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Attorneys: Plan would tie New Ken's hands

| Tuesday, Oct. 19, 2004

NEW KENSINGTON -- The New Kensington Municipal Authority has created a proposal that would prevent the water company from being sold while generating money for the city -- most likely by raising water rates.

An independent attorney said part of the proposal is legally problematic.

An attorney representing the city panel charged with studying the proposed sale said there are several problems with the proposal.

The board wants to give the city control of the authority, and then have the city lease control back to the board for $500,000 per year.

The proposal is outlined in a two-page document obtained by the Valley News Dispatch. Authority member Ron Balla said the city was asked to reply to the proposal by the beginning of the week, but hasn't.

"I want an answer so that we can proceed with operating the authority," he said.

Part of the proposal calls for the city to agree not to sell the authority for the maximum amount of time allowed by the state under such an agreement, which is 50 years.

Mike Witherel, solicitor for the Pennsylvania Municipal Authorities Association and partner in the Pittsburgh law firm, Witherel & Kovacik, said it would be illegal for the authority to bind the hands of future administrations.

Witherel reviewed the proposal at the request of the Valley News Dispatch.

"I question whether or not that can be done," he said.

The remainder of the proposal is doable, he said.

Michae Klein, legal counsel for the city's panel and member of the Harrisburg firm LeBoeuf, Lamb, Greene & MacRae, said the courts would not uphold such a mandate from the authority.

"Subsequent city councils should be able to make decisions," he said. "I think a court would shoot that proposal down pretty quickly."

Klein said that by taking power from future administrations, the city would lose control over how the authority was being run. There would be no protection for rate payers, he said.

"You would really create a monster," he said. "The authority would have the city by the throat."

Two other major problems exist with the proposal, Klein said.

The first is that the annual payment to the city would be fixed at $500,000. The relative value of that sum would likely depreciate over time, he said.

The second problem, Klein said, is that the city would have to incur the authority's roughly $12.5 million in debt, mostly owed to PennVEST.

In its proposal, the board calls for the debt being paid off by the authority, although Klein said it would be unlikely PennVEST would allow for something like that.

Paul Marchetti, PennVEST executive director, declined comment.

Another problem Klein and city officials noted is that the authority would likely have to raise rates to cover the $500,000 payment.

Assuming the authority's costs remained the same, rates could go up as much as 15 percent. The average water bill would increase about $35 per year.

Authority President Richard Lecocq would not comment about a possible rate increase.

Mike Langer, chairman of the city's study panel, said that if another authority, such as the Municipal Authority of Westmoreland County, purchased the city's system, rates would go up about 10 percent.

And the city, he said, would benefit more from the sale by earning as much as $1.8 million each year in interest on the principal.

Langer has said the city, while it has not committed to a sale, would funnel the money earned through a sale into a trust through which only the interest could be spent, barring extreme circumstances.

The city is awaiting a written assessment of the authority's value, which would invariably factor into the sale price. Langer said the city got a verbal assessment but would wait for the official document before going public with the numbers.

If a private company purchased the New Kensington system, rates could increase 30 percent to 40 percent, Langer said. The city would hope to earn about $2 million each year in interest, he said.

Langer said the estimates on rate increases are preliminary.

Ira Weiss, the authority board's special counsel, did not return calls for comment. Additional Information:

About the authorities

The New Kensington Municipal Authority serves about 15,000 households in all or parts of seven local municipalities. They are: New Kensington, Arnold, Lower Burrell, Upper Burrell, Plum, Washington Township and Allegheny Township.

Users pay an average of $236 per year.

For information about the authority, visit www.newkenwater.com .

The Municipal Authority of Westmoreland County serves more than 400,000 people in parts of five counties. On average, users pay an average of about $260 per year.

For more information about the authority, visit www.mawc.org .

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