Council tables water deal until state review

City Council last night tabled three ordinances related to a new 20-year water lease agreement for the city’s water treatment plan, pending review and approval by the state Local Finance Board.

City Administrator Cherron Rountree said the state review, which was planned between introduction and final adoption, could come as early as next week. The state Local Finance Board next meets on Oct. 19. The ordinances could come back for a public hearing and final approval at the next City Council meeting, on Nov. 10, two days after Election Day.

Two of the ordinances (O-25-16) and (O-26-16) were introduced last month to authorize borrowing $14 million against annual concession fees in the agreement through the Union County Improvement Authority (UCIA). A third ordinance (O-20-16) was introduced this past summer and would award the lease agreement to Suez.

Rahway Water Treatment PlanUnder the previous lease agreement, which expires in 2019, payments to the Suez (formerly United Water) for operating the plan peaked as high as $4.4 million in the middle years of the deal but now run about $3 million annually. The new deal would take effect at the start of 2017, replacing the final three years of the previous lease agreement.

In a brief interview after Tuesday night’s regular meeting, Rountree said the funding would be held by the city to help pay stabilize water rates and tax increases as well as cover long-term capital improvements to the treatment plant on Westfield Avenue.

Asked why the city would borrow against the concession fees, incurring additional borrowing costs and interest, rather than collect the concession fees annually, Rountree said “We don’t spend $1 million a year.” The low-interest rate environment also makes borrowing advantageous, as opposed to say, five years from now when rates could be higher.

The agreement sets an annual maintenance cap of $500,000 in the first year and $651,000 in the year two and beyond, adjusted for inflation, according to a PowerPoint presentation to City Council in June. The cap includes regular maintenance and repair work that will be performed by the operator, Suez Water, without additional cost to the city.

water-management-presentation-negotiated-contract-savings-page-001City projections assume about $48 million in “water capital expenditures” over the life of the new 20-year contract, according to the presentation.

The same presentation projects a surplus of $19 million over 20 years and approximately $30.8 million “projected taxpayer savings,” based on projected revenues and water rates (Pages 12 and 14 of the presentation).

water-mgt-presentation-projected-water-utility-slide-1-page-001Water rates are set at $6.31 in 2017 and rise gradually to $15.94 in 2036, the final year of the agreement, according to Page 14 of the presentation. Over the course of the first eight years of the deal, revenues set aside toward a rate stabilization fund total $3.66 million, varying from $110,000 in 2024 to $830,000 in 2018. Each year of the agreement also includes $30,000 in “miscellaneous revenues,” or $600,000 over 20 years.

On the expense side, the management fee begins at $4.52 million in 2017, rising each year until reaching $6.71 million in 2036. Annual water purchases are projected at $700,000. Debt service begins at $1.35 million in 2017 and rises gradually until hitting $4.77 million in 2036.

Overall, the projections assume no deficit or only an excess of $10,000 in the first eight years (2017-2024) before assuming an excess of $250,000 in 2025, and eventually growing to $3.79 million by 2036.

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