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November 2nd, 2012

Muddy Waters in Allentown

By Mary Grant

On Wednesday, the Allentown City Council signed off on the mayor’s proposal to proceed with a massive water privatization scheme. The vote authorized the city to solicit proposals from seven entities that want to control the city’s water and sewer systems.

Allentown Mayor Ed Pawlowski seems to think that he’s found a clever way to shore up the city’s struggling police and fire pension funds. His plan? Hand over control of the water and sewer systems for 50 years to a company that would pay the city at least $150 million upfront and $4 million a year over the course of the lease.

Sound easy? It’s not. The proposed privatization is a massive undertaking that would have lasting consequences for generations of residents.

Because water and sewer utilities provide services essential for public health and wellbeing, one would hope that the mayor would make the privatization process as open and transparent as possible and would seek public approval before moving forward.

Regrettably, the mayor’s administration has taken the opposite approach: limiting public disclosure, distributing misinformation and interfering with democratic citizen action. The mayor is trying to strong-arm and fast track his risky and costly water gambit.

Three Primary Ways that Allentown’s Mayor Is Deceiving the Public

1. Pawlowski is disseminating misinformation

Pawlowski’s favorite disingenuous talking point is that the privatization contract will limit rate increases. His administration claims that rates will increase only 579 percent in total over the 50-year deal. How did it come up with that figure? By ignoring the cost of capital improvements, which are a major expense for water and sewer utilities.

The mayor’s administration turned a blind eye to these capital costs with the rationalization that the improvements will have to be made whether or not the system is privatized. But he compares his 579 percent projection to the actual 661 percent increase over the last 48 years. This is not an apples-to-apples comparison because unlike the mayor’s purported increase under the concession, the historic rate increase includes the cost of financing improvement projects.

Of course the system will need capital improvements over the next 50 years, and regardless of who finances those improvements, the cost will be passed on to households and businesses through their water bills. In fact, the draft concession agreement explicitly says that the concessionaire may impose a “capital cost recovery charge” to recoup the cost of financing major and required capital improvements.

Obviously, to get an accurate picture of how much people will be paying, you need to include the capital costs. Food & Water Watch analyzed terms of the draft concession agreement and historic trends to produce a more realistic estimate of how much rates will increase. We found that over the 50-year lease, the typical household’s annual water and sewer bill would increase by at least 1,226 percent. (Read the full analysis). This is just the baseline rate increase, using a conservative estimate of the capital costs. It does not include any “regulatory cost” charge and costs related to the other sneaky provisions of the draft concession agreement.

Pawlowski isn’t misleading the public only about rates. On Wednesday, as part of his campaign to convince the city council to move forward with the privatization, he pulled together so-called “experts” on water privatization. These “experts” included the pro-privatization former mayor of Rahway and a representative from the National Association of Water Companies, the self-described “voice of the private water industry.” Of course, the special-interest trade group representing potential beneficiaries of privatization would support the plan.

The mayor even defended his plan by claiming that more than 1,300 municipalities have such public-private partnerships (the industry’s term for a privatization contract.) That is wrong. Sure, there are more than 1,300 public-private partnerships, but most of these are short-term operation and maintenance contracts.

There have been only about two dozen municipal privatization contracts lasting more than 20 years in the United States. Why? Long-term contracts cost too much. Most public officials act responsibly by not exchanging cheap public borrowing with expensive private sector financing. Long-term deals significantly increase the cost of necessary system improvements. (Read more about public-private partnerships.)

2. Pawlowski is hiding behind closed doors

The mayor’s administration has not been forthcoming with many important details about the privatization scheme.

Public officials and local media have had to hound the mayor’s office to get access to basic information about the process — even to find out how many taxpayer dollars have gone into it. Two weeks ago, the city council gave an ultimatum to the mayor, saying that they would take no action on his proposal until his administration discloses how much money it has spent so far pursuing the privatization. Thanks to Councilmember Jeanette Eichenwald residents now that the mayor’s spent $339,000 so far on his scheme.

The mayor’s administration has also been hampering Food & Water Watch’s efforts to undercover more information about the companies that might take over Allentown’s water and sewer systems.

On August 22, we submitted an information request to see the responses to the city’s request for qualifications for the water and sewer concession. The mayor’s administration initially refused to even release the names of the companies that responded, but it relented and released the list after receiving requests from us and the Morning Call, a local newspaper.

A week later, on August 29, the mayor’s administration notified the respondents about whether they were prequalified to bid and notified us that it needed an extra 30 business days to respond to our information request because the documents “may require redaction.”  On September 28, it denied our request in its entirety. We have appealed the denial. (Read our appeal.)

It took the city more than a month to say “denied” to our information request. According to Pennsylvania’s Right-To-Know law, governments have 5 business days to grant or deny an information request or to notify the requester that it will need an extension of 30 business days. Allentown waited until the last day of both the initial and extension deadlines to mail its responses to us. (The letters were actually postmarked the day after the deadlines.) It seems that the mayor’s administration was intentionally stonewalling and trying to delay disclosure.

To date, the mayor’s administration has provided the public with very little information about the companies that might take over the water and sewer systems. It did release a list of names but that doesn’t tell the public the whole story. For example, the city prequalified Macquarie to bid, but we don’t know if this Australian bank is interested in bidding on the contract directly, through a subsidiary or through one of the infrastructure funds that it manages. Is United Water, another prequalified bidder, working with private equity firm KKR, as it did in Bayonne, N.J.? Is Access Capital collaborating with a water service company?

The public has a right to know what entities seek to control their essential water and sewer services, and why those entities believe they are qualified to run the systems. It is in the public interest to disclose this information now before the city invests more tax dollars into setting up the transaction. Why waste public resources to pursue the deal if the public disapproves of the prospective bidders?

Moreover, if the mayor’s administration supports the privatization, shouldn’t it be touting the companies’ purported qualifications? It really makes one wonder what the mayor is trying to hide.

3. Pawlowski is interfering with democracy

Perhaps the worst thing that Pawlowski’s administration is doing to push through the privatization is trying to block the citizens’ right to be heard.

Residents of Allentown want to have a say on the privatization of their water systems, so a grassroots group (which Food & Water Watch supports) has started a petition drive to have the public vote on a proposed charter amendment requiring voter approval before the sale, lease or transfer of city land or property worth more than $10 million.

City officials recently claimed that five Allentown residents — by themselves — must collect the 2,000 signatures that are required to put the proposal on the ballot. That’s outrageous! The city didn’t impose such a restriction on earlier referendum efforts. And why does it matter who circulates the petitions? The signatures are the important factor, and only those of Allentown voters are counted.

Plus, the city’s charter, which describes the initiative process, simply says that the five members of the petitioners committee are “responsible for circulating the petition;” it does not forbid them from delegating the actual task of collecting signatures while supervising the process.

Not only are city officials trying to block the vote from ever happening, but also the mayor is trying to push through the privatization contract before a vote can possibly take place. The earliest that a vote on the charter amendment can occur is during the May 2013 elections, and the mayor says he wants to finalize the deal by March.

Allentown residents should be able to have a say on the fate of their water system, but these underhanded tactics by the mayor’s administration seek to silence their voice. Does Pawlowski realize that his scheme lacks public support? Why would he pursue a risky and costly privatization plan against the will of the people?

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