Scranton, Pa.'s pending $195 million sale of its wastewater assets to Pennsylvania American Water Co. could help end the city's 24-year stay in a state oversight program for distressed cities, Mayor Bill Courtright said Thursday.
"This could provide a compelling case to exit Act 47," Courtright told reporters on a conference call from City Hall.
Unrated Scranton, the 76,000-population seat of Lackawanna County in northeast Pennsylvania, has toiled in the so-called Act 47 workout program since 1992.
The city intends to work on an exit plan with its coordinator, the Pennsylvania Economy League. "We're working on a hopeful time frame of coming out middle to the end of 2017. That's our hope," said Courtright.
Scranton, neighboring borough Dunmore – which is part of the system – American Water and the Scranton Sewer Authority two days earlier signed an asset purchase agreement for the transaction, which Courtright called "a once-in-a-lifetime deal for us."
Scranton will get 80% of the proceeds after debt defeasance, Dunmore 20%. Courtright said city officials, including business Administrator David Bulzoni, are exploring the best use of the funds.
"Most significant about this transaction is that the city is becoming more marketable to the financial community," said city Solicitor Jason Shrive. "We're showing the financial community that the mayor is committed to following the recovery plan."
Scranton been working to shore up a severe unfunded pension liability restore credibility in with banks. It became a capital markets pariah after the City Council defaulted on a $1 million parking authority bond payment amid a political dispute. The city has since repaid the debt.
In an interview last week at a Widener University Commonwealth School of Law conference in Harrisburg, state Auditor General Eugene De Pasquale said he saw signs of progress in Scranton.
"They're taking the issue very seriously and I think that they're in a better place than they were, say, a year ago," he said.
Courtright and other city officials said the sewer deal would save ratepayers and taxpayers about $350 million over 30 years.
"Pennsylvania American Water already owns Scranton's drinking water system, so they bring an extraordinary degree of efficiency," said Evan Weiss, a senior analyst with the city's consultant, HJA Strategies of Hackensack, N.J.
Its parent, American Water of Voorhees, N.J., is the largest water and sewer system owner in the U.S. It emerged from a request-for-proposals process that included responses from Aqua America of Bryn Mawr, Pa.; United Water of Harrington Park, N.J.; and Veolia Water North America Operating Services of Boston.
The parties hope to close on the deal around October. The City Council must approve the dissolution of the Scranton Sewer Authority and the transaction needs the approval of "an alphabet soup of agencies" at the state and federal levels, said Shrive.
In early March, Scranton announced a $31.5 million agreement to settle a back-pay labor award imposed by the state Supreme Court, which said the city could use its distressed status to cut benefits. Scranton will pay roughly $29.3 million to police and firefighters, including retirees, and deposit $1.6 million into city pension funds.
The city may bundle that settlement in a bond package that would refund some of its $50 million stranded parking authority debt.
In 2015, DePasquale called Scranton's pension plans "severely distressed" and warned the city could go bankrupt within two years. Its non-uniformed pension plan was 23% funded as of January 2013, while firefighter and police plans were 16.7% and 28.8% funded, respectively.
Also last year, DePasquale called out Scranton for a double-dipping fiasco in which 35 employees benefited from an early-retirement incentive that began in 2002, with no authorization or city ordinance to support the payouts.
