With a land area of 1.5 square miles and a population of approximately 1500, the user base for Chester Borough's water and sewer service is very small. If all things were equal, the user rates for the water and sewer systems of the Borough would stay competitive with the rates offered by private sector companies. However, all things are not equal.
Two plumes of contaminated groundwater exist in the Borough, which have compromised private wells. Additionally, numerous families are served by individual wells and septic systems on under-sized property lots. In several of these cases, problems with septic systems threaten to contaminate nearby private wells. And on top of that, the existing municipal wells serving the public water system are decreasing their recharge capabilities as the years go by. In times of drought, the Borough's water supply is not sufficient to meet the demands of the existing water users. All of these pressures suggested - actually demanded - the need to expand both the water supply system and the water distribution system of the Borough. The cost of infrastructure improvements, however, would be staggering if it were to be paid by such a small user base.
With reference to wastewater, two residential developments combined with the downtown business sector to create a user base for a municipal sewer system, which has served these areas of the Borough since the late 1980's. Unfortunately, the sewer system had difficulties, which translated into significant cost burden on a very small customer base. The need to replace failed disposal beds, the need to upgrade the treatment plant, and the need to address failing private septic systems by expanding the public sewer system all conspired to create a nightmare of upward-spiraling sewer rates.
In 1996, the governing body for the Borough of Chester asked itself some very humble, yet necessary questions: "Were we too small to be in the water and sewer business? Could some one else do a better job than us?" As indicated by the opening scenario, we really did not know the answer to these questions (and the reference to the Fortune 500 Businessman is entirely fictional. Any resemblance to actual persons who attend Chester meetings is strictly coincidental (). We came to the conclusion that the only way to answer the question, was to actually and officially pose the question.
In order to pose the question right, we decided that it would be appropriate to employ the services of an independent party who had no connection with our community, and who could not be accused of having ulterior motives on the issue. After investigating several firms, we chose to enlist the services of Alternative Resources, Incorporated (ARI), a consultant firm with headquarters located in Concord, Massachusetts.
With the assistance of ARI, the Borough put together a task force of local officials; both elected and appointed, for the purpose of creating a "Request For Proposals". The questions began to compound themselves at this point: What if we offer the water system and sewer system for sale, but nobody wants them? Would it be better to lease the systems instead of selling them? How much are the water system and sewer system currently worth? What will be their worth in the future?
As our RFP took shape, we decided to ask all of these questions. We designed the RFP so that interested parties could submit a proposal with respect to the water system, or the sewer system, or both systems. We also invited proposals for a long-term (20-year) contract for operations and maintenance service; or the purchase of the system(s); or the lease of the system(s). Interested parties could submit a proposal for as many, or as few, of the above options as they wished. This made the RFP somewhat confusing to the average person on the street, but the benefit of following this format was to get all of our questions answered at once. Finally, after much debate and soul searching, we decided to "let the market decide" the value of our systems, rather than pay an outside firm to make an independent evaluation on this matter.
In preparing the RFP, the Borough openly admitted that we did not know which option would be the most advantageous, and that we would not know until we had received and evaluated all of the proposals for the various options presented. The RFP provided in-depth background information to acquaint Proposers with the history and condition of the Borough's facilities. In addition, Proposers were encouraged to attend a pre-bid meeting (but not required, for fear of losing a live one); to inspect the facilities; and to review all materials on file at the municipal building. The RFP was issued on December 31, 1996. The structure of the RFP placed us under the requirements of various, complex state laws. Additionally, we needed direction regarding how to handle existing public debt upon the sale or lease of the system(s). And finally, once we decided on the option that was best for us, we would face significant legal negotiations on the most important issues in the history of the municipality.
Fortunately, the Borough's Municipal Bond Counsel fit the bill in meeting all of our legal needs. We therefore entered into a second professional services contract, with the law firm of McManimon and Scotland of Newark, New Jersey.
This, I believe, is one of the most important points of advice I can offer to other municipalities regarding the investigation into privatization: the urge will be strong to "handle this ourselves" for the purpose of keeping down costs, and because you believe that you know your community best, so you should handle this personally and be accountable to your constituents. Good intentions; Bad idea. Don't do it that way. By all means, you should maintain final decision-making rights, but you should also rely on consultants and legal firms who deal with privatization on a regular basis, and can guide you through the diverse requirements for public notifications, applications to state agencies, and the finer points of negotiations with the corporate attorneys employed by private sector companies. And there is a way to mitigate the costs of your professional consultants: make it a condition of a successful contract with the private companies, that they will reimburse the municipality for the costs incurred. The risk of having to pay for professional advice would then be borne by the municipality only if no sale/lease/contract is awarded.