Bayonne may not have many options when it comes to dealing with its 40-year joint water contract between Kohlberg Kravis Roberts (KKR) and SUEZ Water.
At the May meeting of the Bayonne City Council, concerned citizen and Board of Education Trustee Jodi Casais grilled the city council over the rising cost of water bills. She has started multiple petitions urging the city to dump the current contract after years of sharp increases.
City Council President Sharon Ashe-Nadrowski said the council had hired the law firm Rainone, Coughlin, and Michello (RCM) to review the contract. At the June meeting, she revealed the initial findings.
Water bills have been increasing since former Mayor Mark Smith’s Administration penned the deal. The contract netted the city $150 million from the entities and sets the water rates.
The annual rates are determined by a revenue path, a set schedule of how much the city will pay in water bills. If the city meets the revenue requirement, the rates are increased annually by approximately 4 percent. If the city does not meet the revenue path, the rates are increased to cover the difference.
Increases in the water rates are typically due to inflation, capital investments and maintenance costs. When the city needs funds for the water system, it borrows the money needed from KKR, which has to lend the money to cover the costs per the contract.
KKR sold its interest in Bayonne’s water system to Argo Infrastructure Partners in 2017. But the deal has not changed, and the city requires KKR to attend operations meetings along with the Argo representative.
In 2012, when the deal was inked, water bills increased by 8.5 percent. While there were supposed to be four years with no increases, there were only two: 2013 and 2014. In 2015, bills increased 4 percent; in 2016, 13.25 percent; in 2017 and 2018, 4.5 percent; and in 2019, 9.1 percent. Bills increased by 4.1 percent in 2020 during the pandemic.
Law firm review
At the June council meeting, Ashe-Nadrowski revealed that RCM found that the city’s only option was to buy out the contract for $300 million.
To do that, the city would have to pay penalties. While the city received $150 million up front when it signed the contract, it would have to pay back over $300 million to cover the cost of the entire life of the contract.
A meting with SUEZ and Argo presented the council with the same dilemma: the only way out of the contract was to buy it out for over $300 million.
“I know we talked about Hoboken. They bought it back,” Ashe-Nadrowski said. “They went out of that contract later on in their contract, so it wasn’t worth as much.”
Ashe-Nadrowski said the city is waiting for the final findings from RCM, but the council is not authorized to act on those findings. That is up to the city.
“Buying the water contract is probably not something that’s fiscally responsible to do at this point, but we will look at other ways,” she said.
At the meeting, residents questioned why the city was testing the hydrants when that was SUEZ’s job under the contract.
According to Fire Chief Keith Weaver, the fire department did it out concern about freezing weather in November and December. He said the most recent tests were completed in the last two weeks of June to ensure reliability.
Weaver said it was up to the the administration to decide if SUEZ should pay the city back for the hydrant testing.
Ashe-Nadrowski said she was concerned about the city overpaying, which is why the council hired the law firm to review the contract.
“I’ve raised this many times to the administration about the city doing work that we’re also paying SUEZ in the contract to do, whether it’s cleaning catch basins or testing hydrants,” Ashe-Nadrowski said.
Director of Municipal Services Tim Boyle said complaints about the high water bills are “the carryings-on of two or three people,” arguing that rate hikes were in line with national averages and lower than increases the city had experienced before the contract had been signed.
Decades of increases?
The city is only in its ninth year of the contract, meaning residents could see increases to their water bills over the next 31 years. That is, if they even receive them. Recently, water bills did not make it to some downtown residents.
“We have and continue to have ongoing problems with the postal service,” Boyle said. “We dropped the mail off on March 9 for the April billing. It looks like out of 3,500, about 800 people did not get their bill. It’s a huge deal.”
Boyle said the city is in the process of setting up meetings with the post master in Kearny.
“We’ve addressed it twice with the postmaster in Bayonne, but they won’t allow us to take our billing to the Bayonne office,” Boyle said.
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