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Potential buyer makes pitch to York City sewer users

Logan Hullinger
York Dispatch
The City of York's wastewater treatment plant.
Tuesday, August 25, 2020
John A. Pavoncello photo

The company looking to purchase York City's wastewater system made its pitch Thursday during two public forums, but there was relatively little feedback from city residents.

Representatives from Pennsylvania American Water, which aims to purchase the system for $235 million, were joined by members of the Pennsylvania Economy League and city officials in what were largely one-sided exchanges. Mayor Michael Helfrich, who is on vacation, was also in attendance despite conflicting reports about whether he'd be available.

Company representatives spent 45 minutes each meeting laying out Pennsylvania American's plans should York City Council and other entities vote to go through with the sale. Twelve members of the public attending the virtual events made statements during the public comment phase, both in support and opposition of the sale.

Several of those who commented said they were not city residents.

“We have a basic fundamental belief that we are solution providers,” said Mike Doran, president of Pennsylvania-American Water. “We are convinced that when communities we are a part of are successful, we are successful.”

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More:York City will pitch wastewater sale at two public forums

Shortly after the first hearing, Helfrich, who has spearheaded the push to sell the system, did not comment during Thursday's forum but emphasized the importance of the sale in an op-ed signed by him and Doran.

"The proposed $235 million sale of York’s wastewater system is more than just a financial commitment; it’s an economic signal that the York region is a smart investment with tremendous growth potential," they wrote.

Chaz Green, serving as acting mayor until Jan. 22 while Helfrich is on vacation, moderated the forum and commented only to provide background about the sale and outline the next steps.

City solicitor Jason Sabol emphasized the deal is far from final.

Throughout York City's privatization effort, in which Pennsylvania American Water was the highest of four bidders, critics have alleged that the company would hike sewer rates at the first opportunity.

The company has committed to not raising rates for the first three years following the purchase, officials said. 

Any future rate hikes would require approval from the Pennsylvania Public Utility Commission, and any increases would be gradual, Doran stressed, calling it a "very lengthy process."

“We have the burden to show that we’ve been prudent in our investment. We have to show we are operating the system efficiently," he said.

Gerald Cross, a senior research fellow for the Pennsylvania Economy League, said rate increases are inevitable with or without the sale.

The organization estimated that in the short term alone, the city would need to increase its rates by 41% to cover anticipated capital expenditures, which would entail a $51 monthly payment for every 4,000 gallons of water sent to the system.

In general, the city can't afford to turn down the $235 million deal, which includes $15 million in advance, Cross said.

More importantly, he added, the city must not use to the revenues for typical operating expenditures year after year, but rather pay down debt services and pension payments while changing how it finances itself in the long term.

The City of York's wastewater treatment plant.
Tuesday, August 25, 2020
John A. Pavoncello photo

“The city has very few options other than the mechanism of sewer rates and property taxes and income taxes," Cross said. "And they would have to be increased by significant amounts."

Avoiding tax increases was at the crux of the city's decision to sell the wastewater system, which was able to plug a $14 million budget deficit. By passing a budget last month contingent upon its sale, the city avoided a 48% property tax hike, numerous fee increases and the loss of 21 jobs.

Some callers during the meetings, including those who said they've had experience with Pennsylvania American Water, supported the sale and praised the company. Others, however, took issue with a variety of aspects about the sale.

City resident Don Hake, for example, said he was deeply concerned about the fact that the sale would privatize the system.

"A for-profit organization is dedicated to make a profit and distributing its dividends," he said. "Is that not true? I have a great deal of skepticism of this."

Jeff Hines, former president of York Water Co., which also made a bid on the system, said Pennsylvania American Water will "run the system well." 

But by his math, he said, rates would likely triple after the rate hike moratorium were lifted, adding that "There is no free lunch."

"This sale will create future problems," he said.

Helfrich, however, said city residents should "not assume the opinions you hear from individuals are correct" and that there will be future meetings further detailing the sale and answering residents' questions.

Kelly Kelch, spokesperson for the York Area Regional Sewer Authority, echoed Hine's concerns about rate hikes.

The authority, composed of five surrounding municipalities, sought to purchase just the wastewater plant. Its members have argued that keeping the plant under local control would be the best way to keep rates down.

"If the sale with American goes through, rates will significantly increase once this three-year freeze is over," Kelch said.

Kelch added that the "exceedingly attractive" $235 million price tag is misleading. The city only has plans to allocate $197 million, and the remaining funds are a "bonus" that would ultimately be paid for with future rate hikes, he argued.

Kelch also reiterated past gripes about Helfrich not meeting with the authority during the requests for proposals process.

But Helfrich again on Thursday said engaging in outside discussions would have been illegal, as the authority did not make any proposals because it only wanted to purchase the plant rather than the entire system.

Pennsylvania-American Water is the largest publicly traded water utility company in the state. In total, it manages 20 wastewater plants across the state, and it manages wastewater systems in 13 counties.

One of those counties is York. The company serves about 4,100 customers through its wastewater system in Fairview Township.

Company officials have said that, if the sale goes through in York City, all current employees would be offered jobs and that it would happily work with the union.

York City Council is expected to vote on the sale of its wastewater system in early February. If approved, the sale would then also need to be approved by the York City Sewer Authority.

The PUC would then conduct a six-month review of the potential sale before it is finalized, which city officials anticipate being later this year.

— Logan Hullinger can be reached at lhullinger@yorkdispatch.com or via Twitter at @LoganHullYD.