Although the process of getting approval for the lease may have been rocky, things seem to have gone remarkably smoothly since then. In August, I spoke with Liesel Adam, the LCA’s chief administrative officer, to get the LCA perspective on the transition.

Adam says the deal between the city and LCA had many natural advantages that made the public water authority a much better fit for the lease arrangement than private companies that bid for it. For one thing, the fact that LCA is a public authority and not a private company also went far in reducing city employees’ objections to the lease and smoothed the transition. According to Adam, “The key thing that made LCA a better choice [than other bidders for the lease] is the fact that we’re a public entity with the same benefit structure and the same benefit plan [that the city employees have]. So, all the city employees who came over to LCA saw no change at all in their benefits and they were able to port their pensions with no problems,” Adam told me. And that’s a big deal. None of that would have been possible if a different bidder had won.

“The city had 101 employees in their [water and sewer] operation. Seventy-six of those 101 came over to work for us after the deal closed. Most of the 25 employees who stayed with the city did so to fulfill certain continuing city responsibilities that weren’t part of the water/sewer operation,” Adam said. Those responsibilities include things like storm-water management and managing the city’s swimming pools.

Allentown city water plant (LCA)

The potential impact on rates also has been a concern to some, especially existing customers in the LCA's 13 other areas of service, who looked at the addition of Allentown's aging water infrastructure as a costly liability. But the fact that the LCA is a public authority and not a private company helped to mitigate those concerns, according to Adam, who says the LCA isn’t in a position to gouge its other customers, even if it wanted to. “We’re a public authority, and as such we have to follow the rate-setting rules laid out in Pennsylvania’s Municipal Authorities Act. So, the rates we charge our customers are based on the cost of service.”

The lease agreement freezes rates until next year, 2015. Then, from 2016 to 2032, the maximum annual rate hike is inflation plus 2.5 percentage points. After that, the maximum rate hike is inflation plus two percentage points. That’s less than the average annual rate hike over the past 40 years (about 5.6 percent a year).

Climate-change experts say water resources will be one of our most worrisome problems in coming decades. Would that mean that Allentown has made a bad deal? Or perhaps the LCA has, by locking in rates 50 years into the future, based on today's water circumstances. I asked Adam how confident the LCA is that the future rate increases negotiated as part of the lease will be adequate to cover costs. She told me, “We did lots of financial modeling about what our rate structure will look like under various scenarios, so from that standpoint we have confidence about our revenue stream going forward. It’s true that there are unknowns, chief among them (1) climate change and (2) regulatory change (for example, there might be a change in water-treatment standards). So, there are some protections built into the concession agreement that would allow us to recover costs.”

I asked for an assessment of how the deal has worked out overall. Adam said, “It was a very smooth transition. We just hit our one-year anniversary [of taking on the Allentown system] and we’re very pleased with how it’s going. We’ve managed to outperform our predictions having to do with efficiencies, economies of scale, and the like.”