GJWA Historical Documents
The idea of municipal ownership of flie Johnstown Water Company is not new, in fact the history of the attempts to buy the water company can be traced back sixty-five years. The first recorded mention of possible municipal purchase occurred in an 1898 newspaper article. The first concrete action taken on the possibility that the city could buy the Johnstown Water Company took place in 1912. As a result of a proposed increase in water rates, Mayor Joseph Cauffiel appointed a commission from City Council to inquire into and present ways and means that tlie city could buy the company. Charles S. Price, president of the water company at that time, expressed a willingness to sell, as did the company's board of directors. Frederick P. Stearns of Boston, a consulting engineer, was engaged by the company to conduct an evaluation and present his report. After studying the Stearns' report, Mr. Price offered the Johnstown Water Company to the city for the sum of $3,409,243, but because City Council took no action on this offer, it was dropped. One reason for the hesitation on the part of the municipality may have been that the city undertook to install a sanitary sewer system at the same time and could not afford another major expenditure such as the purchase of the water company.
The second attempt of the city to purchase the Johnstown Water Company was even less successful than the first. The attempt to buy in 1920, like that in 1912, was prompted by a proposed increase in rates of thirty-three and one-third percent. The rate hike brought many protests, and Mayor Joseph Cauffiel and the Borough of Ferndale filed protests and requested a hearing with the Public Service Commission. The results of this hearing is discussed in the section on rate cases, but during the time of the hearings, in late 1920, there was much discussion of the possibility of the city buying the water company. However when the PSC ruled in favor of Mayor Cauffiel and the Borough of Ferndale and ordered the Johnstown Water Company to lower its rates, the objective of the protests had been obtained and the idea of municipal ownership was dropped.
Municipal purchase of the water company was again brought up in December 1926 when Mayor Louis Franke set up a committee of five citizens to inquire into the possibility of the sale of the company. The committee was formed but remained inactive until 1928 when Bethlehem Steel Company made its offer to the minority stockholders of Johnstown Water Company to trade one share of the common stock which the stockholders had at the time for eleven shares of preferred stock. The city hoped to purchase the stock at $1100 a share ($100 per share of preferred stock, and one share of common stock equals eleven shares of preferred stock). However. H. E. Lewis, president of Johnstown Water Company, said that Bethlehem would not be interested in selling its interest in the water company at that time. This statement ended all discussions of municipal purchase, but only for a short time.
In 1938 another attempt to purchase the water company occurred, and this attempt too was linked to a Public Utility Commission investigation. On September 20, 1938 Mayor Daniel J. Shields broached the subject of municipal purchase of the Johnstown Water Company to City Council. The Mayor said that if the city were interested in buying the water company, funds would be available through the Reconstruction Finance Corporation, a federal agency. Under that proposal the city would operate the water company and the Reconstruction Finance Corporation would hold a twenty to twenty-five year mortgage on the property. At the expiration of that time the city would own the company, the mortgage having been amortized from revenues. The idea of municipal purchase was highly popular with the people of the city of Johnstown, soon after the Mayor brought the subject to public attention, petitions favoring the purchase with hundreds of siguatures were received by City Council. A City of Johnstown Authority was set up to buy the Johnstown Water Company. However, many obstacles to the purchase soon presented themselves; the city could not legally acquire the property of the company through condemnation, and any appraisal of the water company, which would cost between $50,000 and $75,000, would have to be paid for by the city. In addition, no word was received from the company's principal offices in Bethlehem, Pennsylvania to indicate whether Bethlehem Steel Company would be interested in a sale. The final blow to the city's hopes was dealt when state authorities refused to issue a charter to the City of Johnstown Authority. This attempt of the city to buy the Johnstown Water Company, like the others before it, ended in failure.
The subject of possible city ownership of the Johnstown Water Company again becam a live issue in 1942. City Council accepted an agreement on October 22, 1942 with Stifel, Nicolaus and Company of Chicago and H. K.Hastings and Company of Wheeling, West Virginia, investment brokers, looking toward municipal purchase. The two firms were pledged to negotiate with the water company owners to reach an acceptable price and then to issue bonds for the sale. City Council therefore proceeded to reactive a defunct authority which had been set up in January 1941, and appointed Joseph Siciliano chairman of the five-member group. Charles Haydock of Philadelphia was engaged as consulting engineer. Bethlehem Steel Corporation agreed to sell the water company if they received a reasonable price, they also stipulated that they would retain Saltlick and Border dams. The city would acquire Millcreek No. 1 and No. 2, Dalton Run, Laurel Run and North Fork reservoirs, plus six pumping stations and fourteen storage tanks. The authority took little action from the time of its creation in November l942 except to retain the two financial firms and the consulting engineer. Finally after three years of inaction, during which the authority remained alive but took few steps toward purchase, R. E. McMath of Bethlehem Steel Corporation said that all negotiations for the sale of the Johnstown Water Company would be suspended until the end of World War II. The City Council on May 1, 19145 decided to cancel its contract with the two investment firms engaged in 19112. Then, on May 25, 1945 City Council again began talking of purchasing the Johnstown Water Company by means of the Johnstown Municipal Authority. The Authority determined to ask Bethlehem Steel Corporation for a definite price on the waterworks, through the agency of Stifel, Nicolaus & Company of Chicago. The representative of the investment firm conferred with Bethlehem officials and reported to City Council that Bethlehem would not quote any price because the water company was not for sale at that time. This answer ended the prolonged negotiations completely.
The issue of municipal ownership was dormant for almost a decade and then was revived with a new face. This time public ownership of the Johnstown Water Company was suggested by Commissioner Pat Farrell, chairman of the Board of County Commissioners. Farrell announced on March 25, 1954 that the commissioners were considering the formation of a county authority to purchase from the Bethlehem the capital stock of the water company. The authority planned to finance the purchase of the company through an issue of tax-exempt revenue bonds. Mayor Walter E. Rose pledged on May 16, 1955 that if re-elected he would work for the purchase of the water company. This was the last mention of the issue raised by the commissioners, and the idea of a county authority died a quiet death, but others took up the topic of municipal purchase. One of the goals of the Greater Johnstown Chamber of Commerce in its community development program, announced in Jannary 1956, was city ownership of tl'ie utility. In connection with this project, Andrew J. Fisher, general manager of Johnstown' s Bethlehem plant, stated that Bethlehem is a steel producer and definitely wants to get out of the public utility field. However, there was no action taken for the present on that suggestion and the issue of municipal ownership remained undecided.
In 1958 the question of municipal ownership of the Johnstown Water Company again became important, and new moves were taken in that direction. The issue arose in discussions between the city of Johnstown and the various outlying boroughs and townships on the possibility of setting up an authority to build a sewage disposal plant. When the boroughs and townships offered to join with the city in setting up such an authority, on June 3, 1958, it was suggested that the proposed authority also attempt to buy the Johnstown Water Company. It was then suggested that the long- inactive Johnstown Municipal Authority be revived to handle both the sewage plant issue and the proposed water company purchase. A spokesman for Bethlehem Steel Corporation, contacted on June 211, 1958, said that Bethlehem is willing to sell to either the city or some other public agency. A figure of $111,000,000 was mentioned but there was no official confirmation made. A concrete step toward the purchase was taken when the mayor and the City Council went to Bethlehem, Pennsylvania on July 24, 1958 to confer with steel company officials. At this meeting several important developments arose; Bethlehem said it planned to ask $13,000,000 for the water company, to be raised through a public bond issue. Bethlehem also stipulated that while Johnstown and Conemaugh & Franklin water companies were for sale, they wanted to retain control of both Saltlick and The Manufacturers water companies, which supply over ninety percent of the water used in Bethlehem's Johnstown plant. The deadline set for the city1s decision by the steel company was November 1, 1958.
Negotiations soon hit a snag, however, when the city decided to accept the offer of three investment banking firms to act as fiscal agents for the city in the transaction. This move was made in defiance of Bethlehem's warnings that such a proposal was not acceptable to them. The point at issue was whether bonds to finance the sale should be offered for competitive bids or placed for negotiated sale. The city wished to negotiate the sale of bonds with an investment banking firm, while Bethlehem insisted that the bonds be sold competitively. Because a deadlock was readied over this issue, on August 19, 1958' Bethlehem wiflidrew its offer to sell the company.
The issue of the sale was not dead, however, because on Decamber 9, 1958, City Council announced that it had received a letter from B. D. Broeker stating that Bethlehem is interested in a sale and that the price of $13,000,000 still stands. Council agreed to reopen the negotiations and engaged Gannett, Fleming, Corddry & Carpenter, a Harrisburg engineering firm, to do an evaluation of the company. The city retained Shearson, Hammill & Company as its financial advisor and agreed to sell the bonds by competitive bidding. Gannett, Fleming, Corddry & Carpenter, in their report to City Council, said that municipal purchase of the Johnstown Water Company is a sound move. The basic condition that must be met to insure the success of tlie purchase is that Bethlehem Steel Corporation must agree to continue purchasing water from the utility. The engineering firm also recommended that the water company be operated by an authority rather than the city on a leaseback agreement, and that the present experienced staff and managenient be retained. The city's fiscal advisors, Shearson, Hammill & Company said that Johnstown Water Company would be a good buy if the price of $13,000,000 was cut, because to buy the utility at that price a $15,200,000 bond issue is necessary and that figure is too great a financial burden for the city. On September 6, 1959, however, negotiations were ended for the present by B. D. Broeker, secretary of both Bethlehem Steel Company and Johnstown Water Company. Mr. Broeker said that a cut in the asking price of $13,000,000 is not possible and that, because interest rates are unusually high, too heavy a burden would be placed on any municipal authority. The negotiations were therefore postponed indefinitely.
Late in 1962, on December 20, the suspended negotiations on the sale of the Johnstown Water Company were reopened. Bethlehem Steel Corporation contacted the city of Johnstown and offered to sell both the Johnstown and Saltlick water companies for a price of $12,000,000. This offer differed from the one made during the 1958-1959 negotiations in that in the earlier discussions the Saltlick Water Company was not offered for sale and the price discussed was $13,000,000. Bethlehem suggested that the money for the purchase should be raised by a bond issue sold at public auction and that in the event of the city's takeover, the present management be retained.
Bethlehem was willing to sell because it is the policy of the corporation to divest itself of all operations not directly a part of the steel-making industry. Therefore if the city did not want to buy the water company it would be offered to outside interests. The formal offer, submitted by Victor G. Reis, including the Johnstown and Saltlick holdings, but excluding the office at 332 Locust Street, the yard at Broad Street and Delaware Avenue and 21400 acres of Millcreek watershed, all to be sold for the net proceeds of a $12,500,000 bond issue. The City Council engaged the firm of Gannett, Fleming, Corddry & Carpenter to evaluate the water company for fl~m and to serve as consulting engineers. The deadline for the city's decision was set first at March 30 and then extended to June 30, 1963. In the evaluation presented by Gannett, Fleming, Corddry & Carpenter, the reservoirs of the Johnstown and Saltlick water companies were valued at $11,000,000 and the watershed lands at $3,200,000. The consulting engineers also reported to City Council that the proposed purchase is an economically sound move. Bethlehem Steel has agreed to purchase from the water company sufficient water to keep the company solvent and operating at its present level of revenue; this agreement is vital to the company's continued economic stability. The question of setting up an authority from the city to buy the company was voted on by City Council on July 17, 1963; but it was defeated. Steps were immediately taken to set up a joint city-suburban authority to make the purchase. Bethlehem Steel agreed to sell the Johnstown Water Company to such an authority for a price of $11,750,000. The authority is composed of representatives of the city of Johnstown and the boroughs of Westmont and Soutlimont. If purchased by this authority, the company would be managed, under a negotiated contract, by the Laurel Management Corporation, composed of the present staff of the water company. The new authority is to be called the Greater Johnstown Water Authority, and it is now preparing to file a charter with the Cambria County Courts. The deadline set by Bethlehem for the authority's decision on the purchase is October 1, 1963.
The authority is composed of members from the city of Johnstown and Southmont and Westmont boroughs, it has eleven members. Each municipality may appoint three members--two from the appointing community and a third from another township or borough. In addition, two members at large, one from the city and one from the suburbs are to be appointed jointly. George B. Hunter of Johnstown was elected chairman of the authority on August 214, 1963. He is to serve a four-year term. Other authority officers are Colonel George W. Gage, Lower Yoder Township, vice-chairman; William J. Fitzpatrick, Southmont, secretary; Alvin D. Schrott, Westmont, assistant secretary; George W. Kemeny, Ferndale, treasurer; and William L. Carstensen, Soutbinont, assistant treasurer. Other members of the authority include Dr. Robert J. Swopa, Johnstown; Fred Geisel, Dale; Frank 0. Phillips, Westmont; Louis H. Roddis, Upper Yoder Township; and Dr. Frank M. Miller, Johi~town. The last two men named are members-at-large. Attorney Earl F. Clock was appointed authority solicitor. The authority's incorporation papers have been signed by state officials and will be forwarded shortly.
