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Allentown council moves forward with water, sewer privatization

By Randy Kraft, WFMZ.com Reporter, RKraft@wfmz.com
Published On: Oct 31 2012 11:18:41 PM CDT
Updated On: Nov 01 2012 10:31:55 AM CDT
ALLENTOWN, Pa. -

Mayor Ed Pawlowski’s plan to lease Allentown’s water and sewer systems took a big step forward Wednesday night, but is still months away from being a done deal.

City Council voted 6-1 to support sending a request for proposals –RFPs -- to seven companies interested in leasing those systems for up to 50 years – a lease the mayor hopes will bring at least $200 million and prevent the city from going over “a fiscal precipice.”

After the meeting, Pawlowski said the administration will send the RFPs soon. He hopes to get proposals from the seven qualified bidders by the beginning of December and to select one before the end of this year. He wants to have a signed contract no later than March.

A lease contract must be approved by City Council. Pawlowski said bid proposals from the water companies will be reviewed by a small committee of City Council members and city administrators, which will make a recommendation to the full council.

“Once we get the bids back, we can talk about this from a position of knowledge rather than speculation,” said the mayor.

Pawlowski said the process will stop “if the proposals that come back do not meet the expectations we hope to get.”

But he also warned council: “If we don’t do something dramatic, we will fall off that fiscal precipice. We will destroy the city financially.” He repeatedly said the alternative to leasing will be “massive” increases in both taxes and water rates to pay the city’s rising pension obligations.

Center-city developer J.B. Reilly said if council is forced to raise real estate taxes next year to meet the city’s pension debt, it will force residents and businesses out of town and the only people left will be those who can’t afford to leave.

The vote to send the RFPs was taken nearly four hours after the mayor and experts who support the proposed lease made brief presentations and answered questions from council and residents. Those experts included the former mayors of York and Rahway, N.J., and an official from the National Association of Water Companies

Allentown’s mayor does not routinely attend City Council meetings. Council president Julio Guridy said he asked Pawlowski to attend because of the significance of the lease issue.

After council voted and the meeting adjourned, Pawlowski commented on the outcome: “It was very positive. I appreciate the vote of confidence. It sends a message to bidders that we’re serious about looking at this in a significant way.”

Jeanette Eichenwald was the only council member who voted against getting bids and negotiating with prospective bidders.

Long before the vote, Pawlowski told Eichenwald: “Before you even heard the facts, you made it clear from day one that you are against this. I don’t know why.”

Eichenwald took exception to the mayor saying she made her decision before weighing the facts. “At some point in the process I did come to the conclusion that we should look at other options,” she said.

She said good decision-making involves looking at both the pros and cons of any issue, but only the pros have been presented by the administration and only city residents have been presenting cons.

The mayor maintained both positives and negatives were considered early on in the process.

On Oct. 17, council voted not to take any action on approving the mayor’s plan to request proposals unless it was told how much the administration already has spent on the lease option. Eichenwald had guessed it was more than $500,000. On Wednesday, she said $339,000 has been spent so far to hire “professional experts on this issue.”

Pawlowski said he hired “the best professionals in the country” to get the best advice and best agreement possible.

In mid-October, City Council hired the Pennsylvania Economy League to do an independent review of the administration’s proposed lease as well as other options. On Wednesday, league executive director Gerald Cross said his organization is not recommending which options are best because that is the job of the mayor and council.

Cross said the league’s evaluation of Allentown’s RFP shows virtually every issue has been addressed: “The proposal probably is the best developed we have ever reviewed.”

He recommended the city should seek proposals from bidders so it has “a firm grasp on the shape of a final offer”, which can be compared to other options and alternatives.

“We could look at other options simultaneously,” said Pawlowski.

Specifically, Cross recommended the city should further investigate selling the systems to a newly created public water and sewer authority at the same time it pursues a lease agreement. He suggested a “side-by-side” comparison of leasing to a private company and creating an authority would give the city a clearer picture of costs and benefits of each. He said the authority option would alleviate concerns about the loss of public control over the systems.

But later Cross told Eichenwald other alternatives cannot be measured against a lease until after the city has bids. He also warned creating an authority involves a number of financial difficulties.

Eichenwald prefers the creation of a public authority to run the water and sewer systems. Pawlowski said water rates would have to increase rates “several hundred percent” to pay for bonds to create such an authority.

Cross also told council public concerns about the issue should be addressed “within the context of the final decision-making process.”

Based on accounts she’s read about other communities’ experiences, Eichenwald said private companies have found ways to add on to water rates. “It is so difficult to protect us.”

The mayor said more than 1,300 municipalities have such public/private partnerships.

Pawlowski said the proposed lease agreement ensures Allentown will have even better quality water, with standards that meet or exceed the city’s current requirements. He said he doesn’t want to put his own children, or the children of any other families living in the city, in jeopardy.