In a move the bond markets could perceive as a credit positive, the Harrisburg, Pa., public works agency Capital Region Water has reached a
According to chief executive Shannon Williams, the agency will reduce combined sewer overflows and improve system performance. It will pay no fines as long as it meets performance deadlines, possibly saving millions of dollars, although significant investment is necessary for planning, improved operation, and early action projects.
"There was this looming order hanging over us," Williams said in an interview after Tuesday's announcement about the decree with the U.S. Department of Justice, the U.S. Environmental Protection Agency and the Pennsylvania Department of Environmental Protection.
That followed 18 months of negotiations regarding alleged violations under the clean water act and Pennsylvania clean streams law that occurred over the past six years.
Capital Region Water's board will vote on the partial decree Dec. 17. Mayor Eric Papenfuse, the Harrisburg City Council and the U.S. Department of Justice must also sign off. The decree is labeled partial because the agency must fully analyze data before undertaking full remedial work.
"This is a very positive development for the city of Harrisburg," said Papenfuse, whose city last year barely avoided bankruptcy. "It's an important part of the city's continued recovery."
Fines could still come if the agency misses corrective timetables.
Williams said the work would cost "hundreds of millions," comparable to the estimated $300 million for piping and grey infrastructure, or $130 million in so-called green infrastructure for similar work in nearby Lancaster, Pa.
Although ratepayers will have to pony up more, "the best part is that at this point in time, all those rate increases will go into the system and not for fines or penalties," Williams said at the press conference in Harrisburg.
"This is a historic regulatory agreement" said Williams. "After half a dozen years of alleged violations under the Clean Water Act and Pennsylvania Clean Streams law, Capital Region Water is righting the ship to become compliant and improve the health of the Susquehanna River and [tributary] Paxton Creek."
The EPA looped Harrisburg into its investigation about four years ago, said Williams, as part of a nationwide study of combined sewer systems. Harrisburg is among 770 cities with such a system.
The agency, which changed its name from Harrisburg Authority, re-entered the capital markets this year for the first time since 2011. Loans from M&T Bank and the Pennsylvania Infrastructure Investment Authority, or Pennvest, have helped the agency do related upfront planning work.
"Knowing that the regulators are working with us and not against us should be credit positive for us," she said.
In April, Amalgamated Bank completed a six-year, $22 million refinancing loan agreement with the agency. The deal involved lower payments over the first two years, intended to save the agency nearly $4 million during that time.
Three months later, the agency issued $29.7 million of variable rate demand sewer revenue bonds, which combined a Pennvest loan with a letter of credit from M&T.
Williams hopes for the agency to obtain an investment-grade rating in about 18 months.
The Harrisburg Authority, unrated after 2011 when Moody's Investors Service withdrew its Ba3 rating, was linked to the debt crisis that pushed the city to the brink of bankruptcy. It sold city guaranteed debt for an incinerator, financing overruns for which largely accounted for Harrisburg's roughly $600 million in debt.
Capital Region Water began operating Harrisburg's water and sewer system in late 2013. Under the state-approved financial recovery plan for Harrisburg, the city sold the incinerator to the Lancaster County Solid Waste Management Authority.
The agency on Tuesday also adopted its $43 million budget for 2015, which calls for an 8.6% increase in water rates and no change to sewer rates for city customers. The budget includes $10 million toward capital improvements, $13 million for debt service and $20 million for operation and maintenance.
