The Lehigh County Authority is considering significant rate hikes for suburban water and sewer customers over the next five years to fund major maintenance and improvement projects.
The authority’s board of directors got a first look Monday at a preliminary plan of all the western Lehigh County capital improvement projects to be completed through 2024. It represents one of the most deliberate steps the authority has yet taken to cover cyclical maintenance projects with more operating funds and less debt.
While the authority plans to borrow money to cover one-time projects connected to the federal directive to eliminate sewer overflows in the Little Lehigh Creek, it intends to tap operating fund reserves for a variety of other water and sewer projects.
The initial suburban water plan calls for annual rate hikes of 6.9 percent over the next five years — meaning rates would be almost 35 percent higher in 2024 than they are now.
The initial suburban sewer plan calls for a 22 percent increase over the next five years — starting with a 12.4 percent hike in 2020.
The board will review a draft five-year plan for Allentown projects — including potential rate hikes — at its Feb. 11 meeting. The city and suburban capital plans will then be open for public comment, with a final vote tentatively scheduled for late March.
Authority administrators and board members emphasized the proposed rate hikes will be adjusted annually based on any disparities between projected and actual operating expenses, regional growth and inflation.
“This is a guideline for the next five years,” board Chairman Brian Nagle said. “It’s not cast in concrete.”
LCA treats and supplies water to customers in just about every Lehigh County municipality. The largest service region besides Allentown is the Central Lehigh Division, which serves almost 18,000 commercial and residential properties in seven municipalities.
The authority also provides regional wastewater collection to municipalities in western Lehigh County through a system of large interceptors — sewage highways, basically — running to Kline’s Island Wastewater Treatment Plant in Allentown. Most municipalities run their own sewer network but pay LCA to connect to the interceptors. LCA operates the sewer networks in Upper Milford and Weisenberg townships and operates numerous satellite systems in northern and northwestern Lehigh.
LCA historically borrowed to pay for the new infrastructure needed to accommodate tremendous growth. That brought new customers and for a while the practice paid for itself, and then some.
But the nature of LCA’s capital expenses is gradually shifting to repairs and replacements, which don’t bring the same return on investment.
The authority also took on considerable debt in 2013 to lease Allentown’s water and sewer operations through 2062. Since then, the Allentown system hasn’t generated as much revenue as LCA had projected, and necessary capital improvements to the city system are costing the authority more than anticipated.
While suburban customer fees are not directly contributing to debt service on the lease agreement, the authority’s existing debt burden is one reason LCA wants to avoid financing ongoing maintenance with new debt.
The tentative water rate increases through 2024 will cover debt service payments on $5.2 million the authority will incur to pay for, among other things, new water meter equipment and new piping and a pumping station necessary to provide service to the Kohler Tract development in Upper Milford Township.
LCA also will use operating funds and reserves to cover $17.4 million in water main replacements and annual projects.
On the suburban wastewater front, the authority plans to borrow $17.6 million to plug leaky pipes and upgrade an overwhelmed sewer main in the Trexlertown area. LCA had to declare an emergency following November’s rains because of sewage spilling from manholes in the area.
It anticipates using operating funds and reserves to pay for projects worth $17.7 million. About $10.3 million is earmarked for satellite systems in northwestern and northern Lehigh, and $3.5 million is for improvements to a pretreatment plant in Fogelsville.
The authority expects to spend $2.3 million on administrative projects such as programming, computer hardware and GIS upgrades.
Ed Klein, chief financial officer, said the authority will strive to maintain an operating cash balance covering more than 180 days and a debt service coverage ratio of 6:5.
Last fall, LCA increased the suburban division water volume charge per 1,000 gallons more than 7 percent to $2.61 for this year. But that’s still well below national averages and just 86 cents more than what customers were paying at the turn of the century.
Board member Scott Bieber said the cost of water is still “ridiculously cheap” and wondered if the authority should fund even fewer of the pending capital projects with debt.
The Allentown capital plan discussion Feb. 11 will come amid an ongoing controversy over city customer rate hikes and legal issues related to the 2013 water-sewer lease agreement.
The authority board voted last spring to raise Allentown customers’ fixed rates about $156 per year and to bill customers every month rather than every quarter.
The rate hike has not yet gone into effect. Lehigh County Judge Doug Reichley denied an injunction sought by city officials, but the city appealed the decision to the state Superior Court in October. LCA has not implemented the rate hikes because it’s discussing alternative resolutions with the city.
The city and LCA also remain in arbitration after the authority claimed the city misrepresented system revenues during the 2013 bidding process and “persistently violated the lease.” LCA has demanded an award of $36.4 million, according to a filing last July with the American Arbitration Association.
