The City of York is facing an unsustainable financial situation, which will require significant tax and fee increases and painful cuts to essential services – including the police department – to balance the budget and pay the City’s bills. Such a plan would be catastrophic to City residents and businesses and would likely reverse the recent economic gains that have been made in the City of York.
To save the City from this “doomsday” budget scenario, Mayor Michael Helfrich has proposed selling the City’s most valuable financial asset – the City’s wastewater system, which includes the treatment plant and collection system.
Public Input Session Videos
On January 14th, 2021 the City of York held two Public Input Sessions related to the proposed sale.
Reasons for Proposed Sale
How did the City of York get to this point where it cannot meet its financial obligations without large tax increases and deep cuts to services?
In recent years, the City has relied upon borrowing and short-term budget fixes to stave off significant tax hikes. Pension payments were put off, gradually digging a deeper financial hole for taxpayers. The City has drained its savings in recent years to keep taxes at bay. However, due to decades of financial strain, the tax rates in the City of York remain the highest in Central Pennsylvania.
Are there any other options, besides raising taxes or selling the wastewater treatment system, to meet the City’s financial obligations?
No. We have been fighting this battle with both hands tied behind our back, left with few options under Pennsylvania’s outdated and hopelessly broken tax laws. Independent experts agree the sale of York’s combined wastewater treatment plant and sewage collection system is the City’s best hope for digging itself out of its financial hole. As part of the state Municipal Financial Recovery Act, also known as Act 47, the City engaged the Pennsylvania Economy League in 2015 to conduct a study and develop an Early Intervention Plan (EIP) to address the City’s financial issues. Among the recommendations in the EIP was that the City explore a sale of the sewer system to improve its fiscal outlook. See below for more information on the EIP.
Does this mean the City is selling only the wastewater treatment plant?
No. The collection system, which is the network of pipelines transporting sewage from homes and businesses in the City to the treatment plant, consists of very old and outdated pipes. About 86% of the pipes in the collection system were installed before 1950 and are made from brick and clay, instead of safer and more contemporary materials. The cost of upgrading these facilities would be burdensome for the City to undertake without the financial resources and economies of scale available to a larger wastewater facility operator.
Background on York’s Fiscal Distress and State Programs
What is Act 47?
Act 47 (the Municipalities Financial Recovery Act), was enacted in 1987 and empowers the Pennsylvania Department of Community and Economic Development (DCED) to assist municipalities in avoiding financial distress. It further provides for debt restructuring and other financial adjustment actions. It is intended to “foster financial integrity of municipalities so that they provide for the health, safety, and welfare of their citizens….”
How widespread is Act 47 application throughout Pennsylvania?
Pennsylvania DCED data show many municipalities – including the cities of Harrisburg, Scranton and Reading – remain on the Act 47 financial distressed listing.
What is the Early Intervention Plan (EIP) Program
Pennsylvania’s EIP program – now known as the Strategic Management Planning Program (STMP) – offers grants to municipalities to hire financial consultants to prepare a three- to five-year financial plan review. Plans outline financial, managerial, and economic development strategies the municipality can implement to strengthen long-term and short-term financial capacity. The program is administered by the Pennsylvania DCED. The final report developed through the program is titled, “Long-Term Financial Improvement Initiatives Report.”
What did the 2015 City of York EIP report conclude?
The City of York engaged the Pennsylvania Economy League in 2015 to study the City’s finances and develop an EIP. The final EIP report discussed: General Fund Finances; Debt-Restructuring, Cash Defeasance and/or Monetization of Assets; Labor Considerations; and Alternative Approaches to Financial Stability. One conclusion pertained to the City Sewer System and specifically noted York should pursue a Monetization Model to explore prudent financial and operational alternatives. In other words, the EIP concluded that monetizing (selling) the City’s wastewater treatment system is a practical approach to stabilizing the City’s finances.
Background on The Public Bidding Process
What is the status of the City’s public bidding process?
The City issued a Request for Proposals (RFP) for the sale of the wastewater treatment system on July 10, 2020. Four respondents (Aqua Pennsylvania, NextEra Energy, Pennsylvania American Water Company, and York Water Company) responded to the RFP, and each was deemed qualified to submit a bid. Bids were received from respondents on December 9, 2020, and qualifying respondents were invited to submit “best and final” purchase price proposals on December 17, 2020. After review of all bids, the City’s bid review committee recommended that the City select Pennsylvania American Water Company’s bid to purchase the wastewater treatment system for $235 million.
Was the bid process only open to privately held, public-regulated utilities?
No. This was an open and transparent process. In addition to private-sector utility companies, the process was open to public municipal corporations and authorities. This includes the members of the newly formed suburban sewer authority, which was given ample opportunity to participate in the RFP process. However, the City received indications of interest only from private utility operators. The suburban authority did not submit a proposal.
Background on The Pennsylvania American Water Company Proposal
How significant is the Pennsylvania American Water Company bid for York City’s wastewater treatment system?
The company’s bid for York’s wastewater treatment system would rank as one of the largest acquisitions in the history of the company, surpassing the $195 million purchase of Scranton’s wastewater treatment system and the $159 million purchase of McKeesport’s system. It is a significant financial commitment to the City of York and an economic signal that the York region is a smart investment with tremendous growth potential.
How would the proceeds from the sale be used?
The proposal includes at least $15 million in an upfront payment that would cover the City’s 2021 budget deficit and prevent massive tax and fee hikes. The sale would also allow the City to pay off all its debts related to the York City Sewer Authority and certain of its municipal bond obligations and to stabilize and properly finance employee pension and other post-employment obligations. This would allow the City to be free of much of its legacy costs, with the ability to shape its financial future.
Who will decide how the remaining net proceeds will be used?
“Net proceeds” refer to the funds the City will have at its disposal after closing on the transaction and paying off debt and transactional costs, including stabilizing and properly meeting all pension and related financial obligations. The specific amount of net proceeds cannot be determined because the timing of any closing on the transaction remains uncertain.
The City has engaged the Pennsylvania Economy League (PEL) to assist with this process. The PEL is a non-partisan, data-driven non-profit organization dedicated to improving government efficiency, eliminating wasteful spending, and building a better future for our Pennsylvania communities. The PEL will work to engage community leaders and the public on the prudent use of net sale proceeds (after paying off the sewer system debt) toward ongoing revenues and/or ongoing expense reductions. The PEL will guide the city on the use of proceeds to invest in the City’s future.
Recommendations from PEL will be developed in partnership with a community-based committee and public involvement. Before any decisions are made, the recommendations will also be presented to the community through public workshops. Finally, the recommendations will be provided to City Council for a final decision.
How long has the City been working with the Pennsylvania Economy League?
In December 2020, the PEL was engaged to assist with historical financial analysis and projections, use of proceeds and public engagement. Prior to that, in 2015, the PEL developed an Early Intervention Plan (see above) for the City. Among the recommendations for the City in 2015 was to explore a sale of the sewer system to improve its fiscal outlook. The PEL has long been involved in the greater York community and maintains a local civic leadership committee that is concerned with local issues and topics.
RFP Next Steps
What are the next steps now that the City has received a recommendation from bid review committee?
The bid review committee’s recommendation must be presented to City Council for approval. The recommendation will also be presented to the York City Sewer Authority Board during the first quarter of 2021. Additionally, the proposed transaction must be memorialized in an asset purchase agreement and submitted to the Pennsylvania Public Utilities Commission (PUC) for review and approval.
Does that mean a sale is a foregone conclusion?
No, the sale will only occur upon receipt of the requisite approvals, including approval from the PUC.
How long does the PUC approval process take?
By statute, the PUC is required to complete its review of asset sale transactions within six months of accepting an application. However, the total review process can take more time because the PUC may conduct a preliminary review before it formally recognizes an application as “accepted”.
When would the City receive the $235 million?
Pennsylvania American Water Company’s proposal includes an advance deposit of at least $15 million to be paid out within 60 days of signing an asset purchase agreement. This portion of the $235 million purchase price is anticipated to be received by mid-2021. The balance of the purchase price would be transferred at closing, following the anticipated approval of the transaction by the PUC.
If the PUC has not approved the sale, why did the City factor revenue from the sale into its 2021 budget?
The City only incorporated revenue from the $15 million advance deposit into its 2021 budget.
Who will choose the members of the community-based committee? Who are the stakeholders who will be engaged in the process?
The goal is for a cross-section of residents, rate payers, business owners, community leaders, in addition to members of City Council and the Administration, to serve on the committee. Members of the committee will participate in the workshops and provide input on use of the net sale proceeds. Ultimately, City Council will make final decisions on the use of proceeds. Committee members will include key stakeholders who represent organizations that serve the City of York. Interested parties can indicate their interest, or make recommendations for organizations to be represented on the committee, by sending an email to firstname.lastname@example.org.
Potential Impact on Sewer Rates & Customer Service
What happens to sewer rates if the system is sold to Pennsylvania American Water Company?
Pennsylvania American Water Company’s proposal includes a three-year rate freeze for all direct-service customers. This means the company would adopt the rates currently paid by customers in the City of York, and those rates would not change for at least three years. After three years, Pennsylvania American Water Company may propose rate increases, but any rate increases would be effective only upon review and approval by the Pennsylvania Public Utility Commission (PUC).
PUC rules and regulations require that any rate increases be publicly noticed to all customers as well as statutory advocates such as the Pennsylvania Office of Consumer Advocate, the Pennsylvania Office of Small Business Advocate, and the PUC’s Bureau of Investigation and Enforcement. Each of these entities would actively review any rate increases proposed by Pennsylvania American Water Company to protect customers from unreasonable or unsupported rate increases.
Additionally, direct-service customers of Pennsylvania American Water Company are eligible for the company’s discount program for low-income customers. The company currently offers annual grants up to $500 and 20% bill discounts for qualifying low-income customers. City residents with household income within 200% of the Federal Poverty Income Guidelines (FPIG) would be eligible for the program and could therefore see a reduction in their sewer costs. Specifically, customers within 200% of the FPIG are eligible for the grants while customers within 150% of the FPIG are also eligible for the bill discount.
These benefits offer critical rate relief for the most vulnerable residents in the City. In fact, Pennsylvania American Water Company recently asked the PUC for approval to increase the low-income bill discount to 30%. It is expected that the PUC will approve this request in the first quarter of 2021, meaning low-income City customers of Pennsylvania American Water Company would be eligible for the higher 30% bill discount.
Don’t these private utility companies seek profit for shareholders? Why should the City sell the system so another entity can profit from it?
It is true that private companies have a profit motive and public utility operators do not. However, private companies operating utility systems are not permitted to charge market rates for their services. As detailed below, private utility services are regulated by the state to ensure that rates charged recover only the actual cost of service plus a reasonable (meaning not excessive) return on investment which contributes to the overall profit. In return, the City’s customers will benefit from improved training for system staff and workers, cutting edge system upgrades, and industry-leading environmental and sustainability initiatives, as well as long-term tax savings from revenue generated by the sale.
Even if the system is sold to a larger company, wouldn’t that company still hold customers served by the City’s system responsible for the full costs of serving the system?
No. Pennsylvania American Water Company can spread the cost of infrastructure upgrades across more than 2 million water and sewer customers throughout 400 municipalities statewide. As a regulated utility, Pennsylvania American Water Company is specifically permitted under Pennsylvania law to allocate costs across its entire system to prevent rate shock for individual customers across the system.
How would a sale affect residents’ customer service?
If the City were to move forward with a sale, the RFP required bidders to address how they would provide customer service to City residents. Pennsylvania American Water Company has agreed to maintain a physical customer service office within the City of York and to offer 24-hour support through telephone and online resources.
Public Health and Safety
If the system is sold, will the Pennsylvania Department of Environmental Protection (DEP) and the U.S. Environmental Protection Agency (EPA) continue to have jurisdiction over the City system?
Yes. The state DEP and federal EPA would continue to have jurisdiction over the City system in the event of a sale.
Who controls service quality following a sale of the system?
Pennsylvania DEP and U.S. EPA will provide continuing oversight over environmental compliance. If the system is sold to a private operator, the PUC would oversee and regulate service issues such as billing and customer service.
Who assumes the risk if unexpected system or environmental problems arise?
The winning bidder does. Also, the winning bidder has the continuing responsibility to ensure the City system continues to adhere to all state and federal regulatory and environmental requirements.
We know upgrades are needed to the aging wastewater collection system. Will this sale finally bring our system up to modern standards?
Yes. Pennsylvania American Water Company will invest millions of dollars to modernize and upgrade the York system to ensure safe and reliable wastewater treatment services to the community for generations to come. Pennsylvania American Water Company has a proven track record as a customer-centered and community-focused company with a deep commitment to corporate and environmental responsibility. From McKeesport to Scranton, Fairview Township to Steelton – Pennsylvania American Water Company has brought financial stability to the communities it serves while also increasing reliability of wastewater treatment services.
Impact to Employees
What becomes of the City's employees that work at the system?
The City cares about its workers that would be affected by a system sale and would take steps to protect them to ensure the impact would be minimal. For instance, the City’s RFP included as a condition of the sale that all current employees in good standing be offered similar positions with the new owner and the new owner would be required to recognize the union representing those employees. The buyer is also required to adopt the City’s collective bargaining agreement for the sewer employees. Pennsylvania American Water Company has agreed to these conditions.