Is this privatization?

Absolutely Not:

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Easton Suburban Water Authority is not a private company, it is a non-profit government agency created by the City and regulated by the Pennsylvania Municipality Authorities Act.
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By law, all Authority income from operations is used for improvements of the water system. Conversely, private companies use income to pay stockholder dividends.
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Privatization means buying the assets, and the Authority is leasing the assets.

Why would the City give away such a valuable asset?

They are not:

The Authority is leasing the City’s water system assets, including the water treatment plant, for 25 years to make the necessary improvements needed. The City will continue to maintain ownership of all assets, including the plant. In fact, the value of the City’s assets will increase dramatically based on the capital improvement projects that are being considered during the term of the lease.

Why can’t the City continue to run the plant as it has in the past?

The City of Easton could have continued to operate the plant and its distribution system as it had since the beginning of the Authority. The stumbling block was the financing of current and future improvement projects required by the Pennsylvania Department of Environmental Protection and/or needed for system reliability for all water customers.

If the City had decided to continue to run the plant, the cost for the mandated improvements to the Water Plant would have been split between the City and the Authority, (City - 30 percent of the total cost, Authority - 70 percent), with the City’s debt obligation being $5 million. In addition, the City would have been faced with replacing its Morgan Hill Tanks and large meters, as well as improving its distribution infrastructure. During the next 5 years, the City would face annual debt payments of more than $1,300,000 for the next 20 years.


Why is the Authority interested in operating the plant?

The Authority wants to ensure all customers that significant improvements will be made to the plant and that funds will be set aside to maintain those investments and extend the useful life of the facilities. Over the past 25 years, the City has invested less than $5 million on improvements to its entire water system, only $3 million of that went toward improvements at the plant. As a result, the plant is now in serious need of renovation and improvement. The Authority invested more than $9 million for plant improvement 25 years ago and now is looking at making an investment of $14 million for the current plant project. It is clear that the Authority has a vested interest in making sure that the capital improvements are made and well maintained so that we can provide a quality water supply for customers now and well into the future.


What kind of improvements will be made to the Water Treatment Plant, and are they necessary?

The number and technical complexity of the improvements is extensive. Generally, however, they fall into three categories: 1) compliance with new regulations set by the Safe Drinking Water Act – projected cost $8 million, 2) replacement or upgrading the plant’s aging equipment and water treatment processes – projected cost $8 million and, 3) increasing plant production capacity from 12 million gallons per day to 16 million gallons per day – projected cost $4 million.

Since the bulk of growth is occurring in the suburbs around Easton, the Authority will pay for 100 percent of the cost for increased capacity. Without the Agreement, the $8 million it will cost to assure that the entire water system operates in compliance with the Safe Drinking Water Act would be split by both the City and the Authority based on water used from the Treatment Plant (30 percent City; 70 percent Authority). Likewise, without the Agreement, the $8 million cost to rehabilitate the plant’s aging equipment and processes, which have not been improved since 1980, would also be split 30/70.

With the Agreement, the Authority is paying for all of the capital improvements made to the Water Treatment Plant and system facilities. Construction of the Water Plant Rehabilitation will take place over a 24-month period beginning in 2007. Over the life of the 25 year lease, in excess of $85 million will be spent on improvements to the plant and City-owned facilities and distribution system. Once the level of debt expense has been established, the Authority will be able to determine the customer rates required to support that debt.
 
 

Will water rates go up?

In order to maintain the quality and reliability of the water system, capital improvements must be made to the water treatment plant and its related facilities. Eventually all customers will experience a rate increase as necessary to pay for those capital improvements. The real issue is how this lease agreement could impact those rate increases. With this Lease Agreement, customers will benefit from:

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All net income from operations will be used to maintain and improve the water system, along with service reliability to all customers. This would reduce the amount of borrowed money needed.
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All fees collected from developers will be used to improve the water system and service reliability to all customers, also reducing the amount of borrowed money needed.
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A combined customer base (the City serves 9,000 customers; the Authority over 22,000) would result in the sharing of improvement costs over a greater number of customers.
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All customers, both City and Suburban, will benefit from customer growth as it relates to additional income and capital charges from developers.

What will happen to the City Water Bureau employees if the Lease Agreement is approved?

Under the agreement, the full complement of the 19 positions that currently exist within the City Water Bureau will still be required for successful operation of the water system. In fact, the Authority may need to create additional positions as the capital improvements are undertaken. All qualified City Water Bureau employees will be provided the opportunity for employment with the Authority in accordance with the wage and benefits package currently enjoyed by its employees.


Did the City consider any other alternatives?

Yes, however after lengthy conversation, it was determined that the Authority’s lease proposal was the best option for the City, financially and operationally, and the best option for its water customers over any of the following alternatives:

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City taking the place of the Authority
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Forming a joint authority
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Selling the City’s assets
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Maintaining operations as they are today


Why couldn’t the City take the place of the Authority and do what they are doing?

Because of the considerable unfavorable economic impact this alternative would have on the City and its customers. For example:

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Before such a venture could take place, the City would have to pay off all outstanding Authority debt (in excess of $11 million).
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Any construction escrow funds held by the Authority could only be spent on the Authority’s water system.
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The significant amount of revenue the Authority collects from tapping fees to developers would be in jeopardy.
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All customer water rates would be controlled by the Public Utility Commission (PUC), and the income from operations could be used only for the water system.
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Income from the water system could not be used for any other City budgeting needs.
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Suburban municipalities would be provided the opportunity to voice their position.