17736_Authority_August

56 The Authority | August 2024 Q What other options should be considered other than privatizing? A A municipality’s elected and appointed officials should consider a range of options before deciding whether or not to sell or lease their municipal water or sewer system. An outright sale would alleviate the burdens on public ownership; regulatory compliance obligations, engineering, managerial and personnel matters, and access to capital for re-investment in the system. Despite these benefits, however, the elected officials should consider an array of options with a heavy focus on their respective effects on rates. Some alternative options include: Regionalization. Many municipalities may consider combining their system with others in the region to centralize administration and operations, reduce costs through scale, eliminate redundancies in management positions and strengthen its credit profile. Regionalized consolidation of water and wastewater systems may also create opportunities to operate each more efficiently and offer more holistic solutions for better water management across all systems, especially when managed in concert with a stormwater system. Regionalization will keep these systems in public hands, preserve public sector jobs and maintain a measure of regional control. Private Concession Agreements or Leases. In lieu of selling a municipal water or sewer system, a municipality or authority may want to consider a long-term lease or concession arrangement. While still ceding operational control during the lease term, eventually, the assets will come back into public hands in a generation or two. The longer the lease, the more opportunity for the selling municipality to generate significant upfront – and ongoing – rent payments. Sale/Leaseback Transactions. A municipality can maintain ownership of the municipal water or wastewater system and lease it to an authority, thereby creating a revenue stream structured as rent. Alternatively, a municipality could sell its system to a local authority (the purchase price can be funded by proceeds of the authority’s bonds) and then lease the system back from the authority, with ongoing rent payments by the municipality used by the authority to repay its bonds. Both of these options can provide the municipality with upfront and ongoing funding for other purposes, while potentially relieving the municipality from day-to-day operational and managerial burdens, yet still maintain public ownership and an eventual return to full operational control when the agreements expire. None of the above. Local elected officials may decide that the existing customer base is financially capable of bearing higher rates to address capital reinvestment, regulatory compliance and other challenges. They may need to make the case to their voters (most of whom are probably ratepayers) that, while rates will have to increase to address these challenges, the rate escalation will still be less onerous than rates charged by a buyer. Q What is a non-disclosure agreement or confidentiality agreement that some IOUs request elected officials and authority board members to sign? A Either party to a privatization or regionalization may want to enter into a confidentiality and exclusivity agreement to provide a reasonable period to negotiate specific deal terms. In a proposed sale to an IOU, this typically would follow a public procurement process in which the selected bidder will expect an exclusive period to negotiate the terms of the proposed sale. In a public regionalization, the seller can pursue the transaction on a sole- source procurement basis and may want to enter into a confidentiality and exclusivity agreement at the outset. A nondisclosure agreement prevents the parties from discussing the potential acquisition terms with competitors and others (including ratepayers and voters) for a finite period. Elected officials