PROPOSED LEASE AGREEMENT SUMMARY


Details of Agreement

Lease Term.The term of the lease is for 25 years as required for financing improvements. At the end of the 25-year initial term, all asset additions financed by the Authority that would have required City financing (i.e., the Water Treatment Plant, pumping stations, storage reservoirs, distribution infrastructure, meters, etc.), will be transferred to the City (unless the lease is extended) at the upgraded value at the time of reversion. The City continues to own all assets being leased. Presently, the asset value of the City’s water system is about $25 million. By the end of the initial lease of 25 years, the asset value could easily reach $100 million and the City will have paid for none of it.

Transfer of Responsibility. Easton Suburban Water Authority assumes responsibility for:

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Operation and maintenance of the Water Treatment Plant and related City-owned water system distribution facilities and equipment.
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Meter reading, billing, collection, receivables and customer service of all water customers in the City of Easton.
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Financing of all capital improvements, restoration or replacements planned for the City-owned water system. This includes improvements at the Water Treatment Plant, Morgan Hill Tanks, meter replacements, water mains, pumping stations, reservoirs, and fire hydrants.

Lease Payments:

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Fixed – $1.3 million, with 2% increase per year through the term of the lease.
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Variable – 33.3 percent of all capacity related tapping fees collected each year during the term of the lease.

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Lump Sum – $1 million to address employee actuarial pension concerns, accumulated off-time benefits and non-transfer position requirements.
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Accounts Payable Forgiveness of over $700,000 already paid by the Authority on behalf of the City for Water Treatment Plant Design, Water Treatment Plant Action Plan, water purchase reimbursements, etc.

Customer Rates – Initially, City water rates gradually decreased as their higher rates were brought into line with the lower rates of Authority customers. Eventually, however, all customers will experience an equalized rate increase as necessary to pay for the capital improvements being made to the water system that services all Easton area customers.

City Water Bureau employees –Qualified employees were offered the opportunity of full-time, non-probationary employment with the Authority in accordance with the job descriptions, wages and benefits package currently in place at the Authority.


City of Easton Benefits
 
 

Income – The lease payments being paid to the City will exceed what could have been expected from Water Bureau income.

New Income –The City receives “new” income as a result of being paid 33.3 percent of all capacity tapping fees paid to the Authority each year.

Debt Expense Savings –In the first five years of the lease, the City will avoid borrowing money to pay for their portion of capital improvements that will result in a savings of $1.3 million per year for the next 25 years. During the remainder of the 25-year lease term, over $50 million will be required for infrastructure improvements to the City.

Cost of Operation –The lease agreement eliminates more than $5.2 million of annual operation and maintenance costs to the City.

Maintenance Costs –The lease agreement eliminates increased annual maintenance budgets and deferred maintenance problems for the City.

Maintenance Consistency –The City will benefit from consistent and timely operation and maintenance procedures on the water system.

Regulatory Liability –The City no longer has regulatory liabilities associated with permitting and compliance of the Water Treatment Plant and related facilities under the Federal Safe Drinking Water Act (SDWA).

Fire Protection –The City is not billed for Fire Protection Services as it maintains ownership of the fire hydrants that will be maintained and/or improved by the Authority

Regulatory & Operational Requirements

Authority’s Incorporated Life –The Authority’s Incorporated Life was extended as determined by financing requirements.

Operating Permits –Required operating and regulatory permits were transferred to the Authority.

System Operator - The Authority became the “System Operator” of all City and Suburban facilities and established a “doing business as” entity known as Easton Area Water Authority. As System Operator, the Authority is able to apply for low interest loans from the Pennsylvania Infrastructure Investment Authority.


Capital Improvement Plan

Project

 Year

 City Benefit

 Authority Benefit
Water Treatment Plant

 2007-2009

 $ 6,000,000

 $ 14,000,000
Morgan Hill Tank

 2007

 $ 4,000,000

15th Street System *

 2006-2008

 $ 2,100,000

 $ 4,900,000
Deferred Maintenance **

 2007-2031

 $ 50,000,000

Infrastructure Replacement

 2007-2031

 $ 25,000,000

 $ 50,000,000
CIAC

 2007-2031

$ 75,000,000
Total Asset Addition and
Financing Requirements ***

$ 87,100,000

 $ 146,000,000

* Authority financed entire project – City’s responsibility would have been 30 percent, or $2.1 million.

** Includes replacement of Davis Street Pumping Station.

*** Does not include future costs associated with Water Treatment Plant due to SDWA changes and finished water storage requirements.


Summary of Lease Agreement

History of ESWA and City of Easton

Frequently asked Questions

Service Area