Saturday, April 18, 2020

U. Pottsgrove Sewer Sale Hinges on Monday Vote

The green-shaded area indicates the Upper Pottsgrove parcels served by the township's sewer collection system.

After more than a year of discussion, and four online question and answer sessions, the drive to sell the township's sewer collection system comes down to a single vote Monday night.

Although the sale, if approved Monday by the commissioners, must still be approved by the Public Utility Commission, the township's final say on the matter will be Monday's vote.

On March 20, Pennsylvania American Water, which provides services to 19 percent of Pennsylvania's population, submitted the highest bid for the purchase of the system — $13,750,000.

Ben Kapenstein, who works for PFM Financial Advisors LLC, said bid is "on the high end" of what the township was anticipating being offered. The other company to offer a bid was Aqua PA.

Informational Meetings

Prior to Monday's pending voting, the commissioners staged four online question and answer sessions on April 6, April 8, April 14 and April 16. Participation ranged from 40 to as many as 70 people at each one.

Each session included an hour-long presentation on how the township got to this point, and the benefits of the sale of the system which serves about 1,600 households. By way of comparison, Pennsylvania American has 74,000 wastewater customers among the various systems it owns.

The company most recently purchased the Exeter Township wastewater system for $93.5 million and is in the process of purchasing Royersford Borough's system.

As The Mercury reported April 8, the presentation forecasts that sewer rates would drop by about 9.6 percent if the township commissioners vote to sell the system to Pennsylvania American Water.

However, the decrease — from the current $71.87 per month to $65 per month — would be short-lived, according to Bernie Grundusky, senior director for business development for the water company.

A chart he shared as part of the online meeting showed rates would return to the current rate in three
This slide from the presentation shows the difference in sewer rates.
or four years after the sale, and then increase annually by an average of 4.5 to 5.2 percent.

By comparison, the township's sewer rates, which have increased in a more haphazard fashion, average out to between 4.6 to 6 percent a year, according to the presentation.

If the sale goes through, the average homeowner would have saved $1,260 between the time rates were dropped to when they return to their current level, according to the presentation.

In addition to the lowered rates, the benefits touted in the presentation included:
  • The retirement of all township debt, including unfunded pension obligations;
  • A transfer of the inherent risk of running the system to a third, expert, party;
  • The ability to spend up to $4 million on infrastructure projects like a new or upgraded police station without borrowing;
  • The elimination of the $5,447 "tap-in fee," currently charged by the township for new connections to the system.

Why the Rush?

Many of the residents who participated had questions — ranging from how the sale would affect their property and proposed sewer expansion projects and what some perceived as a "rush" to vote on the matter.

"Why does the vote need to happen on April 20?" resident Stephanie Rowe asked during the final meeting Thursday.

"We're in the middle of a pandemic. We're doing meetings on line and we're all dealing with a new normal," she said.

"I think we can do this," Commissioners Chairman Trace Slinkerd replied. "We've done enough due diligence. We need to get this moving through the PUC process," he said in reference to the sale still needing to be approved by the Pennsylvania Public Utility Commission process.

"I live on a cul de sac and there are six families there, three of them have first responders who could not be at this meeting and the other three had no idea this was happening," Rowe said.

"We still have nine to 12 months of more exploration until everything is closed," said Commissioner Cathy Paretti in apparent reference to the PUC approval timeline.

"We'll still be looking at information," Paretti said. "It's not like the vote Monday is the end of it."

But it is the end of it as far as decisions by the commissioners are concerned argued Commissioner Martin Schreiber, who has repeatedly expressed frustration at the idea of holding the public meetings online and what he has described as his difficulty getting answers.

He said after two queries, he still had not been told when the bids expire and it will be too late for the township to act. "We have 22 staff people, I don't understand why I can't get answers," he fumed.

The answer was then supplied by Township Solicitor Charles D. Garner Jr., who said the Pennsylvania American bid expires on June 30.

Who Pays? Who Benefits?

Other pointed questions revolved around the fact that not all residents have paid into the system system, but all residents will benefit.

According to the presentation, Upper Pottsgrove has about $8.4 million in debt, but only $4.7 million is sewer debt, which would be paid out of the proceeds of the sale of the system.

The remaining debt is $2.1 million in the open space fund; about $208,000 in the general fund and $241,000 in the road fund.
Elwood Taylor, highlighted at the top right, had

a long list of questions during the online meeting.

About 65 percent of the township's parcels are served by the system so the sale of the asset sewer customers have paid to build and maintain will benefit those who have never paid into the system, argued former commissioner Elwood Taylor.

"Much of this would make sense if the $8 million in debt where all general fund debt, but you're putting the burden of paying off township-wide debt on sewer users," Taylor said.

He also pointed out that using the proceeds from the sewer sale to pay off the debt in the township open space fund will not result in savings to the general fund.

The open space fund debt is paid through an additional earned income tax approved by voters in 2006. The money raised by that tax can only be spent to purchase new open space, or maintain the township's current open space, Garner confirmed.

Taylor also argued that when residents have an issue with their sewer bill, or how the system is run, they can take those complaints to their elected officials and even work toward throwing them out of office if they don't like the results.

After selling to Pennsylvania American, Upper Pottsgrove customers would have the same standing as the other 74,000 customers in the state and, if they don't get satisfaction from the company in a dispute, would only be able to take it to the Public Utility Commission, Taylor said.

Avoiding Risk

Others supported the sale.

Don Read, who served on the Pottstown Borough Authority and is currently on the township's sewer committee, said "it looks like it makes sense to sell it."

Read said he sees the primary benefit of the sale as "mitigating risk."

A screenshot from the April 16 informational meeting.
He explained that in addition to capital costs Upper Pottsgrove's collection system may incur, it is also responsible for its portion of capital projects at the wastewater treatment plant on Industrial Highway in Pottstown, which receives and treats Upper Pottsgrove's waste.

That plant is operated by the Pottstown Borough Authority and the township has no say in what gets done at that plant, or how much it costs, said Read.

Last year the authority completed a $5 million sludge dryer replacement project which Upper Pottsgrove, and the other surrounding townships who send sewage to the plant, helped to fund under the terms of the agreement with the borough authority.

"The borough authority can throw anything at us they want," said Read.

In fact, that agreement is something Pennsylvania America will have to resolve if the commissioners vote Monday to sell them the system. The authority can agree to transfer the existing agreement to the new owners, or require a new one, according to Township Manager Michelle Reddick.

But Marc Feller, an attorney with the firm Philadelphia law firm of Dilworth Paxson — hired by the township as special counsel to the sewer sale — pointed out that "the Pottstown plant needs the waste as much as the township needs a place to dispose of it."

Conflict of Interest?

In addition to the law firm, Upper Pottsgrove hired PFM Financial Advisors LLC, also known as Public Finance Management, to assess the feasibility of selling the system. It is the same firm that handled the sale of the Royersford sewer system to Pennsylvania American Water for $13 million.

According to an answer Reddick posted on the township website, PFM will be paid a fee of $7,500 for the "limited scope valuation" it undertook to explore the question of whether selling the system would be beneficial.

A second agreement for the work it has done since then, which Slinkerd previously described as being $50,000 plus 1.5 percent of sale price, indicates that PFM will be paid the major portion of their fee only if the commissioners agree to the sale.

As a result, PFM will receive about $250,750 if the township agrees to sell, and only $7,500 if the commissioners vote against the sale, which raises the question of whether PFM is motivated to convince the commissioners to sell in considering the information it presents to them.

In her posted response, Reddick did address the part of the question which read "Any conflict of interest concerns the taxpayers should be aware of?"

No downsides to selling the system were identified in any part of the presentation, which was prepared by PFM and which became more detailed over the course of the four online meetings as questions from residents provoked fine tuning.

A Mercury email to Reddick asking if any negatives to selling the system had been identified in the year-long exploration of the issues, had elicited no reply as of Friday evening.

Thursday night, Slinkerd, who restricted public involvement in the four meetings to questions from residents, thus prohibiting a Mercury reporter from being be called upon to ask questions, said the commissioners will entertain opinions and comments on the proposed sale during Monday's meeting.

Those comments will be limited to three minutes.

"Commissioners will then debate this and hash it all out," said Slinkerd.

To date, Schreiber, who has been on the board for several years, has been the only commissioner to ask questions publicly about the proposed sale.

Two other commissioners, Paretti and Dave Waldt took office four months ago, although they were in regular attendance at commissioner meetings prior to that.

Renee Spaide is the fifth township commissioner who has a vote Monday.

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