Scranton, Pennsylvania to sell sewer utility for $195 million

Reuters News
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Posted: Mar 29, 2016 2:56 PM

By Hilary Russ

(Reuters) - The financially distressed city of Scranton, Pennsylvania, will soon sell its public sewer utility to a subsidiary of American Water Works Company Inc. for $195 million, a city official said on Tuesday.

The deal would mark another step forward in the city's efforts to stabilize its budget. An old steel and coal town known as the Electric City and as the setting for the television series "The Office," Scranton's finances have been under state oversight since 1992.

The city's previous administration made headlines in 2012 when it cut police and firefighter pay to minimum wage for two weeks because it could not make payroll.

"Without this deal the city wouldn't have been able to survive, financially anyway," Mayor William Courtright said late 9on Monday in televised remarks on the sewer utility sale.

The Scranton Sewer Authority's board authorized the sale to Pennsylvania American Water late on Monday, City Solicitor Jason A. Shrive told Reuters. Before the transaction can close, it needs governmental approvals from state public utility regulators and state and federal environmental protection agencies.

The deal is expected to save the city $350 million over 30 years, plus another $140 million the authority must spend on environmental mediation under a consent decree.

Ratepayers will likely see their rates increase on average 1.9 percent per year for the next 10 years, Shrive said, compared to 4.5 to 5 percent every year for the next 30 years if there were no sale.

That amounts to $7,600 of savings total for each ratepayer over the next three decades, Shrive said.

A spokeswoman for Pennsylvania American Water, which already owns Scranton's drinking water system, declined to comment.

Nationally, American Water expanded its customer base in 2015 by nearly 42,000 customers, with just over half of those coming from acquisitions that closed that year, according to a transcript of the company's fourth-quarter earnings call in February.

Earlier this month, Scranton city officials also disclosed details of a $31.5 million deal to pay off a long-overdue labor award inherited from the previous administration. The city will pay about $29.3 million in back pay to police and firefighters, including retirees, and put a total of $1.59 million into the city's public pension funds.

These steps, combined with a planned long-term lease of the city's parking authority that could be finalized by June, could get the city out of the state oversight program for distressed cities by the end of 2017, Shrive said.

(Reporting By Hilary Russ; Editing by Andrew Hay)