P3 Attorney: Allentown, Harrisburg Deals Fall Short

 A New York-based attorney who advises on public-private partnerships said two Pennsylvania bond deals “disappointed” him as P3 projects.

Allen & Overy LLP partner Kent Rowey referenced the Allentown water and sewer concession and the Harrisburg parking lease during an interview after his firm’s “Bridging the Gap” P3 conference in New York conference on Wednesday.

“Allentown, frankly, was slightly disappointing from a P3 perspective,” said Rowey, who advised Kohlberg Kravis Roberts and United Water on the concession-based privatization of water and wastewater systems in the Bayonne, N.J.

Rowey has also advised on such major P3 deals as the Chicago parking-meter system and Puerto Rico’s toll-road and airport privatizations.

Rowey also advised a losing bidder in the Allentown deal, under which the city in April leased its water and sewer system for 50 years to the quasi-public Lehigh County Authority, which sold $308 million of bonds to finance the transaction.

Allentown, which applied most of the proceeds to its unfunded pension liability, received an upfront payment of $211 million and will get an annual payment of $500,000 beginning in 2016.

The transaction was co-winner of The Bond Buyer’s 2013 Deal of the Year award along with another deal, a $224 million bond sale to fund a downtown Allentown arena and surrounding development.

“This was really not a public-private partnership, but rather a transfer from one authority to another, and the buyer took on a hell of a lot of debt,” said Rowey.

“The process was less transparent than we would have liked,” Rowey said.

Rowey cited Allentown’s move late in the request-for-proposal process to clarify bid language, which kept the Lehigh County Authority in the running.

The county’s board of commissioners voted in March not to extend the LCA’s charter to accommodate a 50-year lease — the charter was to expire in 34 years — but the commissioners approved the bid later that month after Allentown tweaked the contract.

“We always saw Lehigh County as our strongest competitor,” said Rowey. “If their plan was to create conditions favorable to Lehigh County, they should have been more upfront about it.”

Allentown Mayor Ed Pawlowski, in an interview earlier this year, dismissed suggestions of secrecy. “That is absolutely, so utterly ridiculous,” he said. “This was probably the most transparent process the city has undertaken.”

According to Rowey, Harrisburg’s 40-year lease of its parking assets, one of two bond transactions pivotal to keeping capital city Harrisburg out of bankruptcy, poses similar problems.

An Internet investor road show is under way this week for the Pennsylvania Economic Development Financing Authority’s $287 million bond sale. The state board will lease parking garages, spaces and street meters to Harrisburg First, a consortium of Guggenheim Securities, Piper Jaffray & Co., Standard Parking Corp. and Trimont Real Estate Advisors. Standard and Trimont affiliate PK Harris will run the garages.

“It’s the same problem, public debt as a solution,” said Rowey. “It’s supposed to get Harrisburg out of a problem, but there’s still too much public debt. Harrisburg is not issuing any guarantees, but its name is all over the documents. Then it becomes a moral obligation.”

Steven Goldfield, the financial advisor to state-appointed Harrisburg receiver William Lynch, criticized the Chicago parking-meter deal, unpopular in the Windy City, at a Harrisburg City Council meeting in September. “What I can promise you is that this will not be like Chicago, where you sit back and say damn, we should have gotten more,” he said.

Harrisburg’s other lynchpin deal involved this week’s $132 million bond sale by the Lancaster County Solid Waste Management Authority to fund its purchase of the city incinerator, the primary source of more than $600 million of Harrisburg’s crippling debt.

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