Allentown, Pa.'s 50-year, $220 million water and sewer lease deal is a credit positive for the city, Moody's Investors Service said Friday.
Allentown, the 119,000-population seat of Lehigh County, plans to pay $158 million toward its unfunded pension liability and redeem $30 million of general obligation debt with proceeds from the concession of its water and sewer system.
The City Council April 25 approved the concession agreement, for which Allentown-based Lehigh County Authority was the top bidder after a request-for-proposals process.
Mayor Ed Pawlowski said that without the move, pension liability could have consumed up to one-third of Allentown's general fund budget by 2015. That total is now about 20%.
"We have to do this," he told the council.
According to Moody's, had Allentown not approved the lease, it would had to issue pension obligation bonds or raise property taxes by up to 75%.
"While the lease may result in higher water and sewer fees within the city, these costs would be borne by a broad base of all rate payers in the city, including nonprofit and other entities that do not pay property taxes," Moody's said.
Moody's Investors Service rates Allentown's general obligation bonds A3, with a negative outlook. Standard & Poor's assigns a BBB-plus rating and stable outlook. Neither Fitch Ratings nor Kroll Bond Rating Agency rate Allentown.
According to Moody's, the $158 million will reduce the rating agency's adjusted net pension liability to 1.6% of full value from 4.9%, and to 0.9 times annual operating revenues, roughly average for Moody's rated local governments, from 2.78 times.
