State, County and Municipal Employees agent Tim Miller, who represents both authority and non-uniformed city workers.
That’s not true, according to a knowledgeable source, who said the favorable payment numbers in the presentation were adjusted to reflect the loss of the annual payment.
“Maybe it’s tricky math,” Miller said.
A lessor is bound to “cut service to make a profit,” Miller also said.
“I think people in the City of Altoona have one of the best water systems anywhere, and it would be a shame to mess it up,” Miller said.
Griffin’s presentation suggested that Blair County and even the Water Authority itself might consider a lease bid.
The Lehigh County Authority bid successfully to lease the Allentown water and sewer systems in 2012, and Griffin modeled its Altoona analysis on that arrangement.
Blair County seems unlikely to be interested.
“I can’t think of any reason why we would,” said Blair County Commissioner Terry Tomassetti Thursday. “It’s a novel question, [though].”
As for the authority, “I can’t say anything,” Krier said. “The authority was not really aware, and never discussed [it],” he added.