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LCA to bid on Allentown water sewer lease

By Randy Kraft, WFMZ.com Reporter, RKraft@wfmz.com
Published On: Mar 26 2013 07:00:00 PM CDT
Updated On: Mar 27 2013 12:13:05 PM CDT

The effort to lease Allentown's water and sewer systems now has another player.

ALLENTOWN, Pa. -

Less than two days before Allentown's deadline, Lehigh County Authority's board of directors voted 6-1 Tuesday to submit a bid to lease the city's water and sewer systems.

That bid, for an undisclosed amount, must be delivered by 2 p.m. Thursday to the Harrisburg offices of PFM, the city's financial consultant for the controversial lease.

The LCA board’s vote came more than five hours after its meeting began. The board spent most of that time in a 4.5-hour closed-door executive session, primarily to review confidential legal and financial aspects of “the long and complex agreement,” including risks, with its financial and legal advisers.

LCA is one of six entities expected to submit bids to the city this week.

LCA general manager Aurel Arndt said he does not know exactly when the bids will be opened and a winning bidder selected. Asked about LCA’s chances to win the contract, Arndt said: “Time will tell. Clearly, it’s going to be a competitive process and all we’ve been looking for is the opportunity to participate in that process-- to put our credentials forward and make what we think is a workable proposal to the city.”

Allentown hopes to soon get $200 million or more out of the deal, money it will use to avert a looming pension crisis.

LCA is submitting a bid despite the fact that on March 13 Lehigh County commissioners voted 5-4 to refuse to extend LCA’s existence for 50 years so it could participate in bidding on the 50-year lease.

Initial expectations were that action by the commissioners would prevent LCA from bidding.

But LCA communications manager Liesel Adam said the city’s draft concession agreement includes recognition of LCA’s current lifespan, which expires in 2049.

“It basically states if LCA’s life is not extended by 2049, the lease terminates then instead of at the 50th year,” explained Adam. She said the city made that revision to the draft agreement last week, which was after the county commissioners’ vote to knock LCA out of the bidding.

“The city put in that early termination option to accommodate that shorter life,” confirmed Arndt.

While LCA’s current charter expires in 36 years, Asa Hughes, chairman of its board, said: “The city continues to express the desire for LCA to be involved in this bidding process.”

Hughes said: “There is an inherent comfort level with LCA pursuing this venture, due to our local, non-profit status.” Because of LCA’s strong service record and financial performance, he said, many businesses and residents are convinced “we can do a better job for Allentown.”

Hours before the vote, Lisa Scheller, chairwoman of the county commissioners, was one of five people to speak against LCA bidding. She said she was told if the county commissioners didn’t extend LCA’s charter, it could not and would not bid.

Later, stressing she could not speak for all nine commissioners, Scheller said she will consider a legal challenge against LCA if it submits a bid -- or even “dissolving” LCA. “It’s important to keep all options open,” she said.

“I’m very disappointed to hear that would be the consequence or the outcome here,” responded Arndt.

“It’s a very difficult issue and one our board really wrestled with up to the last minute today when they made a decision. Ultimately, the authority wants to be in a position where we have the ability to influence and control our destiny, assuming that we’re successful in the bid, and also to bring the good service record we have established to customers in the city of Allentown.”

During the first public portion of the board meeting, Adam read letters of support for LCA submitting a bid from Renew Lehigh Valley, the Lehigh Valley Partnership, the East Penn Chamber of Commerce and Upper Milford Township. Arndt said representatives of several western Lehigh County municipalities now served by his authority support LCA bidding.

When the board went into executive session Tuesday afternoon, Hughes warned he did not long how many hours it would take, but said it would vote on the lease “sometime this afternoon or this evening.”

The board reconvened in public to distribute a five-page draft resolution to submit a bid to the city and to adopt that resolution.

LCA board member Norma Cusick, the only board member who voted no, said: “I believe a much better proposal would have been a sale or merger of the two authorities to allow for regionalization and economies of scale.”

Two board members said they agonized over the issue before deciding to vote yes. Others indicated they had many questions and reservations, which were addressed – including in Tuesday’s executive session.

“It’s not been an easy decision for any of the board members,” said Hughes. “However, the situation exists that the city is going to put out a lease. Someone is going to bid on this.” He said the community will be ill-served if LCA, as a non-profit organization, does not participate in that bidding “and hopefully will be successful.”

“We have the capability of doing the best job at the best price for the residents of the county,” said board member Emrich Stellar. “I hope fervently that we are successful with our bid.”

“I believe we are the best entity to respond,” said board member Richard Bohner. “Because of our background, our no-profit philosophy and our continuing desire to provide service to the people of Lehigh County, I certainly cannot do otherwise than vote yes for this.”

“I’m convinced the right move for us is to approve this resolution and move forward,” said board member Thomas Muller. Board member Brian Nagle agreed moving forward “is in the best interest of LCA’s customers.”

Board member Scott Bieber said he still wasn’t sure how he would vote going into Tuesday’s 2 p.m. board meeting, but concluded:. “After consideration of all the pros and cons, I feel it’s important that the LCA make an attempt to get this concession because I think we can run a better water and sewer system operation than a privateer. It’s very important we try to keep this operation out of the hands of privateers. A lot of harm could result from that in the future.”

Scheller of the county commissioners told the board she is disappointed “if LCA is complicit in this.” She said it’s infuriating that the value of the water and sewer system is not based on what it actually is worth but on how much money Allentown needs to raise. “I know there were discussions a few years ago that were one fourth the amount of money to buy the system.”

Joe Hilliard of Allentown said it is disturbing that no one has oversight over LCA, including the county commissioners. He said residents also “have been remiss for not providing the proper oversight.” He disagreed that LCA is well run and financially well managed, claiming it is heavily burdened by debt.

“Moving forward with this scheme is going to open the door to a lot more push-back,” warned Hilliard. “We’re already talking about forming a citizens group to provide a lot more oversight of the very detailed operations of the LCA. “ He also said he will appeal to the Legislature to amend the state’s authority law, so LCA’s board could be removed “at will.”

Hilliard told the board: “Do what you need to do; we’ll do what we need to do.”
Jan Keim of Salisbury asked the board how it can possibly spend money to expand services when LCA has not corrected the problem of raw sewage going into Allentown’s water supply –Little Lehigh Creek -- for more than 40 years.

Arndt said his staff spent nearly 3,000 hours working on the bid, including evaluating every aspect of the proposed lease, since last summer.

An LCA news release cites several reasons why it is bidding on the Allentown water/sewer systems:

• LCA is a non-profit, tax exempt municipal authority that claims some of the lowest water rates in Pennsylvania and maintains its non-profit structure ensures it has no incentive to generate excess lease revenues.
• It promises the lowest cost of service to customers.
• LCA already is interconnected with the city’s water and sewer systems and depends on those facilities for service.
• It claims a proven track record of excellent service and national leadership on water and waste water issues.
• It pays lower borrowing costs for upfront expenses and ongoing capital improvements.