On October 9, 2019 Steelton Borough Authority (Authority) closed on the sale of its water assets to Pennsylvania-American Water Company for $21.750 million in cash and $35.7 million in committed capital improvements. As a part of the transaction, the Authority and the Borough of Steelton (Borough) repaid or defeased all of their debt, opening the door to reducing sewer rates and property taxes. While it’s easy to focus on the sale price, the fact that the transaction was a privatization of municipal water assets, or even the potential for a reduction in sewer rates or property taxes, the process that was guided by McNees Wallace & Nurick LLC may help other municipalities or authorities to decide if a sale of water or wastewater assets is in the best interest of customers and the community.

Importantly, the transaction started as a process to consider the sale of both water assets (owned by the Authority) and sewer assets (owned by the Borough). After an 18-month process, which included public input hearings and numerous Borough and Authority meetings, the Authority decided that a sale of water assets was in the best interest of the community,  while the Borough determined that maintaining the sewer system under Borough ownership would produce a better result.

Several steps in the process were critical to a decision, which benefits the Borough and its residents in both the short and long-term. Initial discussions focused on the goals of the Authority and Borough in considering a sale. A primary goal of the Authority was to mitigate the impact of a major capital project, which would have required the Authority to significantly increase rates. Also considered was the Authority’s reliance on a single large customer for more than 50% of water revenue, but a lesser dependence on sewer revenue.   Additionally, most of the large sewer capital projects were in service and although sewer rates were high, they were expected to be stable. The Authority wanted a buyer to retain its  employees and a customer assistance program for its customers. The Authority also wanted to be sure that water infrastructure investment in its community, both in water pipes and in the water treatment plant, was addressed after a sale.

After a discussion of the Authority’s and Borough’s goals and how best to achieve those goals, McNees crafted separate RFPs for the water system and the sewer system. A well-designed RFP helped to assess the proposals and assign points to the components of each proposal.  Subsequent meetings focused on whether the sale of both water and sewer assets would provide better value for the community. Ultimately, after much debate among the Authority Board members, the Borough Council members and the community, decisions were made to sell the water system and retain the sewer system.

McNees then counseled the Authority through the process of selecting a proposal for the sale of the water assets and the negotiation of the Asset Purchase Agreement, including provisions related to assets to be sold and retained, real estate, including easements, indemnification, accounts receivable, and  regulatory approvals, including approval of the transaction by the Pennsylvania Public Utility Commission (PUC).

The PUC is in the developmental stage of a new process for valuing municipal asset acquisitions implemented by Act 12 of 2016 (Act 12).  Act 12 offers a significant change in the purchase price that a private company is willing to pay for municipal water or sewer assets. Now a private company can pay for and earn on fair market value rather than merely original cost less developer contributions and grant-funded utility plant. The process to secure PUC approval, though, is still evolving. McNees has not only experience in the process for approval under an Act 12 filing, but an understanding of and experience with the players, i.e., the engineering firms which perform the assessment, the certified appraisers, the financial advisors, and the lawyers who represent buyers.

Subsequent to PUC approval, McNees advised on organizational design and deployment of cash proceeds as well as debt repayment and defeasance.

If you are grappling with the pros and cons of the sale of municipal assets, McNees can help you decide whether the sale of assets is a path that you should follow. Contact Kathy L. Pape at 717-237-5361/kpape@mcneeslaw.com or Adeolu A. Bakare at 717-237-5290/abakare@mcneeslaw.com.

On November 7, 2019, Governor Tom Wolf signed into law Acts 80, 81 and 82 of 2019, streamlining the process by which municipalities approve intergovernmental cooperation agreements, as well as making other changes to encourage the use of such agreements.

Act 80 amends the Intergovernmental Cooperation Law, 53 Pa. C.S. § 2301, to permit the use of a resolution instead of an ordinance to approve an intergovernmental cooperation agreement. An ordinance would still be required in the case of an intergovernmental cooperation agreement which provides for the creation of a council or consortium of governing bodies.

Act 80 also expands the scope of the Intergovernmental Cooperation Law by allowing municipalities to enter into cooperation agreements with municipal authorities. A municipal authority would not be permitted to enter into such an agreement unless the powers delegated to the authority pursuant to the agreement were authorized by the Authorities Act and the Authority’s articles of incorporation.

Acts 81 and 82 update the laws governing cities and second class townships to delete references to the required use of ordinances to approve intergovernmental cooperation agreements, consistent with the changes approved in Act 80.

The new Acts take effect in 60 days, and therefore municipalities will be able to begin taking advantage of the simpler approval process in early 2020.

McNees Wallace & Nurick LLC paralegal Terry Snyder was elected President of Ladies First – The Mid-Atlantic Women’s Public Finance Forum and will serve in this role through 2020.

Ladies First is a professional association that provides educational opportunities, as well as mentoring and networking opportunities to enhance and expand the role of women in the public finance industry.

Terry is a paralegal in the McNees Financial Services and Public Finance & Government Services Practice Groups. With more than 35 years of experience in the municipal and private sector finance industries, she is well-versed in handling general obligation issues, indentured transactions, direct bank loans and TIF financings. She also assists lawyers with the drafting of documents, organization of documentation, and coordination and settlement of transactions.

As summer winds down, the first whispers of fall rippling through cool evening breezes are a welcome reminder that school is back in session. That means it’s an opportune time for Pennsylvania’s 500 public school districts and many charter schools to examine their policies governing employee reporting of arrests and convictions and their handling of arrest and conviction reports.

Pennsylvania has long required that school district employees self-report arrests or convictions for many common offenses (e.g. kidnapping, endangering the welfare of children, sexual abuse of children, etc.). The law prohibits schools from hiring applicants with certain offenses, and requires immediate discharge of teachers/educators who are convicted of or who plead guilty to those same offenses.  In addition to the obvious violent crimes and crimes against children, PA law also requires self-reporting for all felony, first-degree misdemeanor, first-degree misdemeanor or felony DUI, and controlled substance-related offenses. The reporting requirement applies to all current and prospective employees of public and private schools, intermediate units, and vocational-technical schools, including independent contractors and their employees who have direct contact with children.

Obviously, in light of the potential consequences, employees were not really motivated to report arrests for these offenses.  For those employees who may have hoped to remain undetected following a reportable arrest or conviction, life just got a little harder. Thanks to a recently-implemented notification system, the Pennsylvania Department of Education (“PDE”) is now automatically notified by the Pennsylvania Justice Network (“JNET”) when an educator is arrested. Once notified, the PDE sends a notification to the Teachers Information Management System (“TIMS”) and the chief school administrator for the school in which the educator is employed. Once notified, the TIMS officer and administrator receive frequent reminders until the administrator acknowledges the arrest.

The chief administrative officer is then required to review the pending criminal charge. Importantly, the chief school administrator will be given access to a broader range of information than they would have if they were relying solely on the employee to self-report. The notifications sent from JNET to TIMS and the chief administrative officer include arrests, indictments, and charges that do not require self-reporting. For example, a second-degree misdemeanor may not otherwise be reported, but would come through JNET to the school district just the same as an arrest for a more serious offense.  As a result, school districts are becoming aware of potentially unflattering information about their employees they may otherwise never have received. Of course, an arrest is public information, and where school districts would formerly rely on the local newspaper’s “police roundup” section, they are now given convenient, broad access to such information on employees.

It is important for school districts to be mindful of their use of this information when making an employment decision. The school district must balance its obligations as an employer and duty to protect the integrity and safety of the educational institutions with the procedural and substantive due process rights of its public employees. The school district may also have obligations pursuant to a union contract or other contract.  As a result, any potential employment action in response to a report should be accompanied by thorough documentation and consultation with counsel.

Although school districts should already have a procedure in place for how to deal with teacher arrests, now would be a good time to review that procedure and determine if any updates are necessary.  Also, a procedure regarding how to process and handle the TIMS reports should be considered.

The IRS recently announced that it will be issuing guidance in the near future on the elimination of the London Interbank Offered Rate (LIBOR). The guidance, long-awaited by the municipal finance industry, is expected to address under what circumstances a reissuance will occur when a floating rate bond using LIBOR as the reference rate is modified to another reference rate. Continue Reading IRS Finalizing Guidance on Tax Impact of LIBOR Phaseout

In a case that may have implications for any government entity that has an application process related to permit and license issuance, the Commonwealth Court of Pennsylvania recently issued a decision in P.L.C.B. v. Beh, No. 91 C.D. 2018, No. 153 C.D. 2018 (Pa. Commw. Ct. July 17, 2019), concerning whether residential and financial information contained in liquor license applications must be disclosed to the public. Continue Reading Commonwealth Court, Citing Right to Privacy, Shields Residency Information from Disclosure Under Right to Know Law

Did you know the right to eminent domain goes as far back as the Magna Carta? Eminent domain is hardly new news, and as such recent game changing cases regarding the subject are few and far between.  The last major eminent domain case decided by the United States Supreme Court was Kelo v. the City of New London (2006), which held that an entity clothed with the power of eminent domain was permitted to acquire property merely to resell it to a private entity.  Kelo had an enormous impact on many states, and here in Pennsylvania the case spurred the adoption of the Property Rights Protection Act, which aimed at preventing a repeat of the events that lead to Kelo.  The recent decision of Knick v. Township of Scott is likely to have just as great of an impact on litigants. Continue Reading How The Recent U.S. Supreme Court Case Of Knick v. Township Of Scott Could Be Buying Everyone More Trips To The Federal Courthouse

Now that most of the dust has settled on the 2019/2020 budget, municipal and Authority water, wastewater and storm water system service providers should note that the Fiscal Code provides a funding opportunity. Continue Reading Fiscal Code Provides Potential Funding for Water, Sewer and Storm Water Projects

On May 7, 2019, the City of Baltimore discovered that its integral systems were the subject of a ransomware attack, breaching the City’s phone systems, emails, documents and critical operational databases, affecting roughly 10,000 City computers. The City notified the F.B.I. and took offline as many other systems as possible to prevent the spread of the cyberattack, but not before the malicious software locked and encrypted many of the City’s systems. The hackers responsible for the attack demanded thirteen bitcoins (approximately $100,000), as ransom, to release the City’s inaccessible databases and operational tools. In a move intended to disincentive future attacks, Baltimore rejected hackers’ demands and did not pay the ransom. Continue Reading Ransomware Attacks Targeting Cities and Municipalities

The Internal Revenue Service recently released Notice 2019-39, clarifying the scope of permitted current refundings of bonds issued under special governmental bond programs. Issuers may rely on this Notice to issue tax-exempt bonds to currently refund any bonds that are issued pursuant to such targeted programs, subject to some limitations. Continue Reading IRS Blesses Current Refundings of Targeted Government Bond Programs (With Limits)