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HOLDING THE PURSE STRINGS: Council moves to control former water and sewer authority funds

Posted 7/21/15

Middletown Borough Council has moved to assert its authority over $8 million tied to the lease of the water and sewer systems to United Water.

Specifically at issue is $3.8 million that on March 30 the borough’s water and sewer authority …

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HOLDING THE PURSE STRINGS: Council moves to control former water and sewer authority funds

Posted

ICDAMiddletown Borough Council has moved to assert its authority over $8 million tied to the lease of the water and sewer systems to United Water.

Specifically at issue is $3.8 million that on March 30 the borough’s water and sewer authority transferred to the Middletown Industrial and Commercial Development Authority.

In a motion introduced by Councilor Ben Kapenstein – following a nearly two-hour closed-door executive session – council agreed by a 5-1 vote on Monday, July 20 that any spending of this money by the ICDA would first have to be approved by council.


“We want to put a belt and suspenders on the whole thing,” Kapenstein said after the meeting. “We don’t want any of that money spent without coming to the elected officials first.”


Councilor Michael Bowman was the lone dissenting vote. Councilors Vicki Malone, Scott Sites and Suzanne Sullivan were absent. Among those voting for the motion was Council President Chris McNamara, who is also a member of the ICDA.


The situation seems to have its root in an apparent lack of communication and coordination between council, the water and sewer authority and the ICDA.


An agreement approved by council and the water and sewer authority last September to lease the water and sewer systems to United Water led to a $43 million payout from United Water that was made to the borough to retire debt and fund various projects, including the ongoing replacement of water and sewer lines.


Technically, the lease deal between United Water and the borough is known as a “concession.”


Under that agreement, the water and sewer authority is supposed to eventually dissolve itself. However, that has not happened yet because the authority is still responsible for ongoing permitting issues that cannot yet be transferred to United Water.


During its March 30 meeting, the water and sewer authority voted to transfer all its fixed assets to the borough and transfer approximately $8 million to the ICDA.


ICDA Chairman Matt Tunnell said that $4.3 million of the money transferred from the water and sewer authority was accumulated from bills and fees that had been paid by customers to the water and sewer authority during the period from when the lease agreement was approved in September to when the lease deal went into effect and United Water took over water and sewer operations on Jan. 1.
The remaining $3.8 million was tied to various projects that were to be funded through the $43 million payout, including the Main Street project.


Tunnell said the ICDA transferred back to the water and sewer authority the $4.3 million amount derived from the payment of water rates and fees by customers. Under law, this money would have to be transferred from the water and sewer authority to the borough in the event that the water and sewer authority dissolves, Tunnell said.


However, Tunnell said the ICDA considered – and still considers – the transfer of the $3.8 million for projects to be “an appropriate transfer.” At the same time, Tunnell said that none of the $3.8 million that the ICDA has received from the water and sewer authority has been spent or committed.


“My intention is (for the ICDA) not to spend any of that money without the full disclosure and transparency on where that money came from and how we got it,” Tunnell said.


On June 15 – nearly three months after the water and sewer authority had approved transferring the $8 million to the ICDA – Councilor Robert Louer introduced a motion that council approve the transfer. The motion failed. However, the vote to reject the transfer “didn’t matter” because the money had already been transferred, Kapenstein said after the July 20 meeting.


Kapenstein said that council is now going to “try” and get the $3.8 million transferred back from the ICDA to the water and sewer authority. Assuming the water and sewer authority eventually dissolves, that money would then be transferred to the borough, Kapenstein said.


“It is in the taxpayers’ best interest to have everything come through the elected officials, not these separate boards,” Kapenstein said, referring to the ICDA. “They should not have the authority to vote on funds by themselves.”


“We can work in conjunction with them to do these projects,” Kapenstein said, referring to projects such as the downtown streetscape and re-development of the Elks Building, which is owned by the ICDA. “If they (the ICDA) need money for a project, they come and ask us for a specific amount. We either say ‘yes’ or ‘no,’ and that’s the end of it. I don’t think they should have a blank check.”
Mayor James H. Curry III, who stood by Kapenstein as he spoke to reporters about the vote following the July 20 meeting, agreed, saying, “I don’t think that a board (the ICDA) comprised of non-elected officials should have the authority to make $4 million worth of decisions.”


“Those decisions should come from those individuals who were elected by the populace,’’ Curry said. “We can work in conjunction with those separate bodies to make the decisions, but to give them carte blanche to spend the money would be financially irresponsible.”


Tunnell told the Press And Journal that he is not aware of any request from council or from the borough that the ICDA transfer the $3.8 million back to the water and sewer authority.


“This is a very fresh issue,” Tunnell said. “This is a huge opportunity, I think, for the community” he added, referring to the potential use of the $3.8 million.


Tunnell noted that in 2014 the council and the ICDA worked out an arrangement where an $3 million bank line of credit was made available to the ICDA – but any drawdown of the money by the authority would have to be approved by council before the money could be spent.


Tunnell suggested that a similar arrangement could be put in place to guide use of the $3.8 million – and perhaps should have – before matters came to a head on July 20.


“We already did sign off on that kind of approach already,” Tunnell said, referring to the line of credit. “I guess we missed a step with this $3.8 million. The ICDA did the responsible thing and held that money and allowed this process to play out before any of those dollars were allocated for any project.”


Two projects that up until now have been shepherded largely by the ICDA include the downtown street scape improvements and redevelopment of the Elks Building.


The ICDA plans to rebid the downtown street scape project to get new bids that are within the project’s budget. As for the Elks, the ICDA has been negotiating with Tattered Flag, a company that wants to open a craft brewery and still operation and a brew pub in the building.


Tunnell has said that the concept is for the ICDA to fund the up-front renovations that will be needed for Tattered Flag to move in. Tattered Flag would then repay this money to the ICDA under terms of a long-term lease.


Tunnell said council’s July 20 action regarding the $3.8 million will “clearly” have “an impact” on projects such as the downtown street scape and Tattered Flag – however “I don’t know what that impact is going to be,” he added.


“I think this can be a very workable arrangement,” Tunnell said. “But some of these projects are underway or partially negotiated. It’s going to take some accommodation in terms of meeting schedules to get some of these things accomplished.”


Dan Miller: 717-944-4628, or danmiller@pressandjournal.com

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