With the onslaught of negative economic news related to the ongoing coronavirus crisis, many municipalities are scrambling to determine the impact of the pandemic on, among other things, their finances. Many may be staring down unbudgeted expenses related to this public health emergency, while at the same time anticipating substantial deficits due to drop-offs in real estate and income tax collections. Continue Reading Tax Anticipation Notes: A Short-Term Cure for the Coronavirus Budget Deficit?

COVID-19 has rightfully dominated the news over the last several weeks, leaving municipalities, nonprofit organizations and businesses scrambling to determine the impact of this pandemic on, among other things, their finances. Many organizations have contacted their lenders in the past two weeks to seek out short-term deferrals of their payment obligations on loans. But what are the tax implications of such deferrals when an organization has a tax-exempt loan? Continue Reading Considering a Temporary Deferral on a Tax-Exempt Obligation? Don’t Forget About the Reissuance Rules

On March 30, 2020, President Donald Trump declared that a major disaster exists in the Commonwealth of Pennsylvania (the “Commonwealth”) and ordered Federal assistance to supplement Commonwealth and local recovery efforts in the areas affected by the Coronavirus Disease 2019 (“COVID-19”) pandemic beginning on January 20, 2020, and continuing.  This declaration follows Governor Tom Wolf’s request on Sunday for a major disaster declaration from the President.

Under the major disaster declaration, state, county and municipal governments, as well as eligible private non-profits, can receive reimbursement for up to 75 percent of eligible expenses related to the response to the COVID-19 outbreak. Eligible expenses can include but are not limited to costs associated with paying overtime, or materials and equipment purchases. The declaration also provides direct federal assistance, which provides federal materials and supplies to support state and local response efforts.

In the coming weeks, staff from the Pennsylvania Emergency Management Agency will reach out to potential applicants to review the application process and necessary documentation. As the response period for the COVID-19 outbreak is continuing, the process will take weeks. All reimbursements will be handled electronically.

Governor Wolf said his request for other federal aid remains under consideration.

In determining if the declaration was warranted, the President considered state fiscal capacity and resources availability, uninsured home and personal property losses, disaster impacted population profile, impact to community infrastructure, casualties and disaster-related unemployment.

According to the President’s announcement, additional designations may be made at a later date if requested by the Commonwealth and warranted by the results of further assessments.

We will continue to monitor developments related to COVID-19 and the President’s declaration.  For any questions regarding the declaration, please contact a member of the McNees Public Finance & Government Services Group.

Collectively, Pennsylvania has more than 2,500 counties, townships, boroughs and cities, each of which is required to comply with Pennsylvania’s Sunshine Act (the “Act”).  The Act requires agencies to deliberate and take official action on agency business in an open and public meeting.  An “agency” is any state or local government body and all sub-units appointed by that body that perform an essential government function and exercises authority to take official action or render advice. It can include boards, councils, authorities, commissions and committees.

With calls to stay home and avoid gathering in public as a result of COVID-19, Pennsylvania’s agencies are left wondering how they can continue to safely serve their constituencies while still complying with the public meeting requirements contained in the Act. This is not an issue unique to Pennsylvania and, in fact, states nation-wide have taken various measurers to address and alter requirements contained in their respective open meeting laws.  For example, governors in Texas, Illinois, Louisiana, Massachusetts, Rhode Island, Michigan, Florida and Nebraska have all recently issued executive orders and proclamations that permit public bodies to meet virtually amid the spread of COVID-19.

In Pennsylvania, the Office of Open Records has issued guidance (the “Guidance”) to agencies on best practices for compliance with the Act in light of COVID-19.  According to this Guidance, public meetings should generally be held at public buildings with open public participation.  However, if an official emergency declaration prevents that from happening, a meeting via teleconference, webinar, or other electronic method that allows for two-way communication is permissible in most circumstances.  According to the Office of Open Records, any agency taking that step must provide a reasonably accessible method for the public to participate and comment pursuant to Section 710.1 of the Act. Further, the Office of Open Records strongly recommends that any agency holding such a meeting should record the meeting and proactively make the recording available (preferably online) so that a full and complete record of the meeting is available to the public.

In arriving at its conclusion, the Office of Open Records is relying on 35 Pa.C.S. § 7501(d), which allows agencies under a “declaration of disaster emergency” to suspend the need to comply with certain “formal requirements.” In context, any such suspensions must be related to the emergency.

In addition to the Act, Pennsylvania municipalities are subject to general governance laws, e.g., the Borough Code, the First Class Township Code, etc., that limit the ability of municipalities to take official actions at remotely-held public meetings. To provide additional clarity to municipalities on their ability to take official action at such meetings, the Pennsylvania General Assembly is considering a proposal, House Bill 1564, which would allow municipalities to hold meetings remotely when the Governor has made a declaration of disaster or emergency.  Among other things, HB 1564 includes the following requirements:

  • All members of the municipal governing body must be able to speak to and hear the comments and votes.
  • To the extent possible, the municipality must allow for public participation.
  • The municipality must post notice of the meeting on its publicly accessible Internet website and, except where emergency circumstances dictate otherwise, via a newspaper of general circulation.
  • The meeting must be livestreamed, recorded, or at a minimum, the draft minutes be made available within 48 hours of the meeting’s conclusion.

HB 1564 received third consideration and final passage (on a unanimous vote) by the House of Representatives on March 25, 2020.  The bill has not yet been acted on by the Senate.

For any questions regarding the guidance issued by the Office of Open Records or HB 1564, please contact a member of the McNees Public Finance & Government Services Group or a member of the McNees Real Estate Group.

 

The National Association of Bond Lawyers (“NABL”) recently sent a letter to Congress, outlining some measures it recommends Congress adopt to combat the economic downturn related to the Coronavirus COVID-19 Pandemic.  The suggestions are a mix of previously-made requests and new suggestions to inject additional liquidity into the market.

NABL’s recommendations, addressed to the top Republican and Democrat members in both the House and Senate, consist of the following:

  • Reinstate ARRA-Era Bond Programs, such as Build America Bonds, at non-sequestration subsidy levels
  • Relax the working capital rules in Sections 1.148-1(c) and 1.148-6(d) of the Regulations for coronavirus-related deficit financings
  • Authorize the direct purchase of state and local bonds by the federal government (e.g., through passage of the Bond Market Emergency Relief Act)
  • Eliminate or limit the prohibition of federal guarantees of tax-exempt bonds under Internal Revenue Code section 149(b)
  • Reinstate tax-exempt advance refundings
  • Remove, or substantially increase, the $10M cap on qualified tax-exempt obligations under Code section 265
  • Temporarily permit institutional investors to count municipal securities towards their liquidity coverage ratio
  • Temporarily suspend the private activity bond rules under Code section 141 to encourage additional partnerships with private enterprise
  • Authorize additional types of private activity bonds previously eliminated by prior tax reform measures, to help small businesses
  • Eliminate volume cap limits on single- and multi-family housing bonds for next three years

As Congress is still debating additional stimulus measures in response to the growing crisis, it is possible that some of these suggestions may appear in a final bill. The attorneys of the McNees Public Finance Group will continue to monitor this fast-moving situation as it develops.

At McNees, we understand that our clients are facing unprecedented challenges as a result of the spread of the coronavirus, COVID-19. In light of these challenges, the McNees Public Finance Group is closely monitoring any legal developments that may impact the municipal market, as well as the continuing disclosure obligations of our issuer clients and other obligated persons.

Earlier this year, the U.S. Securities and Exchange Commission (the “SEC”) Chairman Jay Clayton released a general statement deeming COVID-19 as an “uncertain issue where actual effects will depend on many factors beyond the control and knowledge of issuers.”  Consequently, the SEC, as well as the Municipal Securities Rulemaking Board (the “MSRB”), have been closely monitoring the impact of COVID-19.  Although neither the MSRB nor the SEC’s Office of Municipal Securities have issued any public statements directed at municipal issuers, the MSRB has issued a reminder to regulated entities regarding the supervision of municipal securities and municipal advisory activities and that of their associated persons.

Until further notice or guidance has been issued, issuers and other obligated persons still must comply with their SEC Rule 15c2-12 continuing disclosure obligations.

We will continue to monitor developments related to COVID-19.  If you are unable to comply with your continuing disclosure obligations as a result of a shutdown or shelter in place order, or just have questions or concerns about COVID-19, please contact a member of the McNees Public Finance Group for assistance.

As you have undoubtedly heard, the coronavirus, or COVID-19, has made its way to the Commonwealth of Pennsylvania.  This influenza-like virus was first identified in Wuhan, China, in December 2019, and has since spread to more than 100 countries, including the United States.

In January 2020, the World Health Organization (the “WHO”) and the Centers for Disease Control and Prevention declared COVID-19 a “public health emergency of international concern,” and on March 11, 2020, the WHO categorized COVID-19 as a pandemic, the same classification given to the smallpox, bubonic plague and cholera.

As of this writing, there are thirty-three positive cases of COVID-19 in Pennsylvania, and more than 200 Pennsylvanians are under investigation.  On March 6, 2020, Governor Tom Wolf signed a Proclamation of Disaster Emergency (the “Proclamation”), transferring up to $25,000,000 in funds to the Pennsylvania Emergency Management Agency (the “PEMA”) and authorizing state agencies, such as the Department of Health, to take all acts necessary to respond to the emergency.  For local governments, the Proclamation directs that the applicable emergency response and recovery plans of the counties, municipalities and other entities be activated as necessary and that actions taken to implement those plans be coordinated through the PEMA. The Proclamation followed the Department of Health’s activation of its Department Operations Center at the PEMA headquarters to conduct public health and medical coordination for COVID-19.

As of March 12, 2020, Governor Wolf has taken additional steps to stop the spread of the virus. In Montgomery County, schools, child care centers and adult day care centers will be closed for fourteen days, effective March 13, 2020.  For all other Pennsylvania counties, Governor Wolf strongly encourages the suspension of large gatherings, events and conferences of 250 individuals or more. Additionally, individuals are discouraged from traveling to recreational activities like gyms, movie theaters and shopping malls and religious leaders are encouraged to exercise discretion in order to mitigate the spread of illness. Until further notice, Governor Wolf has also canceled all public events in the Capitol Complex and Governor’s Residence.  The cancellation of events applies to all interior and exterior venues in the Capitol Complex and will affect public gatherings such as rallies, school or group tours, choir performances and receptions.

For the latest updates on COVID-19, visit the Department of Health’s website at https://www.health.pa.gov/topics/disease/Pages/Coronavirus.aspx. The attorneys at McNees will continue to monitor COVID-19 and its impact on Pennsylvania’s municipalities.

On December 4, 2019, the Borough of Phoenixville, Chester County (“Borough”) closed on the sale of a portion of its water system to Aqua Pennsylvania, Inc. (“Aqua”) for $3.46 million.  Importantly, the Borough will retain full ownership and control of its water treatment plant and continue furnishing water distribution service to residents within the Borough.  The transaction with Aqua divests the Borough of the water distribution system previously serving parts of East Pikeland and Schuylkill Townships in Chester County and Upper Providence Township in Montgomery County.

Background
Prior to the sale, the Borough provided water service to approximately 5,500 customers within the Borough and approximately 550 additional customers in the three adjacent townships.  Under state law, the Borough serves customers within its boundaries pursuant to its powers under the Borough Code.  Conversely, the service provided to customers in the townships was subject to the provisions of the Pennsylvania Public Utility Code and the oversight of the Pennsylvania Public Utility Commission (“PUC” or “Commission”).

Historically, the Borough had extended water service to the townships upon request and due to a lack of alternative options for residents and businesses in the area.  However, with competing water suppliers now serving communities in the area, the Borough desired to return to its original role of providing water service strictly to constituents within its borders.

Transaction
To ensure continuous and reliable public utility service for the subset of customers in East Pikeland, Upper Providence, and Schuylkill Townships, the Borough issued a Request for Proposals (“RFP”) to evaluate qualified candidates to acquire and operate the water distribution system in the townships.  McNees advised the Borough through issuance and administration of the RFP, including review of real estate records to secure certain easements and identify any title concerns to be addressed prior to any closing on the transaction.

Following the Borough’s selection of Aqua as the winning bidder, McNees guided the Borough through both negotiation of an Asset Purchase Agreement for the outside water distribution assets and a Water Supply Agreement committing Aqua to continue purchasing water supply from the Borough’s treatment plant through at least 2026.

PUC Approval and Closing
Because the Borough sought to transfer ownership and operation of the portion of its water system subject to PUC regulation, McNees additionally counseled the Borough through the process of applying for and receiving PUC approval to transfer operational responsibility for the PUC-jurisdictional portion of its water system to Aqua.  The Borough and Aqua initiated this regulatory proceeding by filing a Joint Application seeking PUC approval of the transaction.  Subsequently, both the Office of Consumer Advocate (“OCA”), a state-funded office charged with representing the interests of Residential utility consumers in the Commonwealth, and Pennsylvania-American Water Company (“PAWC”) intervened in the proceeding.

Throughout the PUC regulatory proceeding, McNees led complex negotiations between the Borough and the other three parties to address concerns with service territory boundaries, rate impacts, and service issues.  Notably, McNees advised the Borough through negotiation of an amendment to a preexisting Water Supply Agreement with PAWC.  Although PAWC was not a party to the sale transaction, it had an interest in assuring the Borough/Aqua sale transaction preserved PAWC’s rights under its existing Water Sales Agreement with the Borough.  McNees also negotiated the transfer of 21 customers in Upper Providence Township to PAWC, which resolved service issues related to overlapping PAWC and Borough pipelines in a small portion of Upper Providence Township.  These issues were finalized through execution of a Joint Settlement Agreement filed with the PUC.

The PUC subsequently approved the Joint Settlement on October 24, 2019, thus granting the regulatory approval necessary for the Borough and Aqua to proceed with the Closing on December 4, 2019.

Post-Closing
Following the Closing, the Borough remains responsible for furnishing distribution water service only to the 5,500 residents in the Borough.  In terms of benefits, the Borough received a one-time $3.46 million purchase price for sale of a portion of its water system and finalized separate bulk water supply partnerships with Aqua and PAWC.

If you are wrestling with the pros and cons of continuing to operate municipal water or wastewater assets, McNees can help you evaluate the available restructuring options and identify the appropriate solution to meet both short and long-terms goals.  For more information or to discuss your municipality’s circumstances, please contact Adeolu A. Bakare at 717-237-5290/abakare@mcneeslaw.com or James P. Dougherty at 717-237-5249/jdougherty@mcneeslaw.com

The advent of a new calendar year means many things.  For municipalities with outstanding bank loans or interest rate swaps, 2020 may be the year when many first hear about the long-planned phase-out of the London Interbank Offered Rate (“LIBOR”). Continue Reading LIBOR: the Phase-Out, the Problem, and What Municipalities Need to Know

A bill to amend Pennsylvania’s Sunshine Act has passed the House last month and is now awaiting action in the Senate. House Bill 1069, sponsored by Representative Aaron Bernstine, would amend the Sunshine Act to require government agencies, including school boards, county commissioners and local governments, to post agendas 24 hours prior to voting meetings.

Currently, public notice requirements do not include a requirement for an itemized agenda. Thus, if House Bill 1069 is enacted into law, governmental agencies should be prepared to make significant adjustments to their public notice policies.

The legislation would require conspicuous physical and electronic posting of meeting agendas. Specifically, agendas would have to be posted at the principal office of the agency, at the location of the meeting, and on the agency’s website.  The posted agenda would have to include each matter that would be subject to deliberation or a vote and be made available to all attendees. If a matter was not included on the posted agenda, the agency would be prohibited from deliberating or taking official action on that item.

Under Rep. Bernstine’s bill, an agency may take official action on an item that is not on the agenda in in only certain limit circumstances, including: a de minimus matter that does not involve spending or contracting, a referral of agency business to staff for further research, or where a majority votes to add an item to the agenda. If items are added to the agenda for any reason, the amended agenda must be posted in accordance with the law within twenty-four hours.  Unfortunately, given how important issues sometimes arise at the last minute, these restrictions on an agency’s ability to act could delay and impede action.

Sunshine Act Reform bills have been considered by the legislature in recent years without success. However, House Bill 1069 was passed unanimously. Therefore, it should be considered by local governments as a bill to watch.