New Garden continues sewer sale negotiations
04/19/2016 12:12PM ● Published by Richard Gaw
New Garden Township has announced that it will continue talks to sell its sewage system to the one company who has remained in the bidding process for the purchase of the system, since it first kicked off last November.
As spelled out in the township supervisors' meeting on April 14, Spence Andress, a member of the township's Sewer Authority Board, provided a summary of the work already done on the possible sale of the system to Kennett Square-based Aqua Pennsylvania Wastewater, Inc. – a roadmap of meetings, proposals and analysis that is anticipated to lead to the final sale at the supervisors' meeting on June 20.
Late last year, the township sent out request for proposals [RFP] in order to determine potential interest and qualifications from outside companies. They received initial proposals from the following interested parties: Aqua Pennsylvania Wastewater, Inc.; the Pennsylvania American Water Company, based in Vorhees, N.J.; and Chester-based Delcora. Contained in each proposal were unique provisions and approaches to the potential structure of a sale, which included not only monetary offers but other components, including capital improvements, future rate increases and expanded infrastructure.
Over the next several months, three addendums were tacked on to the original RFP, and on March 18, when responses to the addendums were received, the township learned that two of the three bidding companies – Pennsylvania American Water Company and Delcora – had chosen to withdraw from consideration.
In order to determine the best path toward the sale, a committee was formed made up of members of the sewer authority board; two of the township's supervisors, Tony Scheivert, the township's manager; township solicitor Vince Pompo; and Andress. The group has looked into several components of the potential sale, including potential rates, capital investments, and return on investments for the township. committee also hired AUS Consultants to determine the dollar value of the entire system, as well as attorney Steven Goldfield to help the committee structure the language and nuances of the potential transaction.
As part of their involvement, AUS presented a cost study report to the committee last September, and followed it up with a business enterprise valuation report last December.
During the next two to three months, as negotiations between the township and Aqua Pennsylvania Wastewater, Inc. move forward, the committee will grapple with how the proceeds from the sale of the sewer system will be distributed. The committee has been tossing several potential areas of need in the township, which include the idea of using the proceeds to pay down the township's debt; creating programs to stimulate economic development and investment in the township; freezing sewer rates; developing public safety improvements; dedicating funds toward open space preservation; and potential capital improvements.
“That's been a question that's come to the board on several occasions in the past,” Andress said. “'If the sale goes through, what are you going to do with the money?' That will be addressed, and input will be solicited from the public.”
Another pending talking point will be how the potential sale of the system will affect local sewer rates in the township. The public will be made aware of any additional details of the potential sale, as well as be given at last two opportunities to voice their opinion to the supervisors and committee.
A primary reason the township is exploring the concept of selling may have a lot to do with the fact that many of those in the know consider the current sewer system to be woefully outdated. The Toughkenamon stretch of the system was installed in 1969; another section was built in 1998; and the system in Somerset Lake was built in 2001 – all sure signs that there could be trouble in the future, given that the life expectancy of these systems range from 25 to 45 years.
Andress said at the November meeting that over the next seven to nine years, the township will be expected to spend between $9 million to $12 million to upgrade or replace these systems – if it chooses to maintain ownership of its sewage system.
If the township is able to sign off on the sale with Aqua Pennsylvania Wastewater, Inc., its stands to make a huge profit, and a quick look around the area proves it. In 2013, Allentown leased its water authority for a period of 50 years, and in doing so, helped avert a potential financial crisis. Middletown Borough in Dauphin County sold its sewage system for $43 million last year.
Yet, while having a private company operate a township's sewer system may be able to lower monthly and yearly taxpayer rates by economy of scale, what a large company may chose to do in the future to expand the system is a question that is also expected to be raised.
Close to home, Coatesville sold its system to the Pennsylvania American Water Company for $48 million in 2001, and soon after, the company froze any rate increases for a period of three years. During that time, however, the company made improvements to the outdated system that numbered well into the millions, ultimately turning to local residents to pay for it. Currently, Coatesville taxpayers are paying 282 percent more in sewer rates per month than they did when the sale was finalized 15 years ago.
At the meeting, former supervisor Robert Perotti raised another potential red flag, should the township follow through with the sale of its sewage system: the possibility for more development in the township.
“These companies are in business to do more business,to sell more sewer systems,” he said. “Do you think there will be an explosion of housing in New Garden Township? When that plant was built n Somerset lake to furnish sewer for [the development], it turned into 715 homes between there and Hartefeld...and another 120 homes or so across the street. If you don't think that sewer brings development, then I think you're wrong.
“I would urge the board to consider the fact that selling this is going to make this township explode.”
Pompo insisted to Perotti that are mechanisms to put into place during the negotiations, in order to avoid going beyond the existing service areas.
“A lot of information has been made available to the supervisors, the sewer authority and to some extent the public, but this is a work in progress,” Andress said. “No decisions have been made yet, and there are still a number of issues to be worked through.
“We're not going to talk dollars and cents tonight, but I think in general terms, it's fair to say that compared to the initial responses that were received, the current response [from Aqua Pennsylvania Wastewater, Inc.] is significantly better in a number of ways.”
To contact Staff Writer Richard L. Gaw, e-mail email@example.com.