Schwenksville Explores Water, Sewer Utilities Sale
Scott Shearer (at top), managing director of Public Financial Management Inc. in Philadelphia, as he discussed utility asset sales Thursday night with Schwenksville Borough Council in a virtual meeting
SCHWENKSVILLE PA – Borough Council members publicly began exploring their options Thursday (May 13, 2021) on the possibility of selling the Schwenksville Authority‘s prime assets, its water supply system and sewer treatment plant, to a third party. No decision was made. If one is even contemplated or desired, completing the process could take a year or more, experts said.
A sale, ultimately depending on its value to a buyer and acceptability to council members, might replenish borough coffers with much-welcomed cash. It also, however, could affect utility rates paid by authority customers in the borough, Lower Frederick and Perkiomen townships, and possibly elsewhere in the future given the status of real estate developments that may rely on those same assets.
As a result, it was unsurprising to see the names of several Lower Frederick township supervisors monitoring the Zoom discussion that was part of the council’s regularly scheduled meeting. At least one other individual known to be an authority customer in Perkiomen was listening in.
All focused on a presentation by representatives of Public Financial Management Inc. (PFM), a multi-state municipal financial advisory firm with Philadelphia offices, which to date has been involved in similar discussions involving 40 other government entities. Of those, they said, nine have successfully closed with an asset sale or lease; 13 have decided, for now, against proceeding with any sale; and the remainder are still gathering or considering information.
State laws in 2012 and 2016 paved the way for such sales to be considered, primarily because buyers can offer what might be considered fair-market values to local governments for the purchases. They then are allowed to spread the cost over a broader base of rate-payers to recoup the expense.
Locally, Limerick Township sold its systems for $75.1 million to Aqua Pennsylvania Inc. in 2018. Earlier this month (May 2021), state regulators approved a Royersford Borough sale for $13 million to Pennsylvania American Water. In both cases, however, critics argue rate-payers’ future costs could soar. In Royersford’s case, under an existing agreement, rates will be frozen for two years but thereafter can increase by up to 70 percent.
Amid the pondering pack is where Borough Council finds itself now, President Darren Rash said. “Council will take a look at this and deliberate, and decide what to do,” he explained. “We want this whole thing to be as transparent as we can, and we don’t know whether we’re going to go through the whole thing yet. Doing our due diligence is a good thing, for everyone,” he added.
PFM has won awards for its handing of some asset sales, representatives Managing Director Scott Shearer and Senior Managing Consultant Ben Kaperstein reported. They explained that sales generally are conducted in three phases: the first for a “limited scope” analysis and valuation (below); the second for due diligence on whether keeping or selling makes sense and why, what prospective buyers might emerge, seeking bidders, and choosing a winning bid; and third, to complete the transaction.
PFM gets paid “in separate engagements” for its services at each phase, and it will not make any recommendation on, or advocate for or against, selling, Shearer added. That decision, he said, is left solely to clients, and they can also terminate proceedings at any time.
Borough Mayor Joe Giunta asked how authority debts would be transferred or retired under a sale agreement. Depending on circumstances, Shearer responded, debt might be transferred to the borough for repayment. More often, he added, the cost of covering debt is earmarked to be taken from proceeds the borough receives. Either way, the assets must be offered “free and clear” to be accepted by a buyer.
Acknowledging that neighboring townships have residents who could be affected by a sale, borough Manager Anne Klepfer, answering a question posed by Lower Frederick Supervisor Marla Hexter, suggested anyone who wanted to track progress of the discussion could subscribe to the borough e-mailed newsletter, here. Klepfer also agreed to talk directly with township managers to keep them in the loop.
Photo by The Post