After much research with “some of the best and brightest legal, financial, economic, governmental, pension and water professionals in the country,” the finance director said the city decided the most viable option was to lease its water and sewer operations. It hopes to get $200 million or more from a lease.
Strathearn explained the city intends to “negotiate an up-front payment close to or equal” the amount needed to significantly reduce that unfunded liability. “We’re on the cusp of snatching victory from the jaws of defeat.”
While opponents argue the city’s water and sewer systems have nothing to do with the pension crisis, Strathearn said leasing them is a funding mechanism to solve the problem.
“If you don’t do this, you still have to deal with your pension issue, which could be devastating to the city,” warned Kennedy. “You don’t have to go far in Pennsylvania to see larger cities that are bankrupt and having major problems, such as your capital city.”
Grant said city water users will pay for the lease through higher water bills, which she called “being taxed through the tap.” She said any water company will have to pay interest on its loan to get the lease, in addition to paying for eventual capital improvements and making a profit.
“The typical household bill will increase 1,200 percent” over the 50-year deal, she warned.
“Our rates have gone up almost 700 percent over the past 50 years,” said Strathearn. “Will rates go up? They will. (But) there are parameters in the agreement to control those.”
“The rates are going to go up dramatically,” said Poresky.
Shearer said the rates will be going up even if the water and sewer systems are not leased. And Kennedy said it is not in a company’s best interest to come in and gouge a community. “They’re trying to continue to grow their business in terms of providing water services. Our rates did not skyrocket. That hasn’t occurred.”
Koplish, now a consultant to City Council on the lease, outlined how whatever company is awarded the lease will be required by the city to maintain high standards for water and sewage treatment. He said: “Allentown’s water quality is significantly cleaner (and) of higher quality than is required.” He said the same applies to sewage effluent: “It’s cleaner than the Lehigh River.”
Koplish said an office in City Hall will deal with the concessionaire on a daily basis, including handling consumer issues. He added there will be quarterly meetings and an annual report by the city regarding how the concessionaire is doing.
Shearer said PFM continues to look at the option of setting up an authority, as an alternative to a lease.