Over the next 15 years, Hoboken will be able to invest an estimated $33 million in its troubled water infrastructure, now that the City Council has unanimously approved two ordinances enabling a new contract with the city’s water provider and creating a new public water utility.
The city sold its water system to United Water, now Suez, in 1994, eliminating the municipal utility authority. The deal gave Hoboken $13.2 million to close projected budget gaps through 2001, which allowed the city government to avoid raising taxes.
The water company was given the right to profit from providing water in exchange for maintaining the system’s operations. But under that contract, which was set to expire in 2024, Suez was only obligated to spend $350,000 a year for improvements to the city’s water delivery system.
The city is currently obligated to pay for any repairs that exceed that, and has been plagued in recent years by numerous breaks in its century old water lines.
The city must also pay for “bulk water” costs not covered by ratepayers. Bulk water for Hoboken is purchased from the Jersey City Municipal Utilities Authority.
The new deal
According to a presentation given before the council, the city will pay Suez an annual $1,990,000 fee to continue to maintain and operate the water system and pay for any repairs and capital upgrades. All revenues generated from water bills, however, will be collected and invested by the city instead of by Suez.
Councilwoman Tiffanie Fisher, who chairs the council’s finance subcommittee, said under the new contract the city will go from receiving only seven percent of net revenues to 60 percent of net revenues and that the new water utility will be able to cover capital improvements and be self-funding.
A capital improvement construction management fee will be paid to Suez and will amount to 15 percent of whatever the city spends in capital improvements per year.
The contract also calls for $2 million to install smart technology to monitor water consumption, which the city says will save Hoboken ratepayers from paying for costly leaks. Each year $700,000 will be set aside for maintenance costs, and a minimum of $1.5 million will be allocated annually for water system upgrades.
There will be no change for the process of bill payment for the Hoboken ratepayer. The bill will continue to be collected by Suez, but the funds will be directed into the public water utility with the city controlling where and how the funds are spent.
The change also means there will be no rate hikes in property owners’ water bills apart from those associated with inflation.
The new public water utility and new financial arrangement will go into effect on July 1. The new contract will expire on June 30, 2034.
As part of the new contract, the city will pay Suez $11.8 million in outstanding debt over 15 years, with interest, an estimated $1.045 million per year. This debt was accumulated due to bulk water cost increases since 2015, excess annual capital costs since 2013, and repayment of remaining original advance payments to the city, according to Joe Baumann of McManimon, Scotland and Baumann, LLC who worked for the city on the contract.
During the May 1 council meeting, Councilman Michael Russo questioned why the city had not paid off this debt.
“Were we under the assumption that because we weren’t presented with a bill, that we weren’t going to be billed for that?” said Russo.
Baumann said those liabilities were originally negotiated into a proposed contract brought before the council in September 2017, which the council did not approve. Dennis Enright of NW Capital Markets who also worked on the new contract for the city, said of the outstanding liabilities that the “perception was that it would be rolled up into negotiations in one fashion or another, so there wasn’t a need to budget it.”
Councilman Ruben Ramos said that meant the city had an underfunded budget for at least three or four years.
The mayor is grateful
“I want to express my thanks to the City Council for unanimous approval of our new water contract and public water utility,” said Mayor Ravi Bhalla in a statement. “Hoboken will finally be able to make critical upgrades to our water infrastructure with multi-million dollar investments that have been lacking for decades. While we won’t be able to solve all water main breaks overnight, this puts us well on our way to significantly upgrading our water system with six times more investments than currently required. Thank you again to City Directors Jen Gonzalez and Stephen Marks for leading the negotiations with Suez, to Suez for coming to the negotiating table, as well as the council subcommittee on infrastructure.”
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