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.

On November 27 Governor Tom Wolf signed into law Act 99 of 2019 (HB 1203), which updates the auditing standards for municipal authorities under the Municipal Authorities Act, 53 Pa.C.S. §5612, as well as strengthening municipalities’ right to review the books and accounts of authorities. The passage of Act 99 follows on the heels of Act 4 of 2019, which was signed into law earlier this year.

As we previously discussed on this blog, Act 4 of 2019 primarily focused on improving the minimum required fiscal controls and procedures for a municipal authority,. Act 99 builds on the reforms approved in Act 4 and revises the auditing standards for authorities under the Authorities Act.

Act 99 mandates that the audit obtained by each municipal authority comply with each of the following, as applicable:

  • Generally accepted government auditing standards, including the standards published by the Government Accountability Office;
  • The Single Audit Act of 1984, 31 U.S.C. §7501;
  • The uniform administrative requirements, cost principles and audit requirements for federal awards under 2 C.F.R. Pt. 200 and;
  • Any other federal or state requirements for an audit relating to the finances of a municipal authority.

In addition, Act 99 grants to municipalities a new and useful oversight tool for municipal authorities. Under prior law in effect before the passage of Act 99, if an authority failed to obtain an audit, then the municipality had the option of conducting its own review of the books and accounts of the authority, at the authority’s expense. An authority that had obtained an audit of its books and accounts was somewhat protected from further review requests – although the municipality could take the step of referring the matter to the Attorney General’s office for review.

With the passage of Act 99, a municipality’s right to review the books and accounts of the authority now will extend to situations in which the authority has obtained an audit. A municipality that questions the audit will be able to review the books and accounts of the authority, although the municipality will have to pay for the expense of such review. In addition, an authority that undergoes such a review will be exempted from the annual audit requirement in the year following the review.

In addition, Act 99 clarifies that the review by the municipality may include each of the following points:

  • the authority’s billing systems;
  • transparency of contracts and how such contracts are awarded; and
  • compliance with relevant state and federal laws, including laws governing conflicts of interest.

While each of these items was arguably within the scope of the review under current law, Act 99’s explicit references to them removes all doubt that they may be included in the subject of the review by the municipality.

Act 99 will go into effect on January 26, 2020. For additional information, please contact Tim Horstmann at 717.237.5462, or by e-mail at thorstmann@mcneeslaw.com.

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