‘We’re stuck between a rock and a hard place’
10/18/2016 01:45PM ● Published by Steven Hoffman
Three months have passed since the Oxford Area Sewer Authority Board approved a 30-percent rate increase and publicly acknowledged that it was unable to make the debt-service payments that are due on a $27 million loan. Oxford area officials have been working in a variety of ways ever since to address both the immediate and the long-term issues plaguing the Sewer Authority, and on three consecutive nights last week, Oxford Borough, East Nottingham Township, and Lower Oxford held meetings that were highlighted by discussions about the situation.
On Oct. 10, Oxford Borough Council made a bold statement by approving a resolution asking the Oxford Area Sewer Authority Board to demand the resignation of Ed Lennex, the top administrator who was entrusted with, among other duties, attending to the short-term and long-term financial health of the Sewer Authority. The call for Lennex's dismissal could hardly be considered a surprise at this point, as local officials' frustrations with the Sewer Authority's financial operations have grown almost daily since the details about the situation started to emerge.
The Sewer Authority's current revenues are lagging far behind expenditures, and a debt-service payment that was due in June still hasn't been paid in full. Late fees and penalties were expected to start to accrue at the beginning of this month, perhaps amounting to more than $2,000 per day, although there has also been talk that it's closer to $2,600 per day.
One common complaint from local officials about Lennex and the Sewer Authority is that whenever there are discussions about the financial situation, the numbers seem to change constantly. Do the penalties and late fees add up to $2,000 per day or $2, 600 per day? The Sewer Authority's revenue shortfalls will likely be in excess of $1 million by the end of the year, but at different points the shortfall has been projected to be $1.5 million or $1.8 million.
For elected officials in the Oxford area, the differences in those numbers are significant. At the time the Sewer Authority Secured the $27 million loan to expand the public sewage system in the Oxford area, the four member municipalities that formed the Sewer Authority—Oxford Borough, East Nottingham Township, West Nottingham Township, and Lower Oxford Township—had to agree to back the loan. With the Sewer Authority now facing significant revenue shortfalls, it will likely be up to the municipalities to pay the portion of the debt-service payment that the Sewer Authority can’t pay.
On Oct. 12, Lower Oxford Township's three supervisors were twenty minutes into a conversation about the financial crisis gripping the Oxford Area Sewer Authority, and the impact that it could have on Lower Oxford Township. Vice chairman Ron Kepler was talking about how the township might have to spend between $250,000 and $300,000 to pay its share of the debt-service payments that the Oxford Area Sewer Authority can't pay for. Concerned about the prospect of spending such a large sum of money, Kepler turned to township secretary/treasurer Sara Laganelli, and asked, “What will that do to the budget?”
Laganelli just shook her head. There are no easy solutions and no really good options at this point as local officials head into budget season with an unexpected and unwanted expenditure laid at their feet.
At the Oct. 11 meeting, East Nottingham Township supervisor Shelley Meadowcroft provided a very candid assessment of the situation when she said, “We're stuck between a rock and a hard place.”
Meadowcroft explained that several options have been discussed by the Sewer Authority Board and local officials. One option was to have the Sewer Authority take out an additional loan, once again guaranteed by the four municipalities, that would provide an infusion of cash and give the Sewer Authority some time for more Equivalent Dwelling Units (EDUs) to be purchased by residential and commercial developers, which would grow revenues. Not surprisingly, there was little support for the idea of borrowing even more money.
A second option, which could be gaining support among local officials, is for each member municipality to enter into an agreement to purchase EDUs directly from the Sewer Authority instead of simply paying the balance of the debt-service payment.
Meadowcroft said that the main benefit of this option is that it will offer the municipalities a chance to recoup some of the money—each municipality would have EDUs that have value.
During the discussions, which are still not finalized, a plan emerged where East Nottingham Township would purchase 129 EDUs, at a cost of $4,915 per EDU, for a total of approximately $634,000. Lower Oxford Township would also purchase 129 EDUs, Oxford Borough would buy 84 EDUs, and West Nottingham Township would purchase 29 EDUs.
Like Meadowcroft in East Nottingham, Kepler spoke positively about the concept of buying EDUs rather than simply writing a check to cover a portion of the Sewer Authority's debt-service payment. Lower Oxford is contractually obligated to be responsible for 16 percent of the loan. If the Sewer Authority's revenue shortfall is between $1.5 million and $1.8 million, Lower Oxford would be responsible for between $250,000 and $300,000.
“If we don't do anything else, we'll be responsible for...$250,000 to $300,000,” Kepler said. “I would hate to spend $250,000 and have nothing. At least [if we buy the EDUs] we have something in our hands.”
It is certainly not an easy negotiation to get all four municipalities to agree to purchase EDUs from the Sewer Authority. Lower Oxford Township supervisor Joel Brown told his colleagues that during the discussions, West Nottingham Township representatives made it clear that when a developer purchases EDUs for a project, the money from the sale will be divided among all four municipalities so that each one recoups their investment a little at a time. There would be no way that West Nottingham Township could justify buying the EDUs at this point because they don't currently have the sewer line in the ground that they would need to allow a developer to connect to the system—in other words, if West Nottingham had to rely on a development within its own borders to recoup the funds, that won't be happening any time soon.
Supervisors in both East Nottingham and Lower Oxford said that it was imperative that all four member municipalities agree to purchase the EDUs if this option is to work—it's the only way that the EDU sale would generate the necessary revenues to give the Sewer Authority some breathing room.
“We need a commitment that all four municipalities buy EDUs,” Brown said.
Kepler agreed—and made a motion that Lower Oxford Township approve the purchase of up to 129 EDUs at a reasonable rate if all four member municipalities vote to do the same. The Lower Oxford supervisors approved the motion.
In East Nottingham Township, the supervisors did not take a vote on the EDU purchase, perhaps due in part to the fact that Oxford Borough Council did not vote to purchase the EDUs at its Oct. 10 meeting, electing instead to vote for the ouster of Lennex.
Officials in both East Nottingham Township and Lower Oxford Township discussed the possibility of also calling for Lennex’s dismissal, but the overriding feeling is that the current financial situation is so serious that it must be dealt with first. If Lennex were to leave now, it would create another issue because someone needs to provide the day-to-day oversight of the sewer authority.
“Our problem at hand,” said Meadowcroft, “is the financial problem.”
The decision by supervisors in Lower Oxford and East Nottingham not to vote to call for Lennex's resignation should not be interpreted as some sort of vote of confidence in the Sewer Authority executive director's job performance. While local officials generally praised the day-to-day operations of the sewage treatment plant, there were a lot of concerns about how Lennex has overseen the financial operations of the Sewer Authority, particularly as the current, dire financial situation developed. Officials have openly questioned why the Sewer Authority wasn't aware of the financial issues earlier, and why they didn't do a better job of communicating these issues with local officials.
At the meeting in July when the Sewer Authority detailed the severity of the financial crisis, several local officials pointed out that Lennex had appeared at township meetings within the last year and intimated that the Sewer Authority's finances were in good order.
Many of the elected officials also likely recalled presentations six years ago, during the time the $27 million loan was being secured, when Lennex talked about how unlikely it was that the member municipalities would have to step in to cover debt-service payments. Local officials were relying on Lennex's statements as they made their decision to agree to back the loans in the first place.
Kepler cited minutes from a Lower Oxford Township meeting in 2009 when he specifically asked Lennex about whether the Sewer Authority would be able to keep up with the debt-service payments, even if the economy didn't bounce back immediately from the recession that was gripping the U.S. at the time. Lennex said that they would.
Now, local officials are taking a closer look at some of the decisions that have been made by the Sewer Authority.
Lower Oxford Township chairman Ken Hershey pointed out one small example where the Sewer Authority's decision-making on financial issues is not as conservative as the township's decision-making: A back road leading to the lagoon on the Ross Farm was black-topped.
“Would Lower Oxford have done that?” Hershey asked, shaking his head in frustration.
“All the municipalities have lost faith in Ed Lennex,” Brown agreed.
The municipalities have taken several steps to ensure more control over how the Sewer Authority is utilizing its resources.
Meadowcroft told her colleagues in East Nottingham that local officials want to have language in the contract for the purchase of the EDUs that requires all the money raised to be used for the payment on the debt, and not for any other purpose.
The East Nottingham Township supervisors also voted to allocate up to $5,000 for an independent accounting of the Sewer Authority's financial reports. Lower Oxford Township's supervisors did the same.
Another priority, Meadowcroft said, is to have someone representing the municipalities' interests have direct discussions with the USDA. Both East Nottingham and Lower Oxford supervisors voted in favor of authorizing the township solicitor to meet with officials from the USDA to discuss the terms and status of the loan.
While local officials are eager to find a way to address the Sewer Authority's current financial crisis, they also want to have the best information possible to make decisions.
“We're going to take our time and see what the USDA says,” explained Art Rieck, the chairman of the East Nottingham Township Board of Supervisors. “We're just as concerned as everybody else.”
Meadowcroft said that the four member municipalities have signed an intergovernmental cooperation agreement with each other and formed a study committee that is looking at some of the long-term issues that the Sewer Authority is facing. Supervisor Sam Goodley is serving on that committee from East Nottingham. Supervisor Eric Todd is representing West Nottingham, Ron Hershey is representing Oxford Borough, and Joel Brown is representing Lower Oxford Township. That committee has retained Spencer Andress as a consultant. One option that will be explored in great detail will likely be the sale of the state-of-the-art sewage treatment plant to a company like Aqua Pennsylvania Wastewater, which is deep into the process of purchasing New Garden Township's wastewater treatment plant for more than $29 million.
“I've watched the Oxford Area Sewer Authority for 15 years,” said Brown. “I think the long-term solution is selling it to someone who is in the business of running a public sewage plant.”