Water is a valuable public asset which should be available to all, not sold to the highest bidder to exploit for profits.
New Garden Township
A Case Study
In 2014 New Garden Township announced it was exploring the sale of its sewer system.
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In 2016 NGT announced a sale agreement with Aqua PA for $29.5 million.
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In December 2020 the sale was closed.
Reasons For The Sale
The sale was justified on the following points:
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The system was in bad shape and needed $12 million investment to repair and upgrade it.
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A 78% rate increase was needed immediately to pay for the $12 million investment.
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Aqua could do the improvements at a lower cost.
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A two-year rate freeze and ten-year 4% cap on annual growth would limit Aqua rate increases for 10 years.
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If, for some reason, rates went above this limit, NGT would use some of the sale proceeds to offset the additional increase.
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NGT would receive $29.5 million. This money would be used in part to offset the need for future tax increases.
Key Events During And After The Sale
Here is what really happened:
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Four years elapsed from the dire warning that a $12 million investment was needed immediately until the sale was executed. During that time New Garden invested nothing.
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During the first two years after the acquisition, Aqua has invested $2.7 million in the system. Of that total, $670,000 paid for an improvement that saves Aqua $1.2 million annually in operating cost. That was a smart investment that we think New Garden should have made years earlier.
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Prior to sale closing , but well after the claim that a 78% rate increase was needed without a sale to Aqua, New Garden raised rates by 30%. One and a half years after the sale, Aqua raised NGT rates by 85%. Although we were warned about a 78% increase, our rates went up over 140% with none of this increase paying for system improvements. Aqua will recover the system improvement investment, plus profit, from future rate increases.
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Aqua's claims its operating and investment costs are lower, though this has never been quantitatively verified. But, 44% of every Aqua bill goes to funding their before tax profits. Since municipal systems are non-profit, that increase totally overwhelms any other savings.
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Both the rate freeze and growth cap were removed from the sale agreement before sale closing, with no explanation.
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In December 2022 the NGT Board of Supervisors voted to not use any of the sale proceeds for rate mitigation.
NGT received $29.5 million in December 2020.
In October 2023, NGT announced plans to raise property taxes by 127%.
Looking Back
The sale of the NGT sewer system was the first such municipal utility sale after Act 12 was signed into law. Residents were not aware of all the issues involved in such a sale and they were never educated on these issues, particularly how the sale price would impact future rates. Any questions about rate increases were always answered vaguely. So, no opposition to the sale ever developed.
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It is clear that this was the first test of the Big Water Playbook. In the first step of the playbook, Big Water sets the hook with the promise of free money. They then reel in with the scare that the system needs major investment, and this will result in large rate increases. Finally, they claim that municipalities should not be in the utility business because Big Water can do it better and cheaper.
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Our analysis of the public record indicates that both the amount of investment and the rate increase needed were significantly overstated. Follow the highlighted links for detail.
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The claim that Big Water can do the work for less does have a grain of truth, but Big Water’s other expenses more than offset any cost savings. Follow this link for details.
Prior to sale closing, on September 23, 2019, New Garden Township and Aqua agreed to sign an amendment to the Asset Purchase Agreement removing both the rate freeze and cap on growth from the agreement. This was announced at a public meeting at which questions of why this was being done were not answered. the full story of the rate cap removal is told here: (LINK).
Epilogue
Events in New Garden Township in the three years after the sale closed show that this sale did not turn out as expected for the Township. The extra financial burden placed on the ratepayers has not resulted in any benefits worth the price. In February 2020, eleven months prior to sale closing, the BOS published a list of 6 items detailing how the sale proceeds would be used. To date, however, the money has not been allocated in alignment with any long term plan.
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The largest use of the money was to fund a new police station. Of the original $29.5 million, $22 million now sits in an interest-bearing account. Only recently has this account earned any substantial interest, and these proceeds are being added to the township’s general funds.
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The list of six items are on page 5 of this file:
In August 2021, Aqua filed a rate adjustment with the PUC. When this adjustment was announced the residents of New Garden became aware of the impact of the sale. By January 2022, all but one of the board members responsible for the sale had left office, either by choice or because they were voted out. Hope for some help from the new supervisors was high.
At another public meeting on November 21, 2022, those hopes were dashed. NGT again would not answer basic questions about issues ranging from attorney conflict of interest, to why the rate freeze and cap were removed from the Asset Purchase Agreement. Instead, the township has spent over $20,000 of taxpayer money this year to fight release of any records relevant to these issue.
Then on December 19, 2022, the Township Board of Supervisors voted 3 to 2 to not use any of the sale proceeds to offset the higher Aqua rates.
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In October 2023, NGT announced plans to raise property taxes by 127%. As part of the discussion about this increase, the township said the tax increase would need to be higher if not for the availability of the interest from the sale proceeds. This was quantified as an addition 1 mill increase which was not required because of the use of the interest. A 1 mill increase in taxes means a resident with a “typical” property assessment would see an additional increase of annual property taxes of $186 without the offsetting money from the interest on the sale proceeds. What the township failed to address was the additional burden due to the increased sewer rates to fund this revenue. A “typical” sewer customer saw an annual increase of $670, over 3.5 times the tax “saving”. We expect this rate to increase substantially again at Aquia's next rate adjustment because they will transfer the entire sale cost to New Garden ratepayers.
This may not seem like much when looking at one “typical” ratepayer. But multiply this by the large numbers of ratepayers affected by privatization in PA and it blossoms into over $65 million annually leaving local communities to pay Big Water shareholders. Money that could be spent to bolster municipal economies.