Community: Open Letter from Mayor Zimmer Regarding Water Infrastructure & Proposed Suez Agreement
As perhaps everyone in Hoboken knows, the City’s aging drinking water infrastructure is in desperate need of major investment. The City is upgrading the water mains along Washington Street and other priority areas, but much more funding will be needed to cover the extensive costs for city-wide upgrades. The City’s proposed Suez agreement would fund investments every year. Taxpayers should not have to pay for all the costs of the upgrades to the system, and that is why reaching a fair agreement with Suez to provide much-needed funding was so important to me. Until the necessary infrastructure upgrades are done, unfortunately, our City will continue to be plagued by damaging, disruptive, and costly water main breaks.
Usually, costs of maintaining and upgrading a City’s water system are fully covered by the system itself through the water ratepayers. That way everybody who uses water shares in the cost proportionately, based on how much water they use. For example, a car wash will pay proportionately more than a family of four, based on how much water each uses.
Unfortunately, in June 2001, during the transition from the Russo Administration to the Roberts Administration, Hoboken amended its 1994 Agreement with our water company in a way that imposes enormous unfair costs on Hoboken’s taxpayers.
Unbelievably, that Amendment actually reduced the amount the water company was required to pay each year for repairs and upgrades from $550,000 per year to $350,000 per year (with the City responsible for any repair costs exceeding $350,000) for 23 years from 2001 to 2024. In addition, the agreement stated that starting in 2014, the water company is permitted to “pass through” the “excess” cost of water to the City to the extent it exceeds the water cost levels of 2011 (although the contract doesn’t say when or how that “pass through” is supposed to occur). Not a penny is provided to pay for our desperately needed capital improvements beyond the reduced amount for emergency repairs.
While the City did receive a one-time payment of $2.7 million, which it used to close a budget gap in 2002, the 2001 ten-year extension and Amendment actually COST the City over $17 million compared to simply leaving the pre-existing Agreement in place until scheduled termination, and then extending it 10 more years without any changes. This cost includes $4.6 million in lost maintenance investment ($200,000 less per year for 23 years) and the City’s agreement to a “pass through” of bulk water costs for 10 years (costing an estimated $13 million through scheduled contract termination in 2024).
Even though that Amendment was entered into 17 years ago, it is far from ancient history. It still has seven years to run, and terminating it now would cost the City a termination fee of almost $5 million.
In order to address the problems caused by this onerous Amendment, my Administration has been working for 2 years to re-negotiate our water agreement. In June of this year, we reached a tentative agreement, subject to City Council approval, on the terms of a new agreement. The Agreement was presented to the City Council in early July, shortly after negotiations were completed. In hindsight, it might have been wiser to wait until after the November election, so that the City Council could consider it without the distraction of an upcoming contentious election. However, it is still my hope that before the end of the year, the City Council will take a vote so that we can move forward to resolve these critically important issues. The proposed agreement is a dramatic improvement over the existing agreement that would enable Hoboken to finally address decades of underinvestment in our infrastructure.
These are the highlights of the proposed re-negotiated Agreement:
1. Approximately $40 million in benefits to the taxpayer, including over $30 million in new infrastructure investment (approximately $1.8 million per year, compared to $350,000 per year currently) and almost $10 million from the elimination of unfair costs (relating to excess emergency repair and bulk water costs) imposed under the 2001 Amendment that would otherwise have had to be paid (either by taxpayers or through a rate increase) before the contract expired in 2024.
2. Installation of “smart technology” that would enable detection and repair of small leaks before they become big ones.
3. Extends the Agreement 10 years until 2034.
Unfortunately, a lot of misinformation has been circulated about this Agreement. For example, the $40 million benefit to taxpayers is NOT simply being shifted to ratepayers. The only rate increases included in the Agreement are 1.8% in the first year to pay for a $150,000 annual increase in the emergency repair budget, an additional 2% per year for years 1 through 6 to phase in the actual cost of bulk water, and annual CPI adjustments.
In addition, some Council members have suggested that instead of resolving the unfair costs described above through a re-negotiation of the 2001 Amendment that caused the problem, the City should have included these costs in past budgets and raised taxes to pay them in past years. I strongly disagree, as did the legal and accounting professionals on whose advice the City relied upon. The charges had not been billed and were not going to be billed until negotiations had been completed. Put simply, the amounts were not yet due and were not likely to ever become due as the result of a renegotiated agreement or the city’s ability to pass the costs on to ratepayers.
Ultimately, it is important for residents to understand that the taxpayers of Hoboken should never have to shoulder the burden of the extremely unfair existing agreement that was passed in 2001 and currently extends until 2024. If the City Council approves the proposed agreement, then the City will be able to annually invest in its water main system and avoid these unfair excess bulk water and capital improvement costs. Holding the taxpayers responsible for these excess costs agreed to in 2001 is not necessary or appropriate now and was not necessary or appropriate over the past two years as some Council members have suggested. Prematurely taxing the people of Hoboken for a cost that was not yet payable and was likely never to be payable by the taxpayer would have been irresponsible and simply wrong.
The following documents provide additional information on this important issue: