York City considers whether lease would turn sewers into cash cow
Facing a projected deficit of $3.1 million in 2020, York City is cautiously exploring the possibility of leasing its sewer collection system, which includes the wastewater treatment plant and pipes that transport solid waste to the plant.
The city should be "very careful as we tread down this path," said business administrator Michael Doweary.
The lease of the sewer collection system would last perhaps 50 years, said Dave Unkovik of the Harrisburg-based law firm McNees Wallace and Nurick, which has helped other cities monetize their assets.
The city could oversee the system's operation and place restrictions on the party leasing the system.
The sewer collection system is not a drain on the city, "but the city is not profiting from it, in general," Doweary said.
Asset monetization, which also can include the sale of assets, was recommended in a report released last month under a state-created program to help cash-strapped municipalities.
"(Asset monetization) has been talked about for at least 10 years now," said Mayor Kim Bracey. "I think the time is right."
But the exploratory process is just beginning. Right now the city is "just guessing" about the value of its assets and whether monetization would generate enough money to help it stave off bankruptcy and take some of the weight off taxpayers, Bracey said.
The parking system also is being considered for monetization.
Recommendations: The report, produced by the Pennsylvania Economy League and other advisers, recommended the monetization of some of the city's assets — the sewer system, the parking system and the ice rink — as a way to pay down debt and keep the city solvent.
The sewer assets are, the report says, "generating sufficient revenues to pay for their own operations, capital improvements and associated debt service."
But the city could be getting more revenue from the sewer system by agreeing to a private management contract, eliminating sewer-related debt, refinancing or restructuring debt payments to increase the flow of money to the city's general fund or monetizing the sewer assets.
If the city chooses to monetize sewer assets, the report says, proceeds could be used to:
•Repay all or part of the ice rink's debt
•Repay all or part of the parking debt
•Make a deposit into one or more pension funds
•Use revenue share to increase subsidy to the city's general fund
To determine whether it's worth leasing the sewer collection system, "we need to understand how much we'd save by paying (our debts) off with a big lump sum," said Councilman Michael Helfrich.
That lump sum would be paid to the city by the concessionaire at the beginning of the lease.
By paying off a large amount of its debt now, Helfrich said, the city could save on interest. Lower debt could result in lower taxes, he said, but it might not be worth it if the party leasing the sewer collection system charged people higher rates.
Exploring: The exploratory process is expensive, said Doweary.
The city must pay consultants, lawyers and engineers to help with research, but the city has applied for grants.
In October at the earliest, Doweary said, the city will issue a request for proposal and start receiving bids on the lease. Seven to nine months later, if it determines that leasing is the right path, it may accept one of the bids.
One of the city's concerns is that the 32 city employees who work within the sewer collection system retain their jobs.
"We want to make sure our employees are protected," said Jim Gross, the city's director of public works.
One of the terms of the lease, Unkovik said, should be that all employees be offered similar positions, that the employees' union be recognized and employees enjoy the same pay and benefits.
Rate caps: The city wants to watch out for its sewer customers, who number about 14,000, and could put a limit on rate increases, Unkovik said.
"The primary concern is protecting citizens," Helfrich said. "The sewer fee, by definition, is not a tax, but it's basically another tax on our citizens. If you don't like your sewer fee, you can vote the bums out. That's democracy. If you hand the sewer system into private hands, you can make stipulations on how much they can raise the sewer fee, but 20 years from now, if citizens don't like what's happening, they can't do anything about it."
It remains to be seen how a private company or nonprofit could turn a profit while paying the city, obeying environmental and safety regulations, paying workers the same wages and benefits, and not drastically increasing rates to customers.
"I think that would be a question for the bidder," Doweary said. "We're not going to accept anything lower than what we're already receiving."
"Large multinational companies" will bid on the lease, Gross said. "They may have increased purchasing power. They may be able to save money by buying the same materials for multiple plants they operate."
The majority of the sewer collection system is more than 70 years old, and over the coming decades it will need substantial capital improvements, Helfrich said.