SALE TO L A S A
SPECIAL
COMMISSIONERS MEETING – JULY 21, 2003
The Manheim Township Commissioners held a Special Meeting on July 21, 2003 at 7:00 p.m. at the Manheim Township High School in Convocation Hall. Members present were: President Smith, Commissioners Reinaker, Bledsoe, Gordon and Ritter, and Manager-Secretary James M. Martin. Philip Mellott, Engineer, William McCarty, Solicitor and Michael Klein, Consultant were also in attendance. The following people were in attendance from the Lancaster Area Sewer Authority and seated in the audience: Board members Mr. Smith, Mr. Kerr, Mr. Huber, and Mr. Nonnemacher, Ms. Gray, Solicitor, Mr. McIntosh, Consultant, Mr. Lennex, Financial Director, Mr. Knepp, Superintendent of Maintenance/Collection, Mr. Kane, Lead Mechanic, and Mr. Kyle, Executive Director. There were 42 people in the audience.
President Smith opened the meeting by introducing the members on the dais: Don Smith, Dennis Reinaker, Bernie Gordon, Bob Bledsoe, Harry Ritter, Bill McCarty and Michael Klein. He then commented on the reason for the meeting – that the Commissioners wanted to present to the audience the reasons for the sale of the sewer system to LASA. He reminded the audience that there were handouts at the back of the room, and asked if everybody had a copy. He made several comments about the purpose of the meeting tonight which was to talk about the sale of the Manheim Township Sewer System to LASA. He went on to state that the Township had been a member of LASA for several years, and that for the last few months the Township and LASA have been talking. He then turned the meeting over to Commissioner Ritter who went over the outline of the handout for the reasons to be here.
Commissioner Ritter explained that the Township has been
talking to LASA for several months. He
went over some of the reasons for the change, and mentioned the efficiency and
the focus of service. He talked about
the effect on the Township and LASA rates.
He mentioned that the rates would stay the same for at least twenty
years. He mentioned the service, and
said that the billing would change. He
then mentioned the compensation, that LASA would pay $25.5 million for the
value of the property and over the next twenty years a $6.2 million
addition. President Smith asked if there were any questions or comments from the
Board or the audience. Commissioner
Ritter then turned the meeting over to Commissioner Bledsoe.
Commissioner
Bledsoe went over the fact sheet. He
emphasized the concept of “economies of scale” and the concept that a larger
rate base would spread capital costs. He
cited Manheim Township and LASA rates, stated that LASA rates are currently
projected to intersect Manheim Township rates in about twenty years, and that
Manheim Township could expect stable rates for many years to come. He described the transition as seamless from
a service perspective. He explained that
the compensation was determined to be fair to the Township largely due to
in-depth analysis and consultation from Mr. McCarty and Mr. Klein. He then turned the meeting back over to
President Smith.
President Smith
opened up the meeting to questions and concerns of the public, and asked each
person speaking to state their name and whether they are a resident of the
Township.
Larry Downing, a resident of the Township, stated that it was a well-put-together plan, but it didn’t say too much about the preservation of Township employees’ jobs. He asked what portion of the flow currently goes to LASA and what portion goes to the City? Commissioner Gordon answered that currently 25% of the sewage from Manheim Township goes to LASA, while after full build-out 33% would go to LASA. Mr. Downing asked how many employees does Manheim Township have on its sewer crew? Commissioner Gordon said there are 2.25 employees working on sewer in Manheim Township, out of a total of 15 that work in the Public Works Department. Mr. Downing asked if any major expense on the Manheim Township side would be automatically spread out over the entire rate base. Commissioner Gordon responded that Manheim Township estimates that we will experience a 2.75% increase in our rate base, and that revenue in the future would pay for improvements. He stated that LASA is projecting the same thing. He also stated that if there is a state mandate in five or ten years, then there may be an increase to deal with it. Mr. Downing asked why the Township decided not to go out for bids for the sale. Commissioner Gordon cited some statistics that indicate the private sector builds into the purchase a higher expected rate of return of its investment.
Ed McClune asked what is the source of the figure of $50,000,000 in expected capital costs over the next 30 years? Commissioner Ritter cited pump station replacements and line replacements. Commissioner Gordon mentioned the sewer capital budget. He also cited $25 - $28 million in the replacement of two pump stations and the $40,000 per year for inspection ports. Mr. McClune asked what the Township will do with the money. He was told there are no plans. Mr. McClune said since the residents essentially paid for the system, why wouldn’t the Township put the money into escrow to then reduce taxes? Commissioner Ritter stated that first they would pay off bonds, and then decide what to do with the remainder. Mr. McClune asked what was the rush, and what about listening to the residents? He also reminded the Commissioners that they had defeated two Commissioners.
Pat Villella said if there was a major unexpected expense in Manheim Township and if LASA owns the system, would the cost be spread out over all its customers? Commissioner Gordon responded not necessarily. He stated that it would be up to LASA to decide where to fund major unexpected capital expenses. He said LASA could decide to spread them out over the entire rate base or to keep them in the Manheim Township district only. He emphasized that it would be LASA’s decision. He also stated that unexpected costs might result in an increase in Manheim Township rates, and upon further questioning stated that unforeseen great expenses would be up to LASA to decide how to spread out (LASA entire rate base vs. Manheim Township rate base).
Charlotte Fischer asked what is the schedule for the sale? President Smith answered that the sale could be as early as late fall (late October or November). She asked if there were taxes (capital gains). Mr. McCarty answered no.
Vince Kneizys asked if the 2.5 Manheim Township employees would be retained. He suggested the Township should exclude two from next year’s budget. Commissioner Gordon commented that the Public Works Department is split between roads and sewers. There has been a shortage of manpower in the department and the Commissioners would be looking at the manpower left in the department as they look at the budget. Mr. Kneizys asked what would be the advantage to LASA? Mr. Kyle responded that the major advantage is that over the long-term the asset transfer would help stabilize rates for all LASA customers. He added that the asset transfer would result in a large increase in the number of customers served, and as a result, an increase in the rate base. He emphasized that LASA carries a large fixed cost, and that costs are generally fixed over a fairly broad range. He added that these fixed costs are somewhat unaffected by an increase in customers, and if operated properly the cost per customer would go down as the number of customers goes up.
Patti McClune also talked about manpower, wanted to know if the positions that were in the budget were going to be eliminated, and said that the positions shouldn’t be filled.
Nelson Hoover asked if commercial/industrial customers would see the same rate freeze as the residential customers. He was told yes, they would. He then commented on the rate stability and said that this was an excellent proposal.
Tom Despard, a resident of the Township, asked how LASA was going to pay for this, and was it a bond? He was told the Township would receive cash, but it was assumed LASA would float a bond. He then talked about investments and suggested that a program be set up to take on the investment. He asked if the Commissioners would give him one use of the funds. Commissioner Ritter stated that there was no plan right now for the use of the funds. Commissioner Reinaker mentioned that his recommendation would be to put the money in an investment account and use those funds for other projects. Mr. Despard asked how much debt the Township has to pay off. Commissioners Ritter and Gordon stated about $6.5 million. Mr. Despard asked about tapping fees. There was a discussion about the proposed method of reimbursement and the concept that LASA would charge its current tapping fee until which time the law changed. President Smith asked Mr. Kyle, who was in the audience, if he had any comments about subsidizing the LASA customers. Mr. Kyle mentioned that LASA would be looking at the return that they would generate from the Manheim Township customers that will be moving to the LASA system.
Bill Murry, a resident, asked about the rates and said assuming that the City bulk rate charged to the Township is lower than the bulk rate charged by LASA to the Township, why is his bill on the City side of the Manheim Township system higher than the LASA bill? Commissioner Gordon said the sewer bill charged to Manheim Township residents includes administrative overhead, collection system operation and maintenance costs. He added that the current Manheim Township bill of $82/quarter would remain until the LASA rate rises to that level, short of mandates from regulatory bodies. Mr. Murry asked what would happen to the flow to the City, would it be re-routed to LASA? Commissioner Gordon said that would be up to LASA. Mr. Murry said that he was all for consolidation and a regional sewer system would be good. He further stated that he hopes that the Commissioners get a fair value and spend the money wisely.
Hank Strausser, a resident of the Township, said that he thinks that consolidation is good and that it is time for the Township to move towards regionalism. He asked what would prevent LASA from selling the Manheim Township system to someone else at a later date? He was told they do not expect that to happen.
Nelson Rohrer, resident of the Township, said he questioned the figures on future capital needs. He asked why the Commissioners didn’t prepare a full disclosure of the history of the operation over time, showing the long-term economics and rationale for selling? He was told the analysis shows that over the long term there is economic benefit to Manheim Township for it to sell the sewer system. Mr. Rohrer asked how would the Township control where the new sewer lines go, especially if LASA has an interest in expanding its rate base? He said he was concerned that LASA would simply extend lines anywhere, even in agricultural areas, to generate new customers without consideration of planning and sprawl issues. He was told the Township would continue to control where extensions go through zoning and Act 537, and that LASA is expected to cooperate. Mr. Rohrer asked how LASA would deal with future right-of-ways and would they cooperate and pay for crop damages like the Township currently does. He suggested that the Township should get this in writing. He was told that LASA would generally deal with landowners like the Township currently does. Mr. Rohrer suggested that the Township put into the agreement a right of first refusal if LASA ever decides to turn around and sell the system. The Commissioners assured him they will consider that.
Tom Despard made a comment about the right of first refusal, if LASA decides to sell the system in the future. Mr. Gordon commented that he felt that LASA would not be selling the system any time in the future.
Wendell Stockdale, 47 Deer Ford Drive, asked if we would be subsidizing the current customers by a million dollars a year. Commissioner Gordon said that no we would not be subsidizing them a million dollars a year. The economic analysis shows that because of the necessary system improvements and costs, that revenues will pay for costs and necessary reserve and no one would subsidize the sale, neither Manheim Township residents nor current LASA customers. Mr. Stockdale then asked about the pump station on Pleasure Road, and if it was to be expanded or moved to the other side of the road. Jim Martin commented that at the present time it is not to be expanded or moved.
President Smith reminded the audience that LASA would be holding a meeting at the East Hempfield Township Municipal Building at 7:00 on Tuesday, July 29, 2003.
There being no further business before the Commissioners the meeting adjourned at 8:20 p.m.
Respectfully submitted,
James M. Martin
Manager-Secretary