February 24, 2006, Special Council Meeting

Minutes

The Special Council Meeting of the Clarion Borough Council was held on February 24, 2006, at the Clarion Borough Offices.

President Wilshire called the meeting to order at 4:03 p.m.

Councilmembers present included Mr. Zerfoss, Ms. Leonard, Ms. Vavrek, Ms. Moore, Mr. German, and President Wilshire.  Mr. Herman arrived at 4:03 p.m. right after roll call.  Mayor Stroup and Ms. Freenock were also present.  Mr. Ragon, Mr. Stutzman, and Chief Hall were absent.  Also in attendance were Randy Hannah, Paul Weaver, Art Aaron, and Bill Miller, Authority Boardmembers; Chuck Johnston, representative of Pennsylvania-American Water Company; and Lowell Snyder, Sewer Plant Operations Manager.

President Wilshire:  The purpose of the meeting was to consider approval of the Consent Order from DEP regarding the sewer authority.  Nancy Freenock’s summary lists some of the things with the Consent Order.  This is something that DEP’s requiring, and it must be done eventually for the sale of the Authority to the water company.  And, as Joel had mentioned before he had some questions, and I asked members of the Authority and a representative of Pennsylvania Water Company to come to the meeting.  So, if there’s any questions, this is the time to ask them.  And also I received a letter of resignation from Orv Lerch as a member of the Authority.  This has to be approved by Council, but I did ask Bill Miller to consider serving to replace Mr. Lerch on the Board, and he’s also in attendance.  So, we can proceed with this many different ways.  We could get a motion on the floor and a second and then have discussion on approval of the Consent Order.

Mr. Zerfoss: I would move that the, what we’re here for, the Consent Order be approved.

Mr. Herman: I second that.

President Wilshire: Okay, discussions, any questions on the Consent Order?

Mr. German: Well a couple.  Let’s start out; first off, I know Nancy has raised some questions on it.  Is the deadline, do we have to have this, is it set, firm?

Ms. Freenock: I haven’t heard about that, I don’t know if anyone can address that issue.

Mr. Randy Hannah: The deadline you said, Joel?

Mr. German: Yes.  Is that a set in stone, March 3rd?

Mr. Hannah: Yes.  After Rick Gilson from the DEP got word that Orv had resigned, he called me and he made it very clear to me that he was expecting the Consent Order to be signed and in his hand by March 3rd.

President Wilshire: There was some discussion earlier whether that was just to receive additional comments or it was actually the date that it had to be signed.

Mr. Hannah: I asked that question point blank.

President Wilshire: You’re now serving temporarily as Chair of the Authority?

Mr. German: You’re the president of the, what are you?

Mr. Hannah: Vice-Chair.

Mr. German: Vice-Chair of the Authority.  Let’s backtrack who would be the guy to ask about the history of this whole sale, from the start, when we started thinking about the sale, who would that be?  Which one of you?

Mr. Paul Weaver: Well maybe me, I was appointed by Council to really find an answer to the sale.  And I think at my second meeting, Randy, you’re going to have to back me up on this, because I suggested that we hire outside counsel and an outside financial advisor to tell us whether the offer was good, whether we should sell it or not, and also the outside attorney for legal advise.  And I guess from that time on, it was sort of assumed that we were going to sell it.  And, of course, we’ve run into many, many problems.  Some of you probably know the rights-of-way were never obtained.  There were 180 rights-of-way for sewer lines that we never filed, we didn’t legally have right-of-way for, and that had to be taken care of.  That’s cost us close to $200,000.  So, it’s been one thing after the other.  And we keep trying and there’s always a little bump in the road here and there.  And then DEP said we should have flow meters to check the flow at the Liberty Street pump station and also down at the plant. The potential cost is $265,000.  We are spending money.  But it has to be spent, that’s all there is to it.

Mr. German: Well the initial reason to sell was to what?  Why sell?

Mr. Weaver: I think some of the things I laid out for you probably should have answered that.  Things were left go.  And we had a Consent Order, when was that year 2000?

Mr. Hannah: When I went on board, the Consent Order was being negotiated.  I didn’t even know what a Consent Order was.  It took me a year, you know what I mean, to get up to speed on the thing.  But I’d like to say something there to go along with you.  You ask why, if you look at Page 9 of this Consent Order, under b-a, it says the Authority submitted annual reports to the Department for 2001, 2002, 2003, and 2004 and they were inadequate.  So, that says right there that the system wasn’t working.  And that’s only one thing.

Mr. German: So, you’re saying at the time, this is a history obviously, at the time when you wanted to sell the Authority, things weren’t up to compliance.  They were assuming that Pennsylvania Water would then bring everything up to compliance, is that basically the reason for the sale?  You felt they would do a better job?

Mr. Weaver: I think that was the answer that they would be better equipped to do a better job.  But in the process, Pennsylvania Water Company required certain things.  Right now they are doing that outflow pipe from the plant, getting to work on it.

Mr. German: All the things in the consent were talked about at that time in 2000, that they’re now asking, DEP is asking for.

Mr. Weaver: That outflow pipe was supposed to be completed years ago.

Mr. German: Well not only that, but DEP is asking a lot of other things

Mr. Weaver: Oh yea.

Mr. German: to come up to compliance.  That was all talked about at that time.  I mean prior to the selling or the vote to sell?  I’m trying to get a background here.

President Wilshire: If I could just jump in, there was a general consensus that there were a number of things let go.  DEP wasn’t allowing any more taps until a lot of this stuff was rectified. 

Mr. German: And that’s 20 taps per year?

President Wilshire: And that was part of the other Consent Order.  And I believe they were supposed to fit in $100,000 worth of improvements each year.

Mr. Weaver: That’s all that was done.

President Wilshire: Yea, but they didn’t, on those improvements that were put in, they didn’t tackle the problem of this outflow pipe that was mentioned.  So, there was a real sense that things weren’t being done to keep up with this.  And because of the technical demands of DEP and that it was generally felt that a business-run organization like Pennsylvania Water could manage it better and eventually allow for more taps for development through the area.

Mr. German:  But doesn’t the Consent Order state 20 taps starting the year 2008.  I mean we can’t get any more than 20, am I correct in saying that?

Mr. Weaver: Well if you get out of the Consent Order, you can.

President Wilshire: Yea, the idea is to get out of the Consent Order.

Mr. Hannah:  The other thing is there’s a provision in there, I think if this thing gets on track and you sit down with DEP, you know what I mean, I just feel that they will work with you, but they are not going to in the state that it’s in now.  Would you have to agree with that Chuck?

Mr. German: Chuck, you’re from?

Mr. Chuck Johnston, Pennsylvania-American Water Company: The entity that has the agreement of sale.  There’s also a provision in the Consent Order that you can ask for taps for certain economic development to folks that may be new into the area, in addition to the 20 they’re allowing after a certain amount of years.  I don’t think they, they’re not allowing 20 the first year.

Mr. German: Wasn’t it 2008, the first year we could actually apply,

Mr. Johnston: Yes.

Mr. German: ask for 20 or more, am I correct in saying that?

Mr. Johnston: Correct.  But during the interim you can still ask for ones for economic development.

Mr. German: Okay, during that period, okay.

Mr. Johnston: The history of the reasons for sale, we went through it.  The rights-of-way weren’t necessarily acquired; we’re still in the process of finalizing those rights-of-way.  The rights-of-way need to be acquired.  It’s a matter of us having clear title to what we purchase and have the ability to go and fix them.  Subsequent to signing the agreement in October 2004, the Consent Order expired.  The NPDES permit, which allows the Authority to discharge into the waterways of Pennsylvania and the treated affluent and the waste water plant expired.  The Authority applied for a new one and then shortly after that DEP raised their hand and said ‘oh no you don’t; by the way, the outfall pipe isn’t where it’s supposed to be.  It had broken off sometime in the 80’s or very early 90’s and was never extended to the place that it was supposed to be extended to much to the surprise of virtually everyone but one person that worked for the Authority that knew about this but never really said anything to anybody.  So, I mean that was a real shocker to all of us.  That outfall pipe needed to be extended in order for DEP to issue the NPDES permit.  So, the Authority is in the process of permitting for the extension of the outfall pipe so that it can get the NPDES permit.  And the Consent Order is about to be signed.  And it appears that DEP will issue the NPDES permit concurrently with the Consent Order.  However, inside the Consent Order, there’s going to be a monthly fine because the outfall pipe hasn’t been extended to the place where it should be extended to.

Mr. German: And have we, the Authority incurred that fine, am I correct?

Mr. Johnston: The Authority incurs that fine.

Mr. German: And can you refresh me, the fine is?

Mr. Johnston: I believe it’s $2,000 a month.

Mr. Lowell Snyder, Clarion Area Authority: $1,000

Mr. Weaver: $1,000 starting March 1st.

Mr. Johnston: Okay, $1,000.  Try to move things forward, the Authority is very close to getting all of the rights-of-way that it needs in order to convey clear title under that instance.  The Consent Order about to be entered into by the Authority and hopefully by the Borough and the two Townships, the NPDES permit will be issued concurrently with the Consent Order with that additional clause in it.  The permitting for the outfall pipe is called a joint permit filed jointly with Army Corps of Engineers and DEP.  And it’s a rather involved process to get one of these permits because you have to do a lot of different things.  That is expected to be filed in about 9 weeks and then the outfall will be constructed shortly thereafter.  And while that’s going on, ideally the PUC will approve the transaction.  And once the outfall pipe’s constructed, then we close.  The addition that the Authority puts in, capital addition, including design permits, hard construction, we’re going to revise the purchase agreement to include those capital additions that the Authority spends between now and closing such that the Authority is made whole.

Mr. German: And we have that in writing now or

Mr. Johnston: We don’t have that in writing now.  We did send the Authority a revised purchase agreement to take that into consideration.  We’re still working on the outfall pipe, because that was, I don’t want to say it was a misrepresentation but it was an unforeseen circumstance, so we’re trying to work through that remaining issue.  That’s so to speak where we are and where we’ve been and more importantly what we’re doing to move this much closer.

Mr. German: Nancy, when you had in here on your second page, to my understanding that PAWC will handle the actual compliance with the consent, is this what we’re talking about here?

Ms. Freenock: That was my understanding that Pennsylvania-American Water is now not running the operation.  But that as far as the obligations that are contained in this Consent Order with respect to getting plans together and actually overseeing compliance with this agreement, Pennsylvania-American was going to handle that.  Is that true or is that not true?

Mr. Johnston: We’re working with the Authority.  We have engineers on staff that are working with the Authority’s engineer to ensure that those things in that Consent Order are being done between the time that Consent Order is entered into and the time that we actually close such that, you know, when we do close everything’s moving and there’s momentum and everything’s done.  Pennsylvania-American Water is not a signator to the Consent Order, because we do not hold the permit nor do we own the system at this time.  Our discussion with DEP was that we do need DEP’s consent in order to accept assignment of that Consent Order.  So, that’s one additional step.  We do have to get that signed from DEP at or immediately prior to closing.  I mean they’ve given us verbal assurance that that isn’t an issue; but nevertheless we do have to have that signed.

Ms. Freenock:  I have a couple questions, if you don’t mind.  The first one is you indicated that Pennsylvania-American is going to make the Authority whole with respect to any capital improvements.  Is there a limit on the amount of capital improvements that the water company is willing to reimburse the Authority?

Mr. Johnston:  They’re going to be made whole for the capital improvements that are required under the Consent Order. 

Ms. Freenock: So, are you talking about the $500,000 to repair the discharge pipe or no?  Is that included in there?

Mr. Johnston: At this point, no, because, I mean, that was never represented to us at the signing that there was a compliance issue with that.  And nevertheless we’re trying to work with the Authority to get that mechanism in place to reimburse the Authority for that particular addition.  The other additions that are required under the Consent Order, with the exception of that outfall pipe we’re saying we’re going to pay for provided that we get a chance to review and approve what needs to be done, our review and approval will be reasonable and timely.  I mean we won’t withhold our approval unreasonably; we want to move forward.

Ms. Freenock: Now correct me if I’m wrong on this, with respect to the purchase price.  Pennsylvania-American then is allowed to turn around and raise sewer rates because they’re allowed to recoup some portion of the sale price.  So, by increasing the sale price, because you’re paying for capital improvements, isn’t that then going to come back to the individual user via their rates?

Mr. Johnston: Those improvements that are contemplated under the Consent Order were the same improvements that we contemplated making after the sale, if the sale would have went through let’s say today.  We contemplated making those improvements in any event.  And that’s why we feel ‘fine we’ll pay for those and move forth’.  The rate adjustment, we’re pretty open and honest about where we saw the rates going given the shape of the system, what we paid for it, and what improvements we had to make moving forward.  I think we said they were somewhere in the range of low 20’s per month, if my memory serves me correct.  In terms of rate adjustments, we’re regulated by the Public Utility Commission.  We have to make improvements before we’re allowed to cover them in any rate filing we would make with Public Utility Commission.  And those improvements that we make have to be proven to be prudent, reasonable, used and useful before we’re even allowed to adjust rates for that as well as the purchase price.  We’ve been honest and open up front.  We’ve always said that rates aren’t going to stay the same, but rates are going to go up.  And based on what we see, this is where we saw the rates going to.

Ms. Freenock:  With respect to the assignment of the Consent Order to the water company, the water company then would be stepping into the shoes of the Authority.  What happens to the obligations of Monroe Township, Clarion Township, and the Borough?  They’ll remain?

Mr. Johnston: I believe so, yes.

Ms. Freenock: So, that if you step in prior to the completion of the improvements that are being mandated by the Consent Order, the Borough and the Townships can be liable for some or all of the fines that are imposed?

Mr. Johnston:  Well, first of all, us as the owner of the permit and the facilities, we’d be fined. 

Ms. Freenock: Right.

Mr. Johnston: So, if that does occur, we’re going to get fined.  We pay those fines.  In the unlikely event, let’s say that, we drop the keys off on the Borough’s desk or we go bankrupt or whatever happens, I guess in that particular instance there’s a possibility that DEP may seek remedies against you.  They are going to come after the permit holder first.

Ms. Freenock: Right.  Do you know if the Authority, once taken over by Pennsylvania-American, is it going to be operated as a division or is it going to be accounted for as part of the entire corporate package?  I guess my question is it’s very possible that the Authority, itself, and then the water company will be bankrupt or will be close to it and not have the money to pay those fines.  In that case, will Pennsylvania-American Water Company corporate step in?

Mr. Johnston: The corporate structure of the whole thing, you know, how it fits in with Pennsylvania-American.  The waste water assets are being purchased by Pennsylvania-American Water Company and they are part of Pennsylvania-American Water Company.  They are not a separate corporate entity fully owned or partially owned by Pennsylvania-American or any other subsidiaries.

Ms. Freenock: And does the purchase agreement contemplate that all of the requirements will be met in the time frame that’s laid out in the Consent Order?  The purchase agreement, does it make clear that all the requirements laid out in the Consent Order are going to be met then by the water company within the same time frame?

Mr. Johnston: I’d have to look.  I do not believe it specifically states that.  It’s our intention to do that.  I hear what you’re saying, and I think the answer is no.

Ms. Freenock: Well the time constraints in the Consent Order are very short. 

Mr. Johnston: Right.

Ms. Freenock: Keith Pemrick indicated that he was requesting an extension, and I think then that the fine had increased to $2,000 a month.  So, what is being discussed at this point.  Do you know?

Mr. Johnston: We thoroughly reviewed every deadline that was in the initial Consent Order with our folks that have the waste water experience.  We gave comments back to DEP.  DEP didn’t like them.  We gave them comments again.  Kind of didn’t like them and said ‘let’s have a sit down, really need to explain it across the table as to why your time line, deadlines are unachievable given the best of circumstances’.  We had that meeting in Meadville awhile ago and we got through to DEP and explained all that, laid it out, and based on permitting, design, construct, build, all these activities, this is what is reasonable and workable given what you want done.  So, they came back with the last draft and essentially gave us everything we asked for with the exception of the construction of the outfall pipe, which we commented on to Orv Lerch and to Keith Pemrick and said ‘this is the only remaining problem that we saw with the Consent Order was it had to do with the construction time table for the outfall’.  The remaining pieces in there, given the time lines for permitting, design, construct, we thought were reasonable and could be met.

Ms. Freenock: This I guess is more addressed to

Mr. Johnston: Let me, I’m sorry.  And then I believe when the Authority did comment back to DEP on those time lines for the outfall DEP said ‘well fine we’ll give you that; but fine’s not going to be $1,000 a month, it’s going to $2,000’.  So, as far as we’re concerned those time lines are very realistic and achievable.  They are aggressive, but we need to do something aggressive.  It’s out of compliance, the thing’s a mess, you want to be aggressive and get it done.  So, we think they’re very realistic and achievable.  And we reviewed them with our folks, your folks, DEP, and argued, and we got what we wanted out of that.

Ms. Freenock: My other question is to the Authority Board.  It’s my understanding that there isn’t much cash available right now from operating expenses.   That the Penn Vest loan and the bondholders were paid off.  So my question is where is the money going to come from to pay for these fines so that the Borough is not on the line.

Mr. German: There is an outstanding loan you guys have, right, $580,000 from National City?

Mr. Weaver: 580.

Mr. Snyder: From our operating revenues, we can handle the fines.  We can’t handle the construction of the outfall pipe.  We need money for that.  We no longer have our Penn Vest and so on to pay, we paid them all off.  We have a note that we had to get from National City in order to pay that all off.  We ended up with a $580,000 note to National City.  That’s due in March.  We have enough revenue coming in to handle all our operating expenses, which is fairly substantial, and we can pay the fines.  But we’re in financial need now of funds in order to do the outfall pipe, which we’d get back again from the water company.  So, the note we got at National City was an anticipation thing, which we planned on closing in December, December 15th.  And it didn’t happen.  We gave ourselves enough time to March 15 to get that covered.  And now that time’s coming, and we need to get that covered.

Mr. German: How are you going to cover that?

Mr. Snyder: Yes, that’s right. 

Mr. German: No answer to that question.

Mr. Snyder: We need another bank loan. 

Mr. German: And do you anticipate you being able to receive that next bank loan?

Mr. Snyder: Yes, we do.  With the assistance of the Borough.

Mr. German: Are we in financial status to even take that on?

Mr. Snyder: Well the Borough is always financially behind the Authority; the Borough and the Townships, so it’s really no different.  We have arranged for a bank loan, but we need a letter of intent to back that loan from the Borough.  Then we’ll have enough money to do the outfall pipe and the whole works and get us into the closing.

Mr. German: And you’re anticipating the outflow pipe, I’ve heard ranges from 60 to 600,000.00

Mr. Snyder: We really don’t know.  The bids came in real wild at $500,000; it’s not going to cost that much.  It was then estimated by the original engineer between $60 and 80,000; and it came in at 500,000, because the permitting process he used was not good.  The engineers, Gannett and Fleming that we have working on it keep assuring us over and over it’s going to be closer to the way they design it.  And the way they’re permitting it through the Corps of Engineers and so on that it will be closer to the original estimate than it will to the, the original estimate of the engineers than it will be the estimate we got of some $500,000.  So, somewhere between 100 and 500.  And I’ve heard guesses from the engineers now that it’s going to be more like 200,000.00.

Mr. German: So, you have that cost, you have your loan, I think there’s another civil penalty we have to pay once we sign the consent we owe $5,680 immediately.  Am I correct?

President Wilshire: The Authority does.

Mr. German: Yea, yea, the Authority does.  I’m just trying to add all these figures up.  Plus on top of it, all the other things we’re looking at, that we have to come into compliance with.

Mr. Snyder: We’ve applied to the bank for $1 million to cover all these things.  And they’ve agreed, more less approved it, but we have to have a letter of intent from the Borough.

Mr. Weaver: It’s actually a line of credit.  Approval from Clarion Borough.

Ms. Freenock: Does the Authority have any other indebtedness?

Mr. Snyder: No.

Ms. Freenock: Just the 580 right now?

Mr. Snyder: Yes, that’s all we have.

President Wilshire: Chuck, I don’t know if this is possible, what’s the bottom line here when this thing sells, what is the selling price that the Borough’s going to get, is that possible to come up with that now?

Mr. German: There’s no contract?  I thought that was signed.

President Wilshire: There’s a sales agreement and I don’t know whether, I’m just asking this flat out, because of this other stuff that’s come up; if that’s impacted on it or if it’s, I think it’s $2.7 million.

Mr. Weaver: The original sales agreement was $2.7 million.

Mr. Johnston: Yea, it’s $2.7 million.  And it’s like selling a house.  The seller, I guess the buyer pays off the seller’s mortgage so he gets the house free and clear.  Out of the $2.7 million comes any debt that encumbers the system; the 580,000 Penn Vest loan.  And any cash, any furniture in the house, accounts receivable, prepaid that are on your balance sheet, I don’t know what’s there but that also remains with the Authority.  And trade payables, like payroll taxes, electric bills through the date of close, they remain with the Authority.  And in terms of a line of credit, we increased the purchase price dollar-for-dollar for the additional indebtedness that’s related to the Consent Order.  So, I guess at this point in time $2.7 less $580,000 looks like a net proceed figure as best I can tell without knowing what cash, account receivables, what current assets and liabilities are.

President Wilshire: The original proposal, I think, was $2.1 to begin with and then it was changed at some point, wasn’t it?

Mr. Johnston: I think our illustration, yea, when we illustrated how you net it out, yea, that was, the sale price was guaranteed not necessarily how you manage your working capital, your current assets, current liabilities.  So, we’re still in the same neighborhood, I guess, 2.1, yes.

Mr. German: The whole system, do we have a, how much this whole entire system.  Art, I remember reading sometime way back, you calculated it at $6.7 million is what it was worth.

Mr. Art Aaron, Clarion Area Authority Board Representative (Clarion Township): That was an Auditor’s Report.

Mr. German: Okay.

Mr. Weaver: There is an estimate.

Mr. Johnston: There’s a replacement cost new, an estimate, it gives you the high end. 

Mr. German: Is that the 6.7?

Mr. Johnston: Yea, clearly it’s not a new

Mr. German: Okay, that’s the 6.7?

Mr. Johnston: That’s the replacement cost, new.

Mr. German: But the actual cost is much lower, am I correct in saying that?

Mr. Johnston: The actual appraised value of the system?

Mr. German: Yes, is much lower than 6.7?

Mr. Johnston: It was approximately the purchase price that we paid.  I’m not privy to the appraisal that the Authority had.

Mr. German: Is it 2.1 or the 2.7?

Mr. Weaver: The appraisal was 3.8

Mr. German: 3.8, thank you.

Ms. Freenock: With respect to the fees that are being, the attorney bills for the rights-of-way and everything else, does the Authority have the ability to pay them currently to keep them current out of operating expenses, or is that something that’s going to be paid out of the sale?

Mr. Snyder: Pay what?

Ms. Freenock: Attorney fees to obtain the rights-of-way, the fees to negotiate the Consent Order, are you being billed monthly and paying for that work monthly, or is that going to come out of the $1 million?

Mr. Snyder: We have some accounts payable in that area yet; the attorney and engineering costs for doing these rights-of-way.  I would say we probably have, my best guess at the moment is $150-175,000, we owe.  They’ve agreed to wait until the closing to get that paid.

Ms. Freenock: Any other costs that are being put aside for payment?

Mr. Snyder: No.  Our accounts payable is in real good shape except for that.  Right up to the minute, except for those that agreed to wait, attorneys and engineering fees.  Yea, I think I’m too high on that.  It’s not that much.

Unidentified Board Representative: $30,000.

Mr. Hannah: The other thing is we may have more on the right-of-way.

Mr. Snyder: Yea.  If we have to get involved in condemnation, there’s appraisal costs and condemnation costs.  Currently, we’re pretty positive that we’re not going to get real deep into that.  There will probably be just a handful.  But the appraisal costs and those condemnation things run a few bucks.  They might cost us $1,000 a piece.  And if we have to extend the $500 to the property owner for their costs and our appraisal cost will probably run $300 or more for each one and court costs.  But I don’t think that’s going to be a big issue.  It keeps getting smaller and smaller all the time.  Those people that we filed condemnation on gradually keep coming in and signing and coming to an agreement.  I only know of maybe 4 or 5 that are quite adamant about it that we’re going to have to do a condemnation on.   So, that’s not a big cost.  And I think we can handle that really with our regular revenue.  In time, considering the time this is now going to take, how many months, 9 weeks for this and 180 days for that construction and so on, we’re going to be in business for awhile.  So, we’re going to have the revenue coming in.  I think we can probably pick up a lot of that just from our regular revenue.

Mr. German: You were taking steps to actually close on March 15th as an organization.  Because I noticed on my sewer bill it said you’re next bill will be on your PAW, you know, Pennsylvania Water bill.  So, you guys are still colleting next time, it’s still being pass to the Authority?

Mr. Snyder: Yes, the water company is just doing our billing for us.  We get the money.

Mr. German: Okay, but they are actually now going to be billed through them?

Mr. Snyder: Yes.  That lowered our cost plus it improved our receivables, because people will pay that where they sometimes lag in paying us many times.  So, the first month in March will cover January and February, then after that it will be monthly.  And every Friday we get deposited in our account collections for sewers that they make.

Mr. German: Okay.

Mr. Snyder: It only costs us 55 cents per customer to get that.

Mr. German: Where it used to cost?

Mr. Snyder: I don’t know what our costs have been.  Spend a lot of time.

Ms. Freenock: This Consent Order addresses every issue that DEP has with the system?

Mr. Snyder: I believe it does. 

Ms. Freenock: Are there any other state or federal agencies that have problems that haven’t been dealt with or that might crop up with the pendency of this sale?

Mr. Snyder: I don’t know of any and they’d had it in there if there were any.  You know the big issue with them is the inflow of the i and i, is the big issue.

President Wilshire: Do you know of any other things that might crop up (referring to Mr. Johnston)?

Mr. Johnston: DEP has primacy for EPA; we haven’t heard anything from EPA.   Presumably entering the Consent Order with DEP that covers you from EPA to ABC to LMNOPQ.   Not aware of any, no.

Ms. Vavrek: Why didn’t any of this surface before with DEP?  I mean if there were violations 5 years ago or 4 years, why was nothing ever brought forth then?

Mr. Johnston: I think that’s a good question.

Ms. Vavrek: I mean they waited now until there was a sale pending to do this.  I mean why, if there were violations and things that were not correct, did they not tell the Clarion Area Authority or they ignored it?  What did they do?

Mr. Johnston: Well EPA’s had about enough of enforcement action not happening in Pennsylvania.  And it’s coming down from EPA saying to DEP ‘you know, you better start enforcing this’.  Literally every system in Western Pennsylvania, with exception to a couple, are either under Consent Order or are about ready to be under Consent Order.  So, you’re not being singled out for any particular reason.  What happened in the past, and there were a lot of things that quite frankly were just swept under the rug like this outfall pipe that people knew about and never said anything, and now all of a sudden the EPA is coming down on DEP and Pandora’s Box is opened.  You know, they’re cleaning everything up inside this Consent Order.

Mr. Weaver: If you notice in the local newspaper, it’s all about sewage. 

President Wilshire: Paint Township.

Mr. Weaver: Knox, Sligo.

Mr. Johnston: Alcosan in Pittsburgh is the biggest sewer

Ms. Vavrek: Well it would have been so much less expensive to do it in stages as opposed to now slapping us

Mr. Herman: Well I think that’s something that we started with this.  I remember when I first came onto Council 5 years ago that Jim Gourley addressed Council.  And we talked about it at that time before Pennsylvania-American Water was ever in place for this sale about how much needed to be done, what they were going to do, application for large Penn Vest loans to redo part of the plant and all that.  It appears over the last 5 years, well more than that obviously because these other orders were in with the tap issue has been for some time now, and we’ve been heading down a slippery slope.  And we are where we are because of not enough action being taken at least of course or so appears.

Mr. Hannah: I think that you can go back even farther there was a tap ban on years back. 

Mr. Herman: That’s what I’m saying.  This just didn’t happen.

Mr. Hannah: No.

Mr. Herman: We’ve been on a slope for some time.  And it’s caught up to this point.  My only comment to Chuck would be, there have been a lot of mortgages, houses closed on and a lot of potential buyers who have offered to absorb some additional costs in order to make everybody whole.  I understand the idea of what the company is offering to do which are things that they had thought about that they would need to have expenditures, monies to improve upon on it’s own.  But a lot of times when you go to buy a house, unexpectant things come up.  And then they agree to meet in the middle somewhere in order to make everyone feel gratified.  So, my comment is I think it would not be a bad idea on Pennsylvania-American Water to, I think I know the few people sitting over there to your right who will also be asking about some of these other fees and costs too, but I would ask I think if Pennsylvania-American Water is going to come to the table and you’re going to own a system and you’re expecting to make profit out of it I think to just take the extra ½ million or so extra dollars and take it back off the top of what we thought was 2.7.  I think there ought to be some negotiations on this.  Or some look into that or a thought

Mr. Johnston: It’s more than a thought, we’ve made some verbal

Mr. Herman: Well, okay.

Mr. Johnston: because we want to be fair

Mr. Herman: But, I guess what I’m saying is now that we’re at a public meeting

Mr. Johnston: Right.

Mr. Herman: and people are asking questions and figures are going around the room, and figures will end up in the paper, that that issue can’t go uncommented on, I think, because it will scare people.  That that money is all of a sudden going to be absorbed right in

Mr. Johnston: I think we want to compensate.

Mr. Herman: You understand what I’m saying?

Mr. Johnston:  Right, we want to compensate for that and we think it’s fair or else I wouldn’t have said what I said.  So we’re working to compensate you for that.

Mr. Herman: I’m not asking you to comment on that here.  It’s more of a comment from this side saying there are people on this side who entered into it feeling that there would be x-amount of profit.  And I think the thing that is scaring this side of the table is as things continue to be shown on paper, we don’t want that to end up less than that. 

Mr. Johnston: Understood.

Mr. Herman: And we feel that that’s, both parties as much as Clarion Borough is going to be in there hopefully shoulder-to-shoulder all the way through this thing there’s some obligation there that that’s the expectation level we entered into how many months ago.  So, there’s an expectation level there, and we expect it not to be dwindled away.  If it is going to be, then somebody needs to come forward and say so.  Not find out at the last minute.

Mr. Johnston: I expected you to expect that from me.

Mr. Herman:  And I do.  But I mean I think now that we’re here it needs to be said.  That’s all I’m saying.  I don’t think a comment need to be made.

President Wilshire:  Okay, there’s a motion and second on the floor, is there any other questions or discussion?

Mr. Zerfoss:  I just want to comment.  I remember back when the Authority and water company was talking, going down the road together.  And they came to Council, and I think at that time it was the way to go

Mr. Herman: It’s still the way to go.

Mr. Zerfoss: it still is and better.  It’s the only way to go jointly.  And with the make up of the Authority, both the Townships and the Borough and it has changed some, with the water company, the Authority went out and the man sitting there with the blue shirt, Lowell Snyder, which is now running the Authority, they did an excellent job in bringing this man aboard for the day-to-day operation.  So, what I’m saying, I feel excellent tonight on the direction that these people, the hours that they’re giving, the job that they’re doing for Clarion Borough is going to be nothing but the best.  And closing and know that it’s tough to see Orv Lerch go.  But I think in approving Bill Miller is an excellent choice to go on that Board. 

Mr. Herman: Yea, I think we should, we’d be remise in not saying that, too, that although they are sitting there answering questions that we should applaud them for the amount of work and steadfastness they’ve had on this project in going forward.  So, you’re certainly to be commended for continuing to keep your eye on the ball.  It’s been pretty hard, I know, but you guys have done a great job.

Mr. German: Nancy, what’s your opinion on the whole thing?

Ms. Freenock: Oh, I have one more question; I know that Clarion Township’s in line with this and the Borough, what about Monroe Township?

Mr. Hannah:  Well in my conversation with Mr. Gilson, I got it pretty plain for us to sign it and get us in the clear.  And he couldn’t give me an answer what would happen.  But I was reading ‘you sign it so you’re in the clear and we’ll’; I can’t answer what will happen there.

President Wilshire: I was in a meeting in Meadville and an attorney for DEP said ‘don’t worry about Monroe Township not signing this’.  I don’t know beyond this.

Mr. Herman: They’ll do what they do; we do what we have to do.

President Wilshire: They’re aware of it.  That subject was broached to them at the meeting in Meadville that we didn’t think Monroe Township would sign.  And we brought up that and it’s important for the parties that are here and Clarion Borough, Clarion Township, and the Authority to proceed with this.  Because we’re kind of caught here.  I mean even if we don’t sign it or don’t go ahead with Pennsylvania Water, the municipalities still have the liability.  And it’s going to be a whole lot more expensive to fix this when you’re going to reinvent the wheel.  And that’s part of the idea of bringing in a business company to work with this, work it out.  It’s going to be some tough decisions and everything, but we’re proceeding for the future.  And I think overall it will be good for the entire region, not just Clarion Borough but the entire region.

Mr. Zerfoss: And I know that the other thing that we did endorse unanimously, and I know it was a couple years ago, you weren’t on (referring to Mr. German) and we had Mr. Leonard instead of Mrs. Leonard on the Board, and we endorsed it.  It was 7-nothing to support the Authority to work with the water company to get this done except like I said Mrs. Leonard in place of Mr. and Joel would be the new Councilmember.  And, I can’t speak for them I think their feelings are the same way in what you said it’s better to go down the road this way than go down the road with just an authority.  You need to get out, these cities need to get out of, little towns out of owning their water companies and owning their authorities and electric companies.

Mr. German: The time of the sale, before we vote, you had said you were going to run the lines out to C-L there for Clarion Township, is that still proceeding, still going to pay that cost?

Mr. Johnston:  Yea, we would.  That wouldn’t be until after the system is up to par on the infiltration and inflow and DEP says it’s okay after we ask the mother may I. 

Mr. German: You didn’t answer my question (referring to Ms. Freenock)?

Mr. Weaver:  Joanne, your question about what’s different.  Years back it seems that the sewer authority would spend $100,000 a year, you got 20 taps and that was it.  So, you spend $100,000 a year.  It was a little more lenient.  I think things changed in Harrisburg

Ms. Vavrek: Well but if the reports that were sent in were incomplete or they were not proper, I mean no one ever did anything about that.  Their reports to the state or whoever they had to report to, Clarion Area Authority.  They just ignored that or

Mr. Weaver: Reports being incomplete?

Ms. Vavrek: Well didn’t somebody say that before about

Mr. Hannah: She’s talking about those annual reports

Ms. Vavrek: 2002, 3, and 4, that they were incomplete, or they didn’t follow what they were supposed to do?

Mr. Weaver: Well I assumed that the firm that was handling that was doing it; but I guess not.

Mr. Snyder: When I came on board, you had $1.2 million in the bank.  I don’t know what anybody thought they were going to do with it.  And we’d have it now to do these projects, wouldn’t have to bother you with a letter or anything, but we thought we were going to close.  So, we spent the $1.2 buying the bonds back and so on.  But they had the money to do these things.

Ms. Vavrek: Well it said they submitted the annual reports to the department for the years 2001, 2, 3, and 4 and they failed to provide any information concerning and they list everything here that was not provided.  And wouldn’t someone ask them about it?  I know that you don’t have an answer to that.

Mr. Hannah: I’d just like to say we’re not engineers sitting on that Board.  We get shoveled stuff we don’t like sometimes.  And it’s hard.  I’m not trying to pass the buck; but I’m not kidding you, it took me a year to get up to speed on the thing.  It’s way more involved than what you can even imagine.

President Wilshire: Like you said before, it’s not a mom and pop operation anymore.  We have to treat it like a business.  Joel, did you have anything else? 

Mr. German: I’m just waiting for my question.

Ms. Freenock: I was okay until I heard about a letter.  And I want to know from the Borough’s perspective what’s expected and what’s the affect on the sale.

President Wilshire: Now that letter of intent is separate from this Consent Agreement.

Ms. Freenock: If that is not given, is that going to affect this at all?

President Wilshire: The Consent Agreement?

Ms. Freenock: Yes, if the letter of intent is not signed by the Borough, is it going to affect this at all?  How will it affect the ability to get the loan?

Mr. Weaver: The Consent Agreement is separate from the loan.

Ms. Freenock: Right.

Mr. Weaver: That will have no affect.

President Wilshire: It doesn’t have anything to do with that.

Mr. Weaver: That’s not related.

Mr. Snyder: Well it does inasmuch as we need that to fulfill this Consent Agreement after we sign it.  If we sign it first, we say we’re going to do that.  And then we need the money to do that, that pipe.  Because we already bought the bonds back, the money’s gone.

President Wilshire: What does the letter say?

Mr. Snyder: We just need a letter of intention from you; I’m just going by what the bankers told me, they said ‘yeah, but the Borough has to sign and agree, we need a letter from the Borough saying that they agree to do this loan’.  And then they’ll put the paperwork together and do it.  But we need a letter from you to the bank.

Mr. Weaver: You’re a co-signer so to speak.

Mr. Snyder: Yea,

Ms. Freenock: Are they asking the Townships to sign this loan?

Mr. Snyder: saying you agree to back up this loan.

Mr. Weaver: No, no, just the

Ms. Freenock: Just the Borough? 

Mr. Snyder: But you’re right.  All we’re talking about is Consent Agreement right now, under your motion there.

Ms. Freenock: So, the letter they want isn’t one that says we will agree to the sale, because they’ll have your sales agreement.  They want a letter saying that we’re going to back the loan?

Mr. Snyder: Yea.  A letter of intent to back the loan, which I think is more than we’re going to need, but I don’t want to make it less and then get into any problems.

President Wilshire: Well we really can’t vote on that tonight anyway because of the way the meeting was advertised.  When you have a special meeting, you have to say the purpose.  And we said the purpose was only for approval of the consent.  So, any questions about the letter for a loan would have to be taken up at our regular meeting in March.

Mr. Snyder: That’s all right.

President Wilshire:  Yea.  And maybe also approaching some other banks.

Mr. Hannah: It’s due on the 15th of March, right?  And when is your meeting?

Ms. Freenock: 7th.

President Wilshire: March 7th.  So, we can tackle that then.  But we have to have a signed letter for the Consent Order into DEP by March 3rd

Ms. Freenock: 3rd.

President Wilshire: 3rd.

Mr. Weaver: Well you have to sign it.

President Wilshire: Yes, we have to sign it and approve this.  So, there is a motion on the floor and a second to sign or approve the Consent Order.  Could we have a roll call vote?

The motion carried after the following roll call vote: Mr. Zerfoss, yes; Mr. Herman, yes; Ms. Leonard, yes; Ms. Vavrek, yes; Ms. Moore, yes; Mr. German, no; and President Wilshire, yes.

President Wilshire: Okay, thank you very much.  So, we’ll have to work on financing that.  I don’t know how many banks you talked to or anything.  Maybe there’s some type of agreement with another bank, too, with Nancy’s help on that.  As I said we can’t approve anything else, but I would like to entertain a motion to approve the appointment of Bill Miller to this Clarion Area Municipal Authority pending ratification at our regular meeting. 

Mr. Zerfoss: First of all, we should, I make a motion that we accept the resignation of Orv Lerch with regrets and a letter sent to Orv thanking him signed by you and Nancy, thanking him for the job that he has done for the Borough.

Ms. Leonard: Second.

President Wilshire: Motion to approve the acceptance of the resignation.

The motion carried with a vote of seven yea.

Ms. Leonard: I move that we appoint Bill Miller to the Clarion Area Authority Board.

Mr. Zerfoss: I’ll second, let Moore.

Ms. Moore: Second.

President Wilshire: Pending, we have to actually do it in March,

Ms. Leonard: Right, yea.

President Wilshire: but I know Bill wants to get working knee deep in this sewage.  All those in favor signify by saying yea.

The motion carried with a vote of seven yea.

President Wilshire: Thank you all very much for coming out on a Friday afternoon.  But I think this is important for the future of Clarion Area.

On a motion by Mr. Herman with a second by Mr. German, the Special Council Meeting was adjourned at 5:02 p.m.

                     ______________________________

                     Nancy K. Freenock

                     Borough Secretary