Should South Orange Sell Its Water System? Voters Will Decide

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“Since we currently operate the water system through an operations and management contract, we are acutely aware of the needs of the village and the system,” McDonough added. “Water and sewer service is all we do, and we’re committed to meeting the needs of our customers and providing clean, safe, and reliable water with stable rates for all residents.”

Critics of the proposed deal include Sam DiFalco, an organizer with nonprofit advocacy group Food & Water Watch.

“We urge South Orange voters to vote no this November and to keep the system public,” DiFalco said, alleging that selling the system will increase costs for homeowners and businesses over the long term.

“There are alternatives to selling the water system that should be explored in a transparent and democratic manner,” DiFalco said. “By maintaining public ownership of a valuable public asset, the town can keep its options open. With a sale, it essentially gives up that flexibility permanently.”

Mayor Sheena Collum questioned some of the claims from Food & Water Watch at Monday’s meeting, alleging that speaking in general terms without specific details is a “scare tactic.” However, she added that village officials are willing to hear the organization out if they come to the table with more specific details about potential rate hikes or alternatives to a sale.

Collum said the council is moving for a referendum this November because 2024 will likely be a high-turnout year, and will include a more complete representation of South Orange at the polls. Meanwhile, work on the system needs to begin immediately – and the cost would be added to a bill that the village wouldn’t have to pay if the sale goes through, she said.

More outreach to the public will be coming in the months leading up to the election, the mayor added.

Multiple council members said Monday that passing the ordinance and greenlighting the referendum will put the choice in the hands of South Orange’s voters, who will be able to make an informed decision when Election Day rolls around.

However, Councilwoman Karen Hartshorn Hilton opined that selling the system won’t be in the “best long-term financial interest for our residents.”

Hilton said she is not opposed to taking the question to the voters, but advised her peers to reject the bid from NJAW and return to the drawing board – for now.

“I just think there’s more work we can do on the council level before we take it to the voters,” she said. “It’s a forever vote.”

TERMS OF THE DEAL

Under the terms of the potential deal – which would face review from the New Jersey Board of Public Utilities (NJBPU) – the village would sell all of its “rights and interests in the land and improvements comprising the system.” NJAW would provide and maintain all water distribution and transmission services for existing customers in South Orange.

Other terms of the agreement – some of which are still being negotiated – include:

Another big selling point? The replacement of lead-lined drinking water pipes.

In 2021, Gov. Phil Murphy signed a package of bills that will drastically change how New Jersey deals with the threat of lead poisoning, which can be especially dangerous for kids, pregnant women and other vulnerable populations.

Hundreds of community water systems in New Jersey are now required to replace their lead service lines within the next decade. The pipes – which connect local homes and businesses to the local water supply – can potentially leach contamination as water passes through them. A portion of the pipes may be privately owned, complicating efforts to replace them. See Related: New Jersey Is Replacing Its Lead Water Pipes – All Of Them

According to the proposed ordinance in South Orange, the company would assume lead service line replacement for the village, taking a costly burden off its financial to-do list.

WATER BILLS

How would the sale impact local residents’ water bills? The short answer: they’ll go up – eventually.

The proposed agreement would include five years of “rate stabilization,” although it doesn’t make any assurances beyond that time frame. There would be no rate increase for the first two years after the sale. Water bills would go up 3 percent in the third, fourth and fifth years.

South Orange would have its own water tariff for the first 15 years, Collum said during Monday’s meeting. Afterwards, the village would be merged into the “A1” tariff. Every rate increase would need to go before the NJBPU.

Over the past five years in South Orange, the average increase has been roughly 5 percent, Collum said Monday.

If South Orange residents vote against the referendum, their water bill will likely end up increasing anyway, according to the ordinance:

“If a majority of the legal votes cast in the village are “no,” the village will retain the system and will immediately begin a process to increase rates to the extent required to address the need for additional capital improvements, lead line replacement program and maintenance activities.”

The money received from the sale would first go to retiring debt associated with South Orange’s water utility – which currently stands between $16 million to $16.5 million. Any remaining funds would have to be applied to retiring municipal debt.

OTHER OPTIONS

At the July 8 village council meeting, Collum said that South Orange administrators have been gathering information and studying the issue for years – and the ordinance currently on the table is “just a starting point.”

At some point soon, however, the village will have to decide what to do about its water infrastructure. There are three other possibilities besides a sale to NJAW, Collum said:

Collum acknowledged there are concerns that come with privatization, but pointed out that NJAW is publicly regulated by New Jersey. The village previously had issues with the East Orange Water Commission, she pointed out – and they are a public entity.

“There is going to be up and downsides with whoever we go with,” Collum said.

The ordinance notes that the village council authorized the release of a request for bids regarding the sale in March. South Orange eventually got two bids: NJAW’s offer of $19.7 million and another bid from Veolia, Inc. in the amount of $12.5 million.

TASK FORCE FINDINGS

A municipal task force was given the job of taking a look at the potential sale in September 2022. Read the full report here.

The task force analyzed several scenarios for their pros and cons, including the possibility of selling the village water utility. Here’s what its members found:

Positives:

Negatives:

As part of their due diligence, the task force interviewed administrators in West Orange, Maplewood, Millburn and Irvington.

“Overall, interviewees had no historical knowledge of their municipality’s sale of its system,” the task force reported. “And everyone generally was pleased with the service received from NJAW.”

CRITICS: ‘PRIVATIZATION IS THE WRONG SOLUTION’

DiFalco outlined some of Food & Water Watch’s concerns in a statement to Patch after Monday’s council meeting.

“Privatization is the wrong solution for South Orange, since selling to a for-profit company will increase the long-term costs borne by households and local businesses,” she said.

“Under American Water, residents can expect to see a major hike from current costs,” DiFalco continued. “While rates normally go up to pay for infrastructure upgrades or the removal of lead service lines, the magnitude of those rate hikes are what really matter – and that is when you see the differences between a publicly owned and operated system and one owned by a private company.”

“Under private ownership, ratepayers do not just pay for the improvements to their own municipality’s system – they must also pay for the sale price of the system itself, along with the cost of all the company’s other acquisitions,” she said. “Charging ratepayers is also of course how a private company becomes profitable … corporate owners are authorized to earn a rate of return of around 10 percent.”

DiFalco elaborated on these concerns in a recent letter to the editor posted on Patch. See Related: South Orange Should Halt Plans To Sell The Water System (Op-Ed)

According to DiFalco, a typical South Orange household pays an average of $720 per year for their water bill right now. That bill could potentially rise to about $1,000 per year once the rate hike kicks in, she said.

“Often, communities have been promised rate freezes and they don’t materialize,” DiFalco said.

DiFalco encouraged village administrators to look into the possibility of getting federal or state grants to make improvements to its water system, or putting out municipal bonds, which she said is “considerably cheaper than reliance on privatization.”

NJAW: ‘ROBUST CAPITAL INVESTMENT’

While some advocates may be urging the village to hold onto its water system, there’s another angle to consider, NJAW’s president told Patch: parts of it are more than 100-years-old.

“As New Jersey’s largest water provider, we are able execute a robust capital investment program while maintaining affordable water rates for our customers,” McDonough said. “New Jersey American Water has committed to invest at least $50 million to improve the South Orange Village water system by 2035. These commitments include major infrastructure projects and replacing all lead service lines, which were commonly used up until the late 1970s.”

If South Orange was to do this work on its own, the cost would fall upon the approximately 4,600 accounts in South Orange alone, McDonough said.

“As a utility regulated by the New Jersey Board of Public Utilities, we strive to keep rates stable while making proactive and ongoing investments in the water systems we own,” McDonough said. “Providing safe, clean, reliable water with stable rates is our top priority.”

WATER IN SOUTH ORANGE: THE BASICS

The South Orange Village Water Utility consists of more than 70 plus miles of main that deliver about 2.5 million gallons of water per day to South Orange. The system contains three water storage tanks/zones; the South Orange Avenue Main Reservoir, the Crest Drive Storage Tank, and the Brentwood Watersphere, which hold a combined total of 3.7 million gallons.

According to the municipal website:

“The village’s water supply is purchased from New Jersey American Water who also supplies Maplewood and West Orange. The vast majority of water delivered by New Jersey American Water is treated at their new, state-of-the-art Canoe Brook Water Treatment Plant in Millburn. The village also maintains emergency water supply interconnections with New Jersey American Water at Luddington Road and the East Orange Water Commission at South Orange Avenue Reservoir.”

American Water Operations and Maintenance Inc., a sister company of New Jersey American Water, took over day-to-day operations, maintenance, customer service, billing and collections responsibility for the village water system in 2017.

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