The Lehigh County Authority would finance the $220 million it bid for the Allentown, Pa., water-and-sewer concession through low interest, tax-exempt bonds over 30 years, according to its general manager.

Aurel Arndt told the City Council Monday night that the agency would finance the bonds based on revenues generated in the first 30 years of the 50-year agreement. The longer-term financing period, said Arndt, enables the authority to lock in a low rate to reduce borrowing costs.

“We believe that our approach to financing this concession is responsible, conservative and realistic,” he said.

Monday night’s hearing, which took nearly five hours, continued the work session that started last week and lasted nearly as long. It is the final one before the council’s scheduled vote on Thursday. Council approval is expected.

Mayor Ed Pawlowski has championed the deal, calling it necessary to cover an unfunded pension liability that the Pennsylvania Economy League, in a report posted Tuesday on the city's website, estimated at $166 million based on an 8% assumption. Otherwise, Pawlowski said, pension obligations could spiral to 30% of Allentown’s general fund in two years.

“We note that a 7% interest and return rate may be a more realistic projection. A 7% rate of return would require between $199 and $206 million to cover the unfunded pension liability,” the PEL report added.

“We obviously need to address this problem,” Pawlowski said in an interview. He expects lease proceeds to also cover the city's water debt, estimated at about $31 million. Any leftover money would likely go to capital improvements or other post-employment benefit (OPEB) liabilities.

Allentown, with a 119,000 population, is the seat of Lehigh County.

The Allentown-based LCA, with a seven-member board of directors, serves about 22,500 customers in 16 townships. Fitch Ratings and Standard & Poor’s assign AA ratings with stable outlooks.

The agency, which began in 1966, has a $24 million operating budget for 2013, and a 10-year capital plan totaling $150 million. According to an unaudited report from 2012, it listed $224 million in assets, $46 million in liabilities and has net assets of $23 million.

But one LCA board member speaking Monday night opposed the agreement. “In a sense it’s a shell game. They’re saying, ‘instead of raising your property tax bill, we’re going to increase your water and sewer bill.’ You’ve just shifted it to another bill,” said board member and Allentown resident Vic Mazziotti.

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