Mount Penn officials are considering a proposal that would take ownership of the Mount Penn Borough Municipal Authority’s water system and lease it back to the authority.
Supporters say the move could stabilize borough finances, but critics fear it would divert money away from water quality and infrastructure improvements.
The concept, known as a conveyance lease-back, would transfer ownership of the authority’s assets to the borough while allowing the authority to continue governing the system.
Authority staff would become borough staff under the proposal.
The authority supplies water to roughly 30,000 households in Mount Penn and St. Lawrence boroughs and parts of Lower Alsace and Exeter townships.
The pump house is part of the Mount Penn Borough Municipal Authority’s water system. (Courtesy of Mount Penn Borough Municipal Authority)
At a recent authority meeting, Mount Penn Borough Manager Hunter Ahrens said the proposal is intended to address long-term financial pressures on the borough while preserving public ownership of the water system.
“We’re trying to strike a balance,” Ahrens said Thursday at the authority’s monthly meeting. “It’s a clear opportunity to relieve long-term financial pressures from the borough through lease-back revenue, not to aid a struggling borough, but to support regional flourishing of a shared community.”
Hunter Ahrens, Mount Penn Borough Manager
BILL UHRICH/READING EAGLE
Ahrens said the borough faces rising costs for services such as police, fire and emergency medical response and has one of the highest local tax rates in Berks County.
The lease-back proposal, he said, would generate an annual payment from the authority while also encouraging closer coordination between borough staff and the authority.
Private companies such as Pennsylvania American Water have shown interest in acquiring the system, he said, and a lease-back arrangement could introduce new protections against a future sale.
Authority leaders raised numerous concerns during the meeting.
Joseph Boyle, chairman, said the proposal could redirect funds currently reserved for infrastructure and regulatory requirements.
“It seems like this is a cash grab,” he said in an interview after the meeting. “Mount Penn borough has financial issues, and I get it.”
Joseph Boyle, chairman of the board of the Mount Penn Borough Municipal Authority.
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Boyle said the authority has built financial reserves to address major projects, including federal requirements expected to take effect in coming years to remove certain contaminants from drinking water.
Those upgrades alone could cost $3 million to $6 million, he said.
His biggest concern, Boyle said, is that revenues currently set aside for infrastructure could be diverted if the borough controls the assets.
Water rates will go up, he said, if those funds are used by the borough for other purposes and the authority later needs money for system improvements.
Authority officials also questioned how governance would work if the borough owns the system but the authority still operates it.
Ahrens said the authority would remain intact and continue governing the system, with the borough and authority budgets kept legally separate.
The proposal has also drawn pushback from the nearby borough of St. Lawrence, whose residents make up a share of the system’s customers.
St. Lawrence solicitor Joan London said the borough believes the plan may violate the state Municipal Authorities Act.
“Municipal authority funds cannot be used for any purpose other than a service or project relating to the authority’s mission,” she said in an interview after the meeting.
London said diverting authority revenues to Mount Penn’s general fund would conflict with that requirement.
In a letter to Mount Penn’s solicitor, London argued on behalf of St. Lawrence, saying the proposal could undermine a 1968 agreement under which St. Lawrence transferred its water system assets to the authority with the understanding that the authority would operate the system for the benefit of its residents.
Boyle noted that about 67% of the authority’s customer base lives outside Mount Penn, about 40% in Lower Alsace, 19% in St. Lawrence and 8% in Exeter.
Under the conveyance plan, those customers living outside Mount Penn could end up helping fund borough expenses, he said.
Authority officials said customers will receive a notice on upcoming water bills informing them that rates could increase if the proposal moves forward.
Mount Penn officials say the proposal is still in the due-diligence stage, with financial and operational records under review.
The borough has not yet finalized a valuation of the authority or the structure of potential lease payments.
Both the borough council and authority board, which includes two council members, are expected to continue discussions in the coming months as the proposal evolves.