Are municipal pension costs eating your budget alive? Are streets, bridges, water and wastewater systems crying out for capital investment? Are public safety costs pushing your budget to the brink? If so, now may be the time to explore unlocking the value of your municipal assets.
Over the past five years, the Pennsylvania General Assembly has enacted several laws that have changed the landscape of municipal water and wastewater assets. These changes make the sale of water or wastewater assets to a public utility more attractive. These changes may also result in an increased sale price if your municipality decides to sell.
Of course, a sale of assets is not the right solution for all municipalities, but in many cases, it can provide substantial benefits. Imagine if your municipality was able to (a) ensure safe and reliable water or wastewater service for residents, (b) hold the line on rate increases, and (c) obtain a cash influx to resolve pension debt, invest in infrastructure, or eliminate tax increases. All of these benefits may be in reach. Some reasons you may want to explore asset sales include:
- Prices for systems are currently high. Several public water and wastewater utilities are seeking to expand their service areas in Pennsylvania, resulting in competitive interest in many systems.
- Infrastructure replacement. You may know that your system’s treatment plant, tanks, pumps, and pipes are beyond the end of their useful lives, but do not have the cash to implement an ongoing replacement program. Both reliability and water quality can be negatively affected by infrastructure failures.
- Growth. You may have capacity in your treatment plant and could provide service beyond your current service area, but can’t fund new pipe.
- Municipal budget benefits. Sale of water or wastewater assets can provide a substantial influx of cash, enabling long-term tax reduction and creating a more attractive environment for business and residential investment.
- Limits on municipal use of water and wastewater system funds. In Pennsylvania, the General Assembly has taken multiple steps in recent years to prevent municipalities from using water or wastewater revenues to fund general operations. Consequently, many revenue advantages for municipalities of maintaining systems have dissipated.
The sale of a water or wastewater system is a significant decision, and should not be undertaken without thoughtfully analyzing the pluses and minuses of a transaction, and whether a sale or lease transaction would be more beneficial in both the short and long term.
The team at McNees can discretely help you determine whether a change in asset ownership is prudent, or whether you can restructure your systems without a sale or lease. How to decide and when to decide are as important as whether you decide to convert your municipal assets. We are knowledgeable on the Public Utility Commission regulatory process and how it will affect the timing of the transaction. We understand the nuances of the impact of real estate issues and how to enhance the value derived from non-core assets. Finally, our team can provide guidance on how to invest the proceeds of the transaction to benefit your community for the long-term. The McNees team’s experience can help you to solve your most pressing issues with a comprehensive approach.