The United Water company will take over many of the operations presently conducted by the Bayonne Municipal Utility Authority, in an effort to absolve $130 million in agency debt.
“This is like having your credit card debt wiped out,” said Steve Gallo, executive director of the Bayonne Municipal Utilities Authority. “It means almost half of the total debt of the city and its authorities will be removed.”
Gallo said the $150 million 40-year deal will allow United Water to take over many of the utility operations.
The $150 million will be used retire the $130 million in outstanding debt and to embark on $14.5 million in capital improvements over the next three years. Gallo said United Water would then invest $2.5 million annually to maintain and upgrade the system, something the BMUA cannot currently do.
Although not yet inked, the deal would have the private company take over many of the day-to-day water and sewerage operations for the next 40 years.
In conjunction with the deal, residents will see an 8.5 percent increase in fees, no increase for four years, and then a 4 percent increase in fees (the state average) annually after that.
Gallo said improvements will include new meters for every home in Bayonne that would increase reliability of readings, as well as a new modern monitoring system.
Under the agreement, which still needs state approval, a company called Bayonne Joint Venture LLC – a joint venture between United Water and the investment firm, Kohberg Kravis Roberts and company – would take over operations and repairs in exchange for fees charged to the residents.
The BMUA board would continue to oversee some aspects of the operations such as the payment of sewerage treatment fees and the purchase of water.
A work in progress
This deal has been in the works for more than a year. In June 2011, the BMUA put out a request for qualifications and proposals to maintain and manage the municipal water and sewerage system. The authority received two proposals from the Joint Venture group, one for 20 years and another for 40 years.
After reviewing both proposals, the BMUA decided to accept the 40-year proposal, noting that United Water and its affiliates have experience operating more than 100 municipal systems in the region, many of similar size to Bayonne.
“We didn’t take any of this lightly.” – Steve Gallo
Debt accrued over many years
Gallo said the BMUA was established in 1987 partly as a means to divert some of the debt from the municipal budget. But in the subsequent years, the BMUA was sued over its antiquated combined storm water and sewerage system, forcing it to pay $30 million to upgrade.
As the debt increased, he said, the ability to modernize and maintain the system became more difficult as fees collected went into paying off the debt and increased costs associated with water purchases and sewerage treatment.
And the authority struggled to find licensed professionals needed to maintain the facility.
“When we approached them, many did not want to come to work at a municipal facility,” Gallo said.
Gallo said many of the increases in debt were due to actions taken in prior administrations and that when Mayor Mark Smith became mayor in 2008, one of his mandates was for the city to avoid increasing the overall debt, putting the BMUA in a position to seek some way to reduce the debt and still maintain the system.
“This deal does that,” he said.
While fees will go up by 8.5 percent, Gallo said, if no deal had been struck, city residents would have faced an increase of between 24 to 26 percent.
“We didn’t take any of this lightly,” he said. “We did this after 13 months of negotiations. Now with this money, we can retire the MUA’s debt and the MUA will still oversee things.”
Of the 30 employees currently working at the MUA, all will be retained for a year under this agreement, or offered jobs elsewhere in the United Water system.
“The benefits of this deal are very clear,” Gallo said. “We get our debt paid. We get capital improvements made to the system. We get a stable and predictable fee rate. We get licensed operators. And we maintain ownership of the system.”
The public will be able to comment on the deal at the Aug. 6 meeting of the BMUA at 6 p.m. in City Hall.