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LCA Submits High Bid on Concession Lease

LCA Submits High Bid on Concession Lease
Statement of Allentown Mayor Ed Pawlowski on the bids for the Concession Lease of the Water and Sewer Systems…

During my State of the City address in January 2012, I said I believed we could develop a plan whereby we could come close to fully-funding our pension plans in a safe, prudent and financially sound way.

If not addressed, the minimal payment for the city's pensions will consume more than 30% of Allentown's entire general fund by 2015 and lead to an absolutely unaffordable tax increase to pay these rising pension costs.

We hoped to get $150 million to $200 million which the city would use to reduce or eliminate its unfunded pension liability and therefore reduce our rapidly rising Minimal Municipal Obligation which threatens Allentown’s fiscal stability.

To accomplish this, the city issued an RFQ in mid-July for a Concession Lease of our water and sewer systems and issued a draft Concession Lease Agreement in October that brought potential bidders to the table.

This was unique and may very well be one of the few times any city has drafted a lease before a bid is awarded.

We did this to get the most favorable lease agreement for the city and its residents. As well as securing a broad mix of potential bidders (for-profit, non-profit and governmental entities).

We discussed our goals and over the course of the next several months we received input from potential bidders on terms of the draft agreement.

In this process, we rejected many requested provisions that would have put the city at an unacceptable level of risk.

The result is we believe we have an agreement with very favorable terms for the City with operational standards that exceed those that are required by state and federal law.

Through this lease/concession the city will retain and continue to own and maintain the City's Water Supply, our water reservoirs and wells.

This was a highly competitive, transparent process and we produced a tightly written agreement – with many safeguards protecting the City – to wisely use these assets to save Allentown from a very serious and devastating financial crisis.

During this process I made four presentations at sites across the city.

I met with every organization that would meet with me. I answered on a daily basis every email and Facebook post sent to me, and worked with the best legal, financial and utility professionals that were brought on board to help the city to better understand and make the most from this option.

City Council has entertained public comment about this process and provided timely answers to questions at virtually every meeting since last fall.

And detailed and extensive information has been made available on the city’s website since the beginning of this process.

Bids were opened last Friday in the Harrisburg office of PFM, (who is one of our consultants in this matter), following strictly laid out bidding procedures.

The bids were opened by Scott Shearer of PFM in the presence of City Controller Mary Ellen Koval and Steve Fishman of the Pennsylvania Economy League, who was representing City Council.

I can tell you today that the city received five bids from four bidders to lease our water and sewer operations.

The city received two non-conforming bids which according to the rules were not considered.

One bidder that submitted a non-conforming bid also submitted a conforming bid which was considered.

One of the four bids was within 10 percent of the highest bid which according to our bid requirements triggered a Best and Final Offer, or BAFO provision.

NOTE: I and city council were excluded from the bidding procedure as to avoid any leaks of potential bid amounts during the BAFO process.

This assured that the bids would not be tainted in any way and the city and taxpayers would get the highest possible bid for the lease/concession.

Due to this provision, bids have not been disclosed prior to this time so as to protect the city’s interest in maximizing bids.

Now there have been many who doubted that a bid number of $150 to $200 million could be obtained.

I'm here to tell you today that we have not only met but exceeded our expectations.

The highest upfront bid before the BAFO process was $205 million.

Upon completion of the process the highest final upfront bid came in at $220 million, an increase of $15 million that was obtained by the successful BAFO process.

It is my great pleasure to announce to you today that the highest bidder for the lease/concession is......Lehigh County Authority.

The unsuccessful bidders were American Water and United Water.

I want thank all the bidders. It was a very extensive and comprehensive process.

I also want to thank our team who did an outstanding job.

• Scott Shearer and Tim Carden from PFM
• Dan Koplish (City Council's technical advisor)
• Lew Greenbaum (from the law firm of Katten, Mucin)
• Mark Feller (Dilworth Paxson)
• Mary Ellen Koval, our city controller
• City Councilman Joe Davis
• City Clerk Mike Hanlon

In this environment to secure multiple competitive bids is extremely impressive.

I also want to thank the board and staff of the Lehigh County Authority for their leadership and commitment to the process.

I'm looking forward to our new relationship and working with them in the anticipated transition process.

Finally I want to thank all of our city employees for their patience and cooperation during this process.

I want to especially thank Rich Young, Bob Kerchusky, John Parsons and all our water and sewer department staff who worked hard to provide information for each of the pre-qualified bidders which led to these competitive submissions.

At this point.....The highest bidder (LCA) will be presented to council in the form of a resolution for review and approval.

City Council President Julio Guridy has told me that council will be reviewing the SOP, the concession lease agreement and bids in the days ahead.

They will also hear from the Pennsylvania Economy League, which council retained to review the administration’s findings.

Representatives of the highest bidder, LCA, will also be in attendance.

It is anticipated that City Council will vote on this matter before the end of the month.

Upon approval from council, the city will then proceed to move toward a successful closing.
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