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.