The mayor said the city wants to get as large an upfront payment as it can, to pay off its multi-million-dollar pension debt. He explained the more the winning bidder pays up front, the less it will pay in annual royalties. “Either way, the city will benefit.”
Pawlowski said the only surcharge in the proposed agreement is for capital costs “that go above and beyond the normal cost of doing business,” such as an earthquake or other natural disaster that required repairing a cracked drainage basin. “That would be a cost we would have to pay for anyway, whether or not we lease the system.” He said imposing such a surcharge would have to be approved by the administration and City Council. It would be a separate line item on a bill. “Once that capital improvement is paid for, that line item would come off your bill.”
Pawlowski said if bids come in within 10 percent of each other on March 21, “they will be pushed out for a best and final offer.” He said bidders will only have a couple of days to do that.
The mayor said the winning bidder immediately will give the city a non-refundable deposit of $6 million. “It means they are really serious,” he said. “We just locked in. If they walk away at that point, we still get that $6 million.”
After his administration selects a bidder, the timetable will be up to City Council, said Pawlowski.
On Friday, Council President Julio Guridy declined to estimate when it will make a decision: “I don’t want to give you any dates because I’m not sure yet.” He stressed council does not want to rush a decision. “I want to wait and see what happens, how things develop.”
Lease opponents have threatened to vote against electing any member of council who votes for the lease. Five of the seven current council members, including Guridy, are up for election in the May 21 primary.
As for the proposed agreement, Guridy said he has not yet read the entire document. “The only comment I want to make is I am looking out for the residents of the city. I’m looking for the best deal we can get for the city. That’s what I was elected for. That does not mean I am against this proposal or that I’m not open to looking at other things. I want to be as transparent as possible throughout this process, for the citizens.”
City Council still plans to hold two special meetings on the issue before it votes, according to Guridy and City Clerk Michael Hanlon, but those meetings have not yet been scheduled.
One will focus on operating standards in the proposed contract, including water quality standards that must be met by the concessionaire. A presentation will be made by Dan Koplish, the city’s former manager of water resources who has been hired by council as a consultant.
The other special meeting will focus on a Pennsylvania Economy League study of alternatives to the lease, including the possibility of creating a public authority.
Jeanette Eichenwald, the only member of City Council who openly opposes the lease, said she has read parts of the proposed final agreement and is having a real hard time understanding why anyone on City Council would vote for it. “This is a far cry from the mayor’s original presentations.”
Eichenwald said the city’s water and sewer systems generate about $10 million in annual income for Allentown and also noted an earlier version of the agreement proposed the city still would get about half that amount in annual royalty payments. But now, she said, that royalty is enormously diminished, possibly to less than $1 million a year.
Eichenwald also maintained rate increases will “skyrocket” after the first few years of the lease.
Leasing to end pension crisis
The more than $200 million the mayor hopes to get from the lease will be used to reduce a “huge unfunded pension liability that is growing every day.” Pawlowski said that debt payment was $6 million when he came into office. “This year it is $18 million. In 2014, it will be nearly $21 million.”
“We have to lower that payment or our residents are going to be strapped with a massive tax increase – between a 100 and 150 percent in their property taxes.”
In addition to getting the pension debt under control, he said: “We want to stabilize rates, continue to build on the quality of the system that we currently have and continue to pay for capital costs as the system ages. Those are all things we had to do anyway as a municipality.”
To protect the city, Pawlowski said the proposed lease agreement considers every potential scenario that may happen in the future.
He said water quality standards in it are higher than those under which the city currently operates and that it includes fines and fees if standards are not met.
The mayor said the city can change the operator of the leased water and sewer systems. He explained two of the six bidders are non-profit organizations that will do the financing and lease the systems, but hire an operator to actually run them.
The six bidders, which have been negotiating terms of the lease with the city for several months, are Aqua Pennsylvania, American Water, Lehigh County Authority, NDC Housing, United Water and Allentown Forward.
Citing confidentiality, Pawlowski would not reveal any basic information about the six bidders. Despite that, he maintained: “This has probably been one of the most open and transparent processes ever in the history of the city.”