Why Leasing Allentown’s Water and Sewer System Would Be a Financial “Worst Practice”
By Emily Wurth
I’m sure most residents of Allentown, Pennsylvania have never heard of Public Financial Management Inc. (PFM), but the company’s financial recommendations are a major factor behind the irresponsible water privatization scheme that could soon affect every city resident.
PFM, the top ranked financial advisory firm in the country, was hired by Mayor Ed Pawlowski to advise the city on how to address its serious fiscal shortfalls threatening to make Allentown unable to fund the pensions of police officers and firefighters.
After exploring options for how the city could shore up its finances and incorporating PFM recommendations, the mayor decided that the city should lease its water and sewer system for 50 years in exchange for a lump payment of between $150 million and $200 million. The plan has been met with widespread public criticism – at the September 27th city council meeting, all 24 speakers voiced their opposition to this deal.
Allentown is not the only city in the United States considering selling or leasing their assets to offset budget shortfalls. Since the economic recession hit municipal budgets, many cities, particularly in the Rust Belt, have been exploring this option. We at Food & Water Watch have been closely monitoring this trend over the past several years.
Given recent history, it actually came as a surprise to see that PFM supports the plan for Allentown to move forward with leasing its water and sewer systems. Just two years ago PFM prepared a financial recovery plan for Reading, Pennsylvania, another city struggling with financial issues. In its Reading plan, PFM did not recommend the lease or sale of the water system, explaining, among other reasons:
“[T]his exchange of annual recurring revenue streams or significant capital assets for one-time operating budget solutions is a financial ‘worst practice’ which is in part responsible for the City’s current financial situation.” (page 220)
What could possibly have happened in those two years to make leasing the city’s capital assets go from a “worst practice” in Reading in 2010 to the best option for Allentown in 2012? Could it be that during that time (in May 2011) PFM acquired Scott Balice Strategies, a firm known for its work on government privatization deals?
Scott Balice Strategies is firmly pro-privatization. The Harrisburg City Council actually voted against taking a state grant to pay Scott Balice to advise the city’s finances based on councilman Brad Koplinski’s assertion that “their end result is always the same: sell assets, sell assets.”
So does this actually make financial sense for residents of Allentown? No. There are other approaches that would not place the same financial burden on Allentown residents. Food & Water Watch’s analysis of PFM’s projections found that while the mayor’s proposal would save the average Allentown household about $209 on its annual tax bill, the plan would increase the annual water bill by $822, thereby increasing overall cost to households by an estimated $613. Poor advice indeed. Sadly, the city’s taxpayers still don’t know how much the mayor’s office has paid PFM for their services, but Councilwoman Jeanette Eichenwald fears it may be half a million dollars.
Instead of pursuing a “worst practice” for addressing its financial woes, Allentown should conduct an independent economic assessment to determine a responsible and transparent way to meet its commitments without overburdening residents. The city should also support a democratic solution by allowing voters to decide the fate of their essential natural resource assets. Allentown should require a public vote before the sale, lease or transfer of the city’s water or sewer utilities.
I have addressed this issue to both the mayor and city council members on several occasions. They are simply not interested in hearing about real alternative options (excluding Jeanette Eichenwald) that could solve part of the problem, along with other problems the city is facing. Why have they not considered going after (through the courts) the people who intentionally created this problem in the first place. Hold those who contributed to the problem accountable for their actions, not the folks who consume water. The bad advice the mayor has received has come at a large cost from the tax payers. The implimentation of the bad advice is going to cost substantially more money from the tax payers. The worst part about this is that unborn children will suffer from the decisions made by people who will likely be dead and have no option but to suck it up and pay MORE FOR WATER THAN FOR GAS! (I hope by then the fossil fuel industry will lose its firm grasp on us as well.) Why is it considered a viable option to make a huge mistake to fix (cover up/lessen) another disasterous mistake. If only the decision makers could take a step back, analyze the information presented in a logical manor, we may come up with a real solution. Use science and math to understand that lease of the water system is a horrible idea, instead of using politics to solve the problem. Part of the problem arises when the facts are intentionally hidden, altered, or completely left out of the material being presented to the public AND THE DECISION MAKERS! This is the exact issue with the report presented by PFM to the council and the people of Allentown. The presentation given on September 27th by PFM’s financial advisor was insulting and intentionally misleading (not to mention intentionally boring, so one may miss the holes in the presentation). As a stand up citizen pointed out to everyone who missed it, there are serious differences in the charts between the options. One chart intentionally left out the COST TO CONSUMERS as “white space” represented by nothing! Other infuriating inconsistencies included making the charts and graphs different sizes and using additional incrimental changes when comparing options. The conclusion that many in the room came to was that PFM’s anaysis report was useless and crafted by a company who wants nothing other than to privatize the water system for PROFITS. An investigation should be conducted in regards to how much money was spent coming up with the cow patty report, their real intentions, and why other options were repeatedly shut down. No formal hearing was ever conducted so the citizens could have a say, and their options weighed and presented to others. This was an attempt to have a closed door deal go through which affects generations to come, totally unacceptable.