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City Council on Wednesday introduced legal instruments to guarantee a continued flow of money from the assets of the Altoona Water Authority.
The ordinances will enable the city to repossess the water and wastewater systems it deeded to the authority in the 1980s, while allowing the authority to continue to operate the systems in exchange for letting the city siphon off an annual rental fee.
Based on one of the favored options in a consultant's study of the fair rental value for the systems, the fee will begin at $4.1 million this year -- the amount the authority has already budgeted to pay for city "services," in keeping with a series of agreements that have helped sustain the city's general fund since 2004.
The rental fee will rise by 2 percent annually through 2019, then -- when the retirement of authority bonds could provide ratepayers relief -- will increase to $5.9 million.
In the subsequent four years, the fee would rise yearly until reaching $6.9 million.
After that, the rental fee would increase 3 percent per year for the remainder of the 20-year lease agreement that the parties have negotiated, unless they agree otherwise.
The negotiations that resulted in Wednesday's ordinance introduction began in September 2014, after public pressure led council to set aside an earlier proposal to expose the water systems to open auction for a 50-year long-term lease in exchange for a big, upfront payment.
Council set that option aside even though it had been recommended by the city's Act 47 distressed-municipalities coordinator as a means to help the city gather the funds to exit Act 47.
The new arrangement will help the city make that exit, officials said Wednesday.
The set-aside of the privatization option has led to keeping operations local, in line with the wishes of the authority, its workforce and most local residents, officials said.
In bypassing study options that would have siphoned as much as $9.2 million a year from the systems, beginning in 2017, council has also helped keep water and sewer rates reasonable, officials said.
Those rates will apply to residents of both the city and other municipalities served by the systems, which means that non-city residents will continue to help support the city's general fund, based on receiving benefits from city water assets.
Asked whether there have been objections from those other municipalities, Councilman Dave Butterbaugh said there shouldn't be.
Until the 1960s, Pennsylvania's municipal laws allowed core cities like Altoona to annex outlying areas, when those areas clamored for water and sewer services that the core cities had developed, Butterbaugh said.
That was fair, he said.
Changes in state law, however, made annexation virtually impossible, because it required approval from a majority of voters in any territory proposed to be taken over, a change that helped lead to the shrinkage of tax bases that has plagued core cities ever since, Butterbaugh said.
Still, the option that council set out Wednesday will rely less on non-city ratepayers than it might have done otherwise, because it includes relatively more sewer than water revenues -- and the sewer system is far more focused on the city alone than is the water system, which serves residents from East Freedom to Tyrone.
More generally, the new arrangement is far better for all those outlying residents -- and for city residents -- than the initially proposed long-term lease privatization plan, officials said.
The authority's currently budgeted payment of $4.1 million to the city for this year is 12 percent of the authority's total revenue budget of $32.3 million.
That would seem to mean that $11 of the average customer's $92 combined monthly water and sewer bill -- for 4,000 gallons -- goes toward the city payment.
Based on the ordinances, the authority will not only operate the water systems, but manage the workforce that runs those systems.
It will also set rates.
However, based on the appointment Wednesday of city Finance Director Omar Strohm to the authority, the authority will now be controlled by City Council, because Strohm's appointment means there will be a majority of three city officials on the five-person board, where Councilman Bill Neugebauer and City Manager Marla Marcinko already serve.
Council appointed the third member to ensure city oversight and control, and "to make sure nothing happens to jeopardize the city's interests," said Mayor Matt Pacifico, who along with Councilman Michael Haire represented the city in negotiations with the authority, which was represented by members Bill Schirf and Frank Ake.
City officials shied away from talking about how big a role the city's ability to take over the authority might have played in leveraging a favorable agreement.
The city's introduction of the ordinances Wednesday, however -- before it could exercise its control over the authority -- indicates that the talks over the past two-plus years were in good faith, Haire said.
The city's direction has long been clear, as indicated by the study and the city's choice not to extract the maximum from ratepayers, Marcinko said.
The ordinances introduced Wednesday call for the city to guarantee all authority debt, which, based on a reading of the ordinances, appears to be about $86 million.
The authority will continue to be responsible for paying that debt, with its "collateral" being its ability to charge rates, said solicitor Larry Clapper.
The city's ability to tax will be the backstop, according to Clapper.
Council can adopt the ordinances at its meeting Feb. 8.