Allentown’s proposed final agreement for the 50-year lease of the city’s water and sewer systems contains “very minor changes...nothing of substance” maintains Mayor Ed Pawlowski.
Opponents do not agree.
Pawlowski is very proud of the 200-page document, which was sent to potential bidders and made public this week.
“This document is skewed in favor of the city of Allentown more so than it is skewed in favor of the concessionaire,” said the mayor. “We did that specifically. My goal is to protect this city –protect the taxpayers, protect the quality of the service we provide and protect the legacy of the city by putting us on a solid fiscal footing for years to come.”
He said the document was six months in the making and stressed: “We hired the best consultants in the business to work with us. We have put the best legal minds in the country to work on this.”
Called the Allentown Water and Sewer Utility System Concession and Lease Agreement, the document was sent to bidders and posted Thursday on the city’s website.
Allentown expects to receive bids from six pre-qualified bidders by March 21. The mayor said the winning bid will be presented to City Council in early April, which will either approve or reject it. In February, City Council’s leaders anticipated voting on the lease before the end of April. But now that timetable seems to be up in the air.
In a Friday afternoon interview with WFMZ, Pawlowski said he hopes the lease immediately will bring the city $150 million to $250 million.
If the deal falls through, warned the mayor, Allentown residents will face property tax increases of 100 to 150 percent “in the very near future” to pay the city’s rising pension costs.
“Many of them cannot handle that type of increase,” he said, adding “it will financially shipwreck the entire city” – including its ability to provide basic services. “It will be a killer economically. It will drive people out of the city. It will create a downward negative economic spiral that the city will never be able to dig itself out of.”
The mayor does not believe a large number of city residents oppose the proposed lease. “There’s a small group of folks who oppose us.” He said 20 people consistently come to meetings to voice their opposition, adding he’s looking out for all 120,000 people who live in the city, not just 20. Even if there are 1,000 opponents, he said, “that’s 1,000 compared to 120,000.”
An opponent’s analysis
An analysis of the final draft document already has been done by Washington, D.C., based Food & Water Watch, a non-profit consumer rights organization that opposes the lease. It maintains rates will be higher than those in an earlier version of the proposed contract.
“Even though rates will be frozen through 2015, household bills will more than double within the first seven years and triple within 13 years,” it claims. By the end of the 50- year lease, according to Food & Water Watch, “the typical household will be paying more than 15 times what it is paying today for water and sewer service.”
The organization also states: “Over the next five years, the city will have to come up with $40 million to $44 million to replace the revenue and services lost by leasing the water and sewer system. This is partly because, according to the revised contract, the city will receive $2 million to $4 million less each year than required in the earlier draft deal.”
The organization also states the newest version of the proposed agreement contains four new service charges and five additional situations where a concessionaire can increase charges.
The bottom line, of course, will be what’s in the actual bid selected by the administration.
Changes shared by the mayor
“When we started out, we said this was going to be an evolving document,” said Pawlowski. He insisted it is not true that rates will be out of control or that quality will diminish if the lease goes through.
While the city’s water rates increased by as much as 20 percent some years and not at all in others, Pawlowski said those rates increased a total of 696 percent over the last 49 years. “If you average that out, it’s a little over 5 percent a year.” He said rate increases for the next 50 years, under the proposed lease, will be less. “The first three years, there is no increase.”
He also pointed out that rates will have to increase even if the city does not lease its water and sewer operations.
He said the lease agreement stabilizes rates and has consistent increases for consumers “so they know exactly what that rate increase is” rather than “a constant roller coaster” of rates.
He even suggested the city on its own might have to raise rates more than the proposed lease’s “2.5 percent, plus the urban consumer price index.” He said that CPI has averaged about 2 percent a year over the last 10 years. Put together, that creates an increase of 4.5 percent. He said that is lower than average ratepayers have been paying for the last 20 years. He predicted they will pay $15 to $20 more a year, “which is a lot less than if I have to raise your property taxes 150 percent.”
The mayor acknowledged one change from the earlier version of the city’s proposed lease is that the rate increase has gone up by .5 percent– from 1.5 to 2 percent – in later years of the contract. He said that’s primarily to build up a capital reserve fund for any necessary improvements as the water and sewer systems age and require improvements. “We want to make sure that if there are capital costs, it doesn’t all come on to ratepayers simultaneously. If that fund is not utilized by the end of the lease period, that money comes back to the city.”
Pawlowski said the city is seeking an annual royalty payment between $500,000 and $2.5 million a year. He acknowledged it initially was looking to get a $4.5 million annual royalty, but “we compromised” when some bidders said they could pay less money up front if they had to pay that much in an annual royalty.