A potential sale of the Scranton Sewer Authority could be a long, complicated process, with the first step being determining what the authority is worth, officials and experts said.
To that end, the SSA this week issued public notices seeking qualifications from firms proposing to do a "market valuation" of the authority.
"It's a good first step to get the valuation analysis," said John Brosious, deputy director of the Pennsylvania Municipal Authorities Association. "We don't always see that first step of saying, 'Hey, let's go out and find out what it's worth.' So, if they get a good estimated value, they would have an initial bottom line of what it's worth and suitors would look at that and do their own economic analysis."
A valuation study would assess the SSA's financial and operating history, condition and value of assets, factors relating to environmental regulation and compliance, financial market conditions, and legal and regulatory constraints.
If the SSA, which serves Scranton and Dunmore, hires a valuation firm, a study likely could be long and complicated, SSA Executive Director Gene Barrett said.
If the SSA and the municipalities decide to pursue a sale, the SSA would dissolve and its functions, debt and assets would revert to the municipalities, Mr. Brosious said. They then would sell the SSA to a private firm. The proceeds would be used to liquidate debt, and whatever is left over would be shared by the municipalities, he said.
"Typically, it's a one-time cash infusion back to the municipalities and they can do whatever they want with that," he said. "But a sale does give away local control, and the asset's gone."
An asset sale was discussed during Scranton's debate last year over revising its Act 47 recovery plan. Designated as financially distressed for 21 years, the city this year needs to pay a $17 million landmark court arbitration award to its fire and police unions and a $5 million increase in mandatory minimum pension contributions.
Gerald Cross, executive director of the Pennsylvania Economy League, the city's Act 47 recovery coordinator, said, "The sale of assets has always been considered as a means toward elimination of the distressed status and the city needs to continue looking at all avenues to eliminate its distressed status."
City council President Janet Evans said a main advantage to sewer privatization is that future rate hikes to pay for $140 million in mandated upgrades over the next 25 years would be spread among a large private firm's ratepayers, instead of just having Scranton and Dunmore ratepayers foot the bill.
However, Mr. Brosious said privatization would not necessarily translate into lower rates.
"Municipal authorities only have to break even. Private companies are in it to make a profit, so you might see rate increases much higher than you might see with a publicly owned authority," Mr. Brosious said. "Typically we don't see the sticker shock immediately. They might keep rates in the ballpark in a year or two," and then raise them.
And while a private firm conceivably could do upgrades more cheaply than a public entity, variables could be compliance, performance and rates, he said. Potential buyers might include large private water companies, and the costly federal mandates would be a big consideration, he added.
"Much like buying an old house, they will ask, 'What do I have to put into it,' " he said. "They would have to look at their business plan and say, 'Does this make sense to us financially.' "
The Pennsylvania Public Utility Commission also would have to approve a sale of the authority to a private firm, said PUC press secretary Jennifer Kocher.
Established in the late 1960s, the SSA is governed by a five-member board, including four members from Scranton and one from Dunmore. At an SSA meeting last month, Dunmore's longtime board member Leonard Verrastro expressed concern about potential privatization. He said he does not want to see a repeat of a prior management agreement with a private firm that ended with the authority having to pay millions to that firm. Mr. Barrett said a possible sale would not be akin to the former failed management agreement.
"There's some people that want to do it (a sale), so you can't say no" to a valuation study, Mr. Verrastro said. "We've got to be awful careful. I'm against it if it's something like we did last time, I certainly am."
Contact the writer: jlockwood@timesshamrock.com