Moody's Sours on LP

Last week Moody's Investors Service, a New York commercial credit rating outfit, downgraded the bond rating for LP's guaranteed revenue sewer bonds from a rating of Aa2 to Aa3. This rating affects all the township bond holdings and more importantly impacts its ability to cheaply borrow funds into the future for projects such as road paving and capital improvements.

I spoke to township manager Richard Gestrich on this subject Friday afternoon (4/24) and he told me substantially the same thing as was reported by LP TAP before I had a chance to write up an article, so I won't repeat that conversation here; you can check it out for yourself.

While Gestrich's outrage about the changes in rating methodology and his feelings that the township was victimized in its treatment by Moody's may be legitimate, it's worth noting that no surrounding townships were similarly lowered, nor was Methacton School District's bond rating (although their business manager recently mentioned in a school board meeting that he 'is concerned' about eroding tax revenues in the district, a harbinger of a potential downgrade). Anyway, it's all about the ability to repay debt, which obviously Moody's sees as a potential problem brewing for LP.  The Board of Supervisors should be very concerned about whatever is giving Moody's agita because a downgrade is, any way you cut it, a big deal.  Moody's earns their keep by risk rating bonds much like auditors review loan portfolios and giving people bond ratings upon which they can make investment decisions; it does not serve their purpose to issue random downgrades without a solid reason.

I did ask Gestrich whether our Finance Committee was aware of the downgrade and if so, what they had to say about it. I noted that according to the Township's website, this committee did not appear to have met for months (although I have heard that they do meet, and Gestrich has publicly referenced this committee meeting, I don't know how 'public' those meetings are since there no agendas or minutes). A constituent who was tapped to serve on this committee told me over the weekend that he was frustrated with it because they sought him out to serve, and he was eager to do so, but then they never met. Gestrich told me he believed the Finance Committee was going to meet Monday evening, April 27.

(As a follow-up, Gestrich told me in a 5/1 email that he had passed the full Moody's report to Finance Committee member Lucien Calhoun, who is also with the Delaware Valle Finance Authority). He said "Lucien opined that since the Township remained at a Prime 1 rating, that it would not make a difference on our interest rates going forward".

Moody's downgrade comes on the heels of a glowing audit review which Gestrich presented in March to the BOS. While we ended 2012 with a thin balance in the general fund going into the next year, we had a much more comfortable cushion going into 2014 to the tune of almost $1.4 million, which was attributed to increases in earned income taxes and real estate transfers. After the BOS voted late last year to raise taxes for the first time in ten years, Chairman Eckman stated earlier this year that the Board expects to give more frequent financial updates to residents.

Among the reasons Moody's provided for the downgrade was 'continued erosion of tax base'. This is something I've been sounding the alarm about for some time. In recent years our Board of Supervisors seemingly had a policy of harassing and obstructing businesses from coming here and bringing jobs, revenue, and taxes and fees with them (sometimes spending ridiculous tax dollars in legal fees to do so). While this environment was primarily driven by former supervisor/chair Rick Brown, a couple folks who have supported those actions are still serving. Chasing out or creating a less-than-welcoming, hostile business environment for proposed businesses like the American Revolution Center, the YMCA, Bestline, WaWa and others has a cost.  You can't provide services without adequate revenue streams coming in and you will surely have a harder time borrowing money.

It pains me to drive through West Norriton, King of Prussia and Upper Providence and see not only new businesses that went there instead of here, but also businesses that used to be here, but have moved to those communities. It is also heartbreaking to drive through the township and at every entrance be greeted with an empty building...the former Collegeville Inn...the former Bud's Bar....the former Norristown Ford...nobody seems to be focused on making it a priority to find suitable uses for these properties or changing the zoning so that they can be repurposed. 

Also, former township manager Joe Dunbar raised a concern circa 2010 that the LPT Sewer Authority appeared to be using capital reserves to fund operations and presented specifics. Then, when former supervisors Brown and DiPaolo got control of the BOS, they dumped the auditor who developed the findings, Maillie Falconero. As the Township is the guarantor of all township debt, including the Sewer Authority, I can see why this would have been concerning at the time and could be having an impact now.

A damning move like this from Moody's tells me that Job One for our BOS ought to be to get the word out ASAP that we are not only open for business but we will bend over backward to bring you here and try to work with you. Stop being a NIMBY township and reverse Rick Brown's legacy for LP: a lowered bond rating.

 

Cause for "Concern"

 ‘Watching. Listening. Acting”.  This was the credo of local citizen activist group Lower Providence Concerned Citizens Association (LPCCA), whose logo was a wise old owl. Over the past few years, if you’ve donated money to or been a member of LPCCA, you might want to ask if you knew who you were dealing with and what  really happened to your money, particularly if you thought it was tax deductible.

The words they selected to represent themselves apparently don’t include ‘complying’, because according to the federal government, LPCCA is an IRS scofflaw, appears to have inappropriately solicited funds, and possibly misappropriated the donated money they received. This supposedly nonpartisan group represented to donors that they held status as a 501(c)3 charitable organization.

Created back in 1981 (according to the PA Secretary of State's office) by (primarily) former longtime Township supervisor Rick Brown to fight Moyer’s Landfill, this organization lay dormant for a long time until revived in recent years just in the nick of time to fight the American Revolution Center (ARC) project and run it out of town. Their more recent members have come from the anti-ARC ranks (including current supervisor Colleen Eckman, a former vice president of the group), Planning Commission member Harold “Ted” Baird, who, courtesy of Brown has helped LPT rack up thousands in legal fees fighting a local business on his behalf and whom I've written about several times previously on this blog;  virtually all of the current Zoning Hearing Board members, and Arcola residents Cathy Beyer and Mary Kaczor (whom I've also written about previously), who have been embroiled in battle – at considerable Township expense - with the 5 other member municipalities of our regional sewer authority.

In addition to collecting membership fees, LPCCA held several functions in recent years to raise funds to support its aims (mostly, fighting the ARC, the interceptor project, and any other projects (and people) Brown and his minions didn’t approve of.

The candidate for supervisor in last year’s BOS race that Brown supported – Democrat Jim Donohue - stated in campaign materials and online that he was LPCCA’s  latest secretary, having assumed that role not long before he threw his hat in the ring for the 2013 election. Other than that, the members of their executive board were not widely known.

In 2011, LPCCA facilitated and hosted an allegedly nonbiased candidate forum in that year’s supervisors’ race -- in which I (the chair of the ZHB during the ARC hearings) was a candidate and Brown’s Public Enemy #1 – the first and only such candidate debate they ever held. They didn't bother to hold one last year.

Curious about this group after they inserted themselves into my race and their members were publicly supporting my opponent, I started to look into them a couple of years ago and learned that not only had they not obtained a 501c3 determination letter from the Internal Revenue Service, as they’d been representing, but according to IRS officials, they had never even applied during their entire 30+ year existence.

Over the course of a year, I checked the IRS' online so-called 'cumulative list' and called them three different times, thinking that maybe it was (very belatedly) in the works and delayed during the IRS’s Tea Party targeting scandal, or that I’d happened to get an IRS agent on the phone who didn’t know what he or she was doing and provided incorrect information. Each of the three times the agent on the other end of the phone gave me the same information. Each time I checked online, there was no charitable organization listing with the IRS for LPCCA. I guess this may explain why they had never filed annual 990 reports and why there was no official record as to whom their executive board officers were or how much money they had raised.  

Any citizen has the right to request a copy of a charity’s IRS determination status letter in order to determine their legitimacy, and since the IRS did not have it, I was directed to try to obtain directly from LPCCA whatever documentation they had that they felt supported their claim to 501(c)3 status. I asked a friend to write both an email and a formal letter to LPCCA to request their determination letter (since I presumed they wouldn’t respond if it was me asking for it); no response to her inquiries were ever received. They never even acknowledged receipt of her correspondence.

The IRS indicated it would look into this group and take whatever action they felt necessary if they determined LPCCA had falsely represented their status to potential and actual donors.  The IRS itself will not disclose whether they investigated and if so, what the outcome of that investigation was. FOIA laws, they claim, preclude that.

However, the group is no more. Last fall I learned from a local attorney that on October 21, 2013 the officers of LPCCA had abruptly met and voted to disband LPCCA. Could it have been because the IRS was breathing down their necks?  Since they never filed anything with the government and other than Baird, never put their officers’ names and titles on their website, we can only know who was involved from materials the group themselves put out and quotes attributed to them in the press (such as here and here).

If you contributed funds to LPCCA that you thought were tax deductible, you might want to check with your accountant before the IRS catches up with you.  Otherwise, since I also discovered another local charitable entity with 'Lower Providence' in its name who has had their 501(c)3 status revoked for non-filing of annual reports, let the donor beware.

 

Old Business, New Business...and Open For Business

The beginning of every New Year – especially after a local election cycle – isn’t complete without the reshuffling of municipal boards and commissions. In LP, on our Board of Supervisors, we saw the end of the (second) Rick Brown era, as he opted not to stand for re-election.  Brown made no secret of the fact that he’s been suffering from multiple myeloma for the past few years and presumably that weighed in his decision not to run again.

 

While Brown originally came into office in the late 70’s / early 80’s on the strength of his work fighting the Moyer’s landfill, and his early days as a supervisor were positive, in recent years he’d become more of a divisive factor politically, particularly as he ran up a high legal spend championing special interests at the expense of all LP taxpayers, which ultimately benefitted his longtime friends, attorneys Richard Sheehan, and Michael Sheridan of the  firm Fox, Differ, Callahan, Sheridan & McDevitt, by appointing them as solicitors. Some of that divisiveness spilled out publicly at the end of the year as the Board tried over several contentious meetings to get a 2014 budget (with tax hike) approved.   Sheehan/Sheridan are now gone as well. 

But, 2014 is a new year, and with it comes new leadership.  Monday night saw the swearing-in of new supervisor Patrick Duffy (after a painful, 15-minute delay in which former vice-chair Don Thomas neglected to make sure the judge had arrived for the ceremony before starting the meeting and then awkwardly had to try to fill those long, silent minutes), and the selection of Colleen Eckman as our new chairman and Jason Sorgini as our new vice-chair. I’ve been impressed with how both of these individuals have grown in their positions since their election, their work ethic, and that both appear to do their homework and ask good questions, so I am confident they will do an effective job. This, together with the selection of supervisor Lisa Mossie across the bridge in Upper Providence as their chairman, marks the first time in a very long time, if ever, that both sister municipalities have been led by women.  

The fact that people merely showed up and were sworn in shouldn’t be a big deal, but consider this: In Trappe, as new borough commissioners were sworn in, one of those left in the minority faction chose to quit on the spot rather than contend with the winners. Over in Royersford, two borough council  members who won in November apparently moved – or perhaps weren’t residents at the time of their election at all, since the timing of their evident relocation is unknown – and didn’t bother to tell anyone that they would not show up to be sworn in,  or serving. That mystery is still being unraveled.  While there’s often been no shortage of drama in LP politics, at least we’ve never had those issues.  
 

I had an opportunity to connect with Jason Sorgini about the possibilities this new page in LP government could represent and to determine what they see as their most urgent priorities, obstacles, and what was behind their unexpected selection of solicitor.  Sorgini’s excitement and eagerness to roll up his sleeves and get to work was evident. 

Sorgini said that while it’s ‘not a flashy thing’, he identified ‘getting a handle on our transportation and infrastructure – our roads and bridges’ as Priority 1, because it has a ‘big impact on our quality of life’.  In addition to obvious pain points like the closure of the Arcola Road Bridge, he noted that we also have to manage the long-term resurfacing and maintenance of our roads and how to pay for that. He mentioned the recent study they’d commissioned to research and identify the condition of all our roads and to look beyond immediate needs to develop a road improvement rotation plan for the next 5-10 years.

Of course, this goal ties in with an obstacle we (and most municipalities) face, which is that revenues are down and state and federal aid for many programs has been slashed. However, recent legislation passed by the state reverses that a bit. “The last loan in which the Township borrowed against our annual liquid fuels payments from PA ends in 2016, which frees up that debt payment for road improvements and, coupled with the increase in liquid fuels monies we’ve been told we can expect as a result of the recently approved state transportation bill, means that in a couple of years we could potentially see 60% more income from that source to help pay for our road and infrastructure needs."

The second immediate priority,  Sorgini said, is to “continue to attract business and development".   In fact, it was this issue he came across as the most passionate about. At the same time this is a goal, it’s also an obstacle.  “You know, perception is reality, and the perception out there is, rightly or wrongly, that we’re not interested. It’s frustrating to see all the new construction going on in Upper Providence and Upper Merion, while we have empty buildings at all the entrances into the Township”.  Sorgini stated that “We would like to let developers know that LP is willing to hear what they have to say and to work with them to bring in business that is meaningful and worthwhile for the residents”.

 

He cited the example of the Children's Hospital surgical and specialty care annex that is being built in Upper Merion as something they would love to have been able to bring to LP,  in no small part because of the ancillary businesses it would also attract and the high-end jobs associated with them.  “When I found out that CHOP was looking to build a new facility to replace the current facility near the mall in King of Prussia, I had asked Rich [Gestrich] to reach out to them to let them know about all that Lower Providence has to offer. Unfortunately, they were already well into working with Upper Merion to put the facility near the Wegmans. Despite the fact that we were unable to get CHOP in Lower Providence, I remain hopeful that a similar medical facility will realize that Lower Providence is the place to be!”     

Sorgini also cited continuing to build on the 85% occupancy rate of the township’s industrial park, Park Pointe at Lower Providence, as part of this effort and gave high praise to Township staff, especially  Director of Special Projects & Technology Bill Roth (who serves as the Township’s business manager for Park Pointe at Lower Providence), for their hard work not only in getting occupancy to this level but for continuing to beat the bushes with existing Township businesses such as Kimco to find ways to fill vacancies such as  the former Eagleville Genuardi’s shopping center. 

 

For their third priority, Sorgini identified “Continued fiscal responsibility”and mentioned that although the Board came “dangerously close to a tax increase to fund debt service”, they were able to avoid that (the approved budget had a small (5.89%) tax increase earmarked for the operating budget and library services). “We really struggled with that and recognize that the residents will be affected by the tax increases in the new state transportation bill, but also realized it would be irresponsible to continue to kick the can down the road any longer”, observed Sorgini.  

“In addition, there are major employment contracts coming up for renegotiation – police and non-uniformed personnel – and we need to be positioned to be able to be fair to them while balancing that with what’s fair to residents cost-wise to pay for those contracts.” I pointed out that in 2015 my understanding is that we will also need to replace our police chief, as he expects to retire soon, and Sorgini confirmed that LP Police Chief Francis “Bud” Carroll is in the DROP program and that in conjunction with those negotiations  ‘we will also need to replace a long-standing, well-respected police chief’.  

Continuing with obstacles, Sorgini said that “we need to live within our means with limited resources…there is so much to do.  We need to change the perception of Lower Providence with developers.“  He also cited “the reality that it’s impossible to please everyone” and that some issues “become very personal things…the Y(MCA) is a good example of that. Some things are more complicated than you think and you try to explain that to people…" (this was something I found frustrating in my various positions with LP as well, so I share in that observation…not much is as cut-and-dried as it looks on the surface).  
  

He said “I think of myself not as a politician, but as a public servant, especially because of my  job [as an elementary school principal]…and because I want to know what people think, I do look online at comments to see what people are writing. I prefer to listen to what people are saying and take the emotions out of it”.  

One of this board’s decisions that so far has left many people scratching their heads was the new board’s selection of solicitor. The appointment of John Rice of the firm Grim Biehn and Thatcher in Bucks County (“GB&T”) left some folks I spoke to puzzled as to why no one from LP was selected (keeping the business in the township) or at least a firm that is familiar with the players, issues and histories of businesses and properties within our boundaries.

I presumed that township manager Richard Gestrich, who spent many years working for Upper Makefield and Middletown Townships in Bucks County as their manager, was familiar with GB&T and thus made the recommendation, but Gestrich stated that the board made this selection ‘on their own’ and that he only found out about it when Sorgini called to advise him that Rice would be submitting a letter of interest. GB&T doesn’t do much municipal business in Montco, currently listing only that they hold the solicitorship of Lower Moreland Township. Locally, the next closest proximity they have is an appointment as solicitor to Radnor Township in Delaware County. Still, by all accounts they are well respected and experienced in general municipal affairs.

Often, Board members lean toward a selection, usually someone they have developed a working relationship with and in whom they have a level of trust, whose advice and perspectives they’ve come to value. Thus, many insiders fully expected Joe McGrory of the firm Hamburg, Rubin, Mullin, Maxwell and Lupin (and allegedly a relative of one of the supervisors) to get the nod. I was initially told by a political source who wants to remain anonymous that ‘no one could count to three [votes] for their choice, so they went in a different direction’ but according to Gestrich, it played out otherwise. 

When I asked if he knew what the selection criteria had been, Gestrich stated that ‘they were looking for someone who had no ties to local developers and contractors’.  If true, I’m not sure which past solicitor(s) that may have been intended as an indictment of, but read into it what you will. If we ever had a solicitor that also had such interests as clients and said client ever had reason to appear before the BOS, the solicitor would have had to step aside on that issue in lieu of conflict counsel, and I don’t recall that ever happening at the BOS level in LP. Then again, maybe they’re just trying to be careful.    
 

Sorgini essentially validated Gestrich’s version. He said they interviewed seven different firms, including then-current solicitors Fox, Differ, Callahan, Sheridan & McDevitt, and that GB&T was selected for their specialization in municipal law and that they ‘don’t represent developers’. While he noted that GB&T doesn’t have as much experience in Montco as more local firms “there’s something to be said for that. When I hear from [solicitor] John Rice, he has no skin in the game, he’ll be a straight shooter. He has over 25 years of practice in municipal law and I look forward to learning from their expertise”.
 

Playing devil’s advocate, a non-attorney friend of mine, an official in another Montco municipality, weighed in with  “The downside of having a solicitor with ties to your township and county is outweighed tremendously by the upside. All of these Montco attorneys know each other and their network is second only to law enforcement's. If you want to see something coming before it runs you over, there's nothing better than a connected Montco lawyer. And the firms are all big enough that you can avoid conflicts of interest. It sounds like a "principle stand".  
 

Whatever it is, I hope it means that our apparent past policy of litigation as a first resort is history and that GB&T won’t be putting kids through college on our legal spend. I’d like to welcome GB&T to the Lower Providence community and hope that their tenure here is uneventful. 

Over at Methacton, they readjusted their Board late last year. Joyce Petrauskas was replaced by Christian Nascimento as president, and newcomer Brenda Hackett was sworn in, as were the incumbents who won reelection in November. Now they are focused on upcoming teacher contract negotiations and getting an ever-increasing capital improvement budget passed to facilitate the addition of lights and turf fields. As always, campaign promises to the contrary, it looks like Worcester Township is standing in their way, dragging out the ordinance adoption, advertising and approval processes as much as possible. What started out as an approximate $3M proposal has ballooned into a version containing all the bells and whistles, standing at approximately $5.5M, and the school district is considering taking on debt to pay for it (translation: hold onto your wallet).

 

 

I'm not sure I understand why such a high cost for turf fields and lights, a project which largely has no building construction costs included (with the exception of the option that includes building a new restroom facility outside the high school building), out of what is now a staggering 22 separate variations of options we could go with.   I'll explore this more in a future post and hope that Methacton manages to remain scandal-free for the foreseeable future. There are several court cases involving Methacton that are due to go to trial this year (if they don't settle), so I'll visit whatever comes out of those in the future as well.