Pa. law may derail Hazleton mayor’s fiscal plan

HAZLETON – A state law might throw a wrench into Mayor Lou Barletta’s plan to save the city from bankruptcy.

And Chris Paige, Barletta’s opponent in the 2010 May Republican primary race for U.S. Rep. Paul Kanjorski’s congressional seat, is quick to point it out.

With the city in deep debt and experiencing stagnant revenue and ever-increasing expenses, Barletta wants to dissolve the Hazleton City Authority and sell its water department to a private company. He believes the interest produced each year from approximately $30 million in sale proceeds will help the city regain solid financial ground.

But a state statute requires that at least 75 percent of municipalities served by a municipal water company vote to approve any sale of that company, according to research Paige provided.

The Hazleton City Authority serves 13 other municipalities, according to authority manager Randy Cahalan.

In addition to the city of Hazleton, the authority serves parts of the boroughs of West Hazleton and Jeddo and the townships of Hazle, Sugarloaf, Foster, Black Creek and Butler in Luzerne County, the borough of Beaver Meadows and the townships of Packer, Lausanne and Banks in Carbon County and the townships of Delano and Mahanoy in Schuylkill County.

And several officials, including Paige, doubt the mayor would find support from neighboring municipalities for such a sale.

They say a sale would only benefit the city of Hazleton, and water customers would be unhappy because private companies typically charge higher rates than municipal authorities.

“They’re not happy about it because their rates are going to go be going up and they’re not getting anything for it,” city Councilman Jack Mundie, a former member of the authority board of directors, said of authority customers outside the city.

“I talked with Sen. (Raphael) Musto and he wants to come in and sit down with the authority board. When I told him it’s one of the best-run water authorities in the state, he said no, it’s one of the best run in the country,” Mundie said.

Authority Chairman Phil Andras said he’s not certain the Pennsylvania statute would apply to the authority because 60 percent of its customers live in Hazleton. However, if it does not, he believes the question should be put up for a public referendum. “If it’s a good idea, then let the public say it’s a good idea,” he said.

Andras also noted that Musto helped secure $16 million in stimulus grants for the authority to use this year for infrastructure work, and he said it doesn’t seem right for a $16 million investment paid for with tax money to be turned over to a private company.

Jon Beers, executive director of the Lebanon City Authority, which oversees municipal water services in the city of Lebanon and surrounding municipalities, said the authority used the statute to successfully fight a takeover by the city of Lebanon a few years ago.

Beers said the authority had been using city employees for operations and paid the city an annual management fee. After the attempted takeover, the authority completely broke away from the city and no longer pays the city a management fee.

Beers said the attempted takeover came because the city needed more money and wanted to raise the management fee. “The authority said, ‘We’re paying too much for management fees now,’” he said.

Paige said the city of Lebanon is challenging the statute as unconstitutional, but because the case has not been resolved, the city would have to file a separate lawsuit if Barletta wanted to fight the statute.

“But attacking the statute presupposes that Hazleton has the financial resources to litigate and that Hazleton would prevail on the merits. The reality is that Hazleton’s current financial constraints virtually ensure that anyone seeking to block the deal could prevail by simply exhausting Hazleton’s limited litigation budget,” Paige said.

“Indeed, the HCA has far more resources to contest the city’s plan than the city has to impose it, and racking up millions in legal fees makes the entire plan far less desirable since the ultimate purpose of the plan is to make money for Hazleton,” he said.

Paige also said the city would see far less money from the sale than Barletta anticipates.

He said the city would be responsible for retiring the authority’s $24.5 million in debt before it could claim the $5.5 million the authority has on hand and receiving the $30 million from a private company. He said the city would also have to give the other 13 municipalities 40 percent of the sale proceeds, leaving the city with only about $6.6 million.

After paying sale transaction fees, eliminating the city’s $1.25 million deficit and paying $2.3 million in legal fees to plaintiffs in the Illegal Immigration Relief Act lawsuit, Paige believes the city would be left with $2.9 million, which would generate only about $146,000 in annual interest, which is less than 2 percent of the current city budget.

Barletta said he hopes Paige, a hedge fund manager, “does a better job with his clients than he’s doing with this. Maybe he needs to stick with issues relevant to the campaign rather than the city of Hazleton.”

Barletta said the authority is worth more than $60 million, so the city would see about $30 million in proceeds after the authority’s debt was paid off.

“He’s off by millions of dollars. I hope he gives his clients better advice, because his first stab at this wasn’t too good,” he said.

As for the statute, Barletta said he would leave that up to legal counsel. He’s having former solicitor Conrad Falvello research the potential sale.

Barletta also said residents of the surrounding municipalities need to realize that without funding from the sale, the city would have to “lay off police and allow blight to destroy our community,” which would negatively impact surrounding areas.

“They have a vested interest in the survival of the city of Hazleton,” Barletta said.