Provision could delay leasing systems

A provision in Altoona’s agreement with the Altoona Water Authority appears to prohibit the city from executing its proposed takeback of the authority’s water and sewer systems – so it can lease them long-term for a big, upfront payment – until the agreement expires at the end of 2015.

City solicitor Larry Clapper said that a precedent case probably establishes the city’s right to take back the systems and execute the lease, despite the provision.

Authority solicitor Alan Krier said that’s not certain – although he said it’s also not certain the authority will try to use the provision to delay the proposed auction of the systems, which the city wants to complete in as little as eight months.

The provision – part of the 2011 agreement by which the authority pays the city $2.9 million a year for “services” – reads: “While this agreement and any renewal thereof, is in force, the authority shall continue to own, possess, operate and control the water and sewer systems.”

In the 2000 case of Township of Forks v. Forks Township Municipal Sewer Authority, a Commonwealth Court judge ruled the township – which leased the sewer system from the authority – could force the authority to pay off its debts and dissolve itself, so the township could take over full ownership of the system.

The township created the authority “subject to termination under certain conditions by the very act authorizing its creation,” the court stated.

The lease doesn’t matter, according to the court.

“Township’s entering into sewer system lease with municipal sewer authority did not operate as a waiver of its power, under the Municipal Authorities Act, to adopt resolution ordering involuntary dissolution of the authority,” states a Westlaw Headnote on the case. “[T]ownship would not be bound by the lease after it acquired authority property,” states another headnote.

The Altoona case seems “very much akin,” Clapper said.

If the city takes back the systems, “the rights of the authority would merge with the city’s,” he said.

Krier disagrees.

In the Forks Township case, “there was no provision wherein the municipality waived the right to take the system back,” he said.

By contrast, the city explicitly waived its takeback rights in the Altoona agreement, he said.

Krier didn’t mention it, but the ruling in the Forks case mentions the lack of “anti-takeover covenants” in the Forks lease agreement, suggesting that the presence of such a covenant in the Altoona agreement might hold water.

“Hopefully, [the covenant] is not going to be an issue,” Clapper said.

The authority brought it to his attention, but not – it seemed to him – to declare its opposition to the city’s plan, but so the parties could figure out “how to get over this,” he said.

If it comes to opposition, however, “that’s why we have courts,” Clapper said.

Water Authority member Tom Martin, who in 2004 as city mayor, suggested selling the water and sewer systems to raise money for the city, doesn’t want to see the systems leased, especially to a private company.

“Even though when I was mayor I tried to sell it, I was so happy in the end when the authority agreed to pay the city,” he said. The authority agreed at that time to increase its modest annual payments by $2.1 million a year, creating the agreement whose successor agreement includes the non-takeover provision.

Martin hopes the authority can simply give the city what it needs financially, so local residents retain control of the systems.

He’s suggested borrowing $50 million through bonds to pay off the city’s debt and fully fund its pension plans.

“It behooves the city, the authority and the citizens to give us time to raise that money and find the legal means to convey it to the city,” Martin said.

Potential obstacles to executing that include a revision 2012 revision to the Municipality Authorities Act that prohibits municipalities from raiding their authorities for funds not related to the authorities’ missions.

The authority staff is doing all it can to figure out a way to stay in the game, according to General Manager Mark Perry.

The city’s consultant for the lease auction effort – Griffin Financial Group – has proposed that the lease could generate a payment of between $180 million and $240 million.

The city would need to use that money to pay off the authority’s debt of about $100 million and to fully fund the authority’s pension plan.

With the remaining money, the city could also pay off the city’s debt – wiping out 12 mills of debt service property tax – and fully fund the city pensions.

The city has invited the authority to participate in the auction.

The authority wouldn’t need to pay off its own debt if it wins, which means it wouldn’t need to raise as much money as an outside organization, according to Mike Vind of Financial Solutions, Griffin’s sister firm.

Vind seemed to dismiss the idea of the authority short-circuiting the auction through a side deal, however.

It’s only through the competitive auction that the city can determine the true value of the systems and get the maximum upfront payment, Vind said.

Griffin’s compensation is tied largely to the size of the upfront payment.

The company is receiving a $7,500 a month retainer fee, plus a fee contingent on the successful completion of the lease deal.

That fee is the sum of 0.5 percent of what the city gets up to $50 million; 1 percent of the next $50 million; 1.25 percent of the next $50 million and 2 percent of anything more – minus the retainer fees the city paid.

Thus, if the deal raises $240 million, Griffin would be due $2.9 million.

Mirror Staff Writer William Kibler is at 949-7038.