ABCD drafts water systems proposal
Altoona Blair County Development Corp. has crafted a proposal for maintaining local control – and the current workforce – of the city’s water and sewer systems in response to the city’s plans to lease those systems for a big, upfront payment.
The nonprofit, tax-exempt economic development agency hopes its proposed lease of the systems could pre-empt the multi-round auction that city consultant Griffin Financial Group has planned for the systems.
ABCD Corp. ultimately expects to offer a price within the range Griffin predicted the systems would fetch for a 50-year lease – $180 million to $240 million, according to a five-page “letter of intent” obtained by the Mirror on Wednesday.
City officials said Wednesday they were glad ABCD Corp. is interested, but they intend to follow through for now with the auction effort, which is designed to raise enough money to help the city escape the state’s Act 47 distressed municipalities program.
ABCD Corp. would create a pair of new nonprofit, tax-exempt “special-purpose entities” – one to hold the lease and one to operate the systems and employ the workers under management contracts with the first entity, according to the proposal.
A new or pre-existing municipal authority, like the Blair County General Authority – but not the Water Authority – would borrow tax-exempt funds and lend them to ABCD, which would use them to pay off the Water Authority’s bond debt, while remitting the rest to the city as the lease payment.
Multiple payments over time could be an option, according to the proposal.
ABCD Corp. would then pay debt service on the loan that financed these maneuvers using revenues generated from water and sewer customers.
The Water Authority favors the ABCD Corp. proposal, authority solicitor Alan Krier said Wednesday after being informed that the Mirror had a copy of the letter.
The Water Authority previously said it’s interested in remaining in the running to keep control of the system.
Due diligence is needed to determine exactly how much ABCD Corp. can pay for systems, according to the proposal.
In order not to compete with other parties – “in consideration for the substantial time and expense to be undertaken by ABCD” – the proposal calls for the city not to consider other offers until at least Feb. 28 of next year.
“A helluva lot more has to go into this thing,” said ABCD Corp. CEO Marty Marasco, who consented to speak about the proposal after learning the Mirror had obtained a copy.
Under Griffin’s guidance, the city has embarked on a two-part leasing effort, first, to find who’s interested and qualified, then to solicit bids, city solicitor Larry Clapper said Wednesday.
It’s only through such a robust, multi-round bidding effort that the city will learn the true market value of the assets and get the highest price, consultant team member Mike Vind of Griffin’s sister firm Financial Solutions has said.
The city intends to follow the procedure, even though the agreement with Griffin doesn’t prohibit it from halting to accept an offer from an organization like ABCD, said Interim Manager Peter Marshall and Mayor Matt Pacifico.
There might be less legal flexibility if the city goes as far as to actually obtain bids, according to city solicitor Larry Clapper.
It’s not clear whether the city could then reject a more lucrative offer in favor of one from a local organization like ABCD, even if it wanted to, he indicated.
But as City Council’s main motive for shopping the systems is financial, it may be inclined to disregard other factors, Marshall predicted.
ABCD Corp. argued for the value of local control.
“It is vital to the operations of the city and the surrounding municipalities in Blair County to continue to have the current AWA management team and current personnel continue,” the proposal states. “Thus, no AWA jobs should be lost, and customers serviced by AWA will continue to receive the same attentive service.”
Critics of the city plan have spoken of a private company raising rates, although the city plans to include rate restrictions in a lease agreement.
Griffin has estimated there is $12-$15 million “profit” available for a lessee – including the authority’s current $2.9-million annual payment to the city for “services,” a payment a lessee wouldn’t need to make.
The remainder of that so-called profit is set aside for capital expenses to maintain the system, an authority official has said.
There is at least no legal obstacle in state law for the city to accept ABCD Corp.’s offer, according to Krier.
The Third Class City Code doesn’t require that municipalities selling property such as the systems do so through open, formal bids, he said.
And while the code is silent on whether it needs to use open bidding for leasing such property, common sense would indicate that the same exemption would apply because leasing requires forfeiting fewer rights than outright sales, he said.
The ABCD Corp. proposal grew out of knowledge acquired from presentations by Griffin and by the Water Authority, then a subsequent meeting with authority representatives, according to Marasco.
ABCD Corp. “has a vested interest in the fiscal success of the city,” and has the “expertise and skills necessary,” the proposal states.
Mirror Staff Writer William Kibler is at 949-7038.