Sewer System Valuation Process

Towamencin Municipal Authority - Sewer System Evaluation Background

Monetization of Assets – After an independent study (Hazen & Sawyer) of the collection and treatment systems, completed several years ago, there were initial concerns whether the existing system would be able to meet future permit limit requirements without significant capital expenditures. The question was raised whether the Township should consider “monetization” (selling) of the system as other Pennsylvania municipalities and authorities have done recently. Monetization is the process of converting assets into economic value.

These other municipalities had concerns similar to Towamencin - that their systems needed millions of dollars of improvements to bring them up to current state and federal standards with possibly millions more needed to accommodate future mandates by the federal government. In order to determine whether there are better alternatives to achieve these results, and at the same time achieve financial benefits for the community, these municipalities conducted a detailed independent financial analysis.

Sewer Committee recommendation

On September 3, 2020, representatives of Public Financial Management (“PFM”) attended the Sewer Committee’s meeting to review the process of evaluating the sewer system and whether monetization is a worthwhile option. The Committee agreed that it is the responsible and prudent action to examine whether it is in the Township’s best interest, or not, to monetize the sanitary sewer system and recommended that an “Analysis & Valuation” study of the sanitary sewer system be conducted to collect the needed information to make an informed decision on monetization. Public Financial Management (PFM) submitted a proposal for an Analysis & Valuation study and presented background on the company and reviewed the monetizing sewer system concept and process to the Committee (and to the Board of Supervisors at their September 23rd meeting), and why municipalities consider the service.

Board of Supervisors approve valuation study of sewer system (Phase 1 agreement)

At their meeting on September 23rd meeting, the Board of Supervisors accepted Public Financial Management’s proposal to perform a sanitary sewer system analysis and valuation study for $9,500.

Public Financial Management (PFM) presentation – January 13, 2021 (link to presentation materials)

At the Board’s January 13, 2021 meeting, PFM representatives reviewed the asset exploration process along with the approximate timeline. In Phase 1, described as a preliminary limited-scope evaluation, the system was evaluated using three evaluation methods: cost, income, and market approach. The cost approach combined the overall sewer capital assets and depreciation. The income approach assigns values based on future income estimates generated from the system, such as future rates, future treatment/capital expenses, future Township growth, inflation and sewage disposal costs. The market approach included compiling values derived from comparing financial metrics to similar transactions, such as geography, size, collection only vs. collection and treatment services. 

An overview of Phase 2 and 3 was provided. A sample timeline was included if the Township authorized Phase 2 and 3. Upper Gwynedd Township’s intention of becoming fully autonomous with their wastewater system, as part of a capital improvement plan, was noted as it will create a financial impact to the Township with the lost revenue.

With the completion of Phase 1, the next step was to examine whether it is advantageous to enter into a public/private or public/public asset sale of the sewer system. This process would require two additional phases. Phase 2 includes the preparation of documents, including drafting and distribution of requests for qualifications, outreach to potential investors and/or system operators to confirm market interest in the assets, establishment of a timeline for a possible transaction, and identification of key issues to be resolved. Professional hourly rates range from $150-$350 per hour, which would be deferred as part of a potential sale. Phase 3 includes coordinating the sale transaction and closing process, should that decision be made, and developing a plan to effectively deploy the proceeds from the monetization.

Public Financial Management submitted a proposed agreement to provide these services at an hourly rate for Phase 2 and a charge not to exceed 0.70 percent of a final closing price. If there is no transaction, the fees for both Phase 2 and Phase 3 will not be charged. The Board of Supervisors agreed they have an obligation of due diligence to continue exploring the sewer monetization process for Towamencin taxpayers.

Board of Supervisors approve Phase 2 & 3 of PFM Agreement (Phase 2 & 3 Agreement)

At their meeting on January 13, 2021, the Board of Supervisors approved Phase 2 and 3 of the agreement with Public Financial Management for financial advisory services related to the Township’s sanitary sewer system.

Sewer System Monetization Status Report - February 2021

Sewer System Monetization Status Report - March 2021

Sewer System Monetization Status Report - April 2021

Sanitary Sewer System Depreciation Cost Study

Data Room