City looking to lease water, sewer systems

City Council on Wednesday hired a consultant to try to negotiate a longterm lease of the water and sewer systems, which could generate between $180 million and $240 million to pay off all city and Water Authority debt, fully fund their pension plans, lower property tax and help the city out of Act 47 distress – while retaining ownership of the systems, limiting customer rates and protecting authority workers, according to the consultant.

“This represents a bold step,” said City Councilman Bruce Kelley, who quietly pushed for it after hearing a presentation in September on Allentown’s 50-year, $211-million lease of its systems to the Lehigh County Authority. “I think it represents our best shot at lifting ourselves out of distressed status – to catapult us out.”

“I don’t see a drawback,” said controller A.C. Stickel.

Griffin Financial Group LLC of Reading, a sister company of Act 47 coordinator Stevens & Lee, will identify the potential bidders likely to offer the most money, work with them to pump up interest and to pit them against one another, identify two or three finalists, then cycle through those operations again, before the council makes a final choice, said Griffin CEO Joe Harenza, who made a lengthy presentation to council Wednesday.

“It’s an art,” Harenza said. “It’s better than an auction.”

Griffin has already created a reservoir of data on authority operations and the potential market to generate the estimates of value and justify its city contract, which is heavily weighted to pay Griffin for “success,” Harenza said.

The company modeled its projections largely on the Allentown deal, with its 50-year term, and on Altoona City Council’s “goals,” which include the worker and consumer protections, Harenza said.

The specific terms of the deal – the length of the lease, the limitations on rates, the worker protection requirements – would affect the potential payout, officials said.

Griffin’s projections, reflecting council goals, include freezing customer rates, followed by increases limited by a consumer-price-index formula, rehiring all workers at the same pay and benefits, honoring the authority’s union contract and city oversight to ensure water quality and operational maintenance, so when the lease ends, the system hasn’t deteriorated.

If a private company would lease the systems, it would need Public Utility Commission approval for rate changes, which would be “double protection,” Harenza said.

The Altoona Water Authority itself, other authorities, or Blair County could conceivably bid to lease the systems, according to Harenza.

“It’s a tool that needs to be explored,” said John Espenshade, leader of the city’s Act 47 coordinator team of the Griffin agreement.

The big lump-sum payment that could come from leasing the systems presumably could provide money that could help the city afford to pay its own workers more, after the expiration of the recently approved three-year contracts – all of which froze wages and benefits by order of the Act 47 plan.

“With the amount of money you’re talking about, it’s probably very helpful,” said Scott Campanaro, president of the city’s nonuniformed workers, represented by the American Federation of State, County and Municipal Employees. “A lot comes down to the details.”

For the workers in the other AFSCME local that represents the authority workers, “you have to always be aware that the company that leases [the systems] might not be long-term as friendly to labor as the authority,” he said.

Council is only considering a lease – not a sale, Kelley and others said.

City Council investigated the feasibility of selling the systems in 2005, backing off eventually after the Water Authority stirred up popular opposition.

Instead, council negotiated an approximately $2 million a year increase in the previously modest “payment for services” by the authority.

Those payments helped postpone the city’s need to enter Act 47.

The authority cannot stop the city from taking back the systems, so it can lease

them, officials indicated Wednesday.

One of the authority’s current members is Tom Martin, who was mayor in 2005, and who first suggested the sale idea. Another authority member is Bill Schirf, who was mayor as recently as early January, and who recommended exploring the lease option among other suggestions in a document he circulated among councilmen before leaving.

“The authority should keep doing what it’s done,” Schirf said.

The water system serves 70,000 people through 23,000 customer accounts in 11 municipalities, according to Harenza.

The sewer system serves 50,000 people through 19,000 accounts in Altoona and Logan and Allegheny townships.

The systems’ 11 reservoirs and large watershed make it “unique” in the state and “a very valuable asset,” Harenza said.

It took Allentown about 10 months to work out its lease deal, which went into effect in 2013.

The Lehigh County Authority – the largest customer of the Allentown systems – bid for the lease after considering the risks to county residents should a private company acquire the systems, the authority states on its website.

The sale that led to that authority purchase “is a good model for us,” Kelley said.

“It’s a great opportunity,” said Councilman Dave Butterbaugh.

Mirror Staff Writer William Kibler is at 949-7038.