This has been an important topic to me since I ran for election in 2015 and my informal polling from door knocking put fixing our water infrastructure as one of the top two resident concerns (fixing Washington St. was the other). This was at the time of our last spate of breaks which occurred that Fall and culminated with the Thanksgiving week break of the main 24” service line that comes from Jersey City into the southwest corner of Hoboken.
As I said at a press conference yesterday with Mayor Bhalla, it feels like déjà vu all over again, but not in the good way. I will not get the number correct as it continues to move, but I believe we have had approximately 15-20 breaks since the beginning of summer. And several major ones in the last few days – including the one last night down by the PATH.
That being said, I want to give you some color on both recent activity by the Mayor / City Council addressing concerns about our water infrastructure and a refresher on what we have been doing over the last couple of years while I have been one of your elected representatives on City Council (I can't speak for before).
LET'S START WITH YESTERDAY'S PRESS CONFERENCE...
- Investigating immediately the causal effect between the large Jersey City Municipal Utility Authority meter chamber replacement project in SW Hoboken with the recent string of water main breaks; using governing body emergency powers to do so without having to go through a protracted bid process. The expectation is that changes in water pressure resulting from that project are what is triggering the recent breaks in Hoboken.
- Pursuing any/all remedies, even legal only if necessary, to ensure that if the actions or inactions of either Suez or JCMUA (or any other entity) are determined to be the cause of the recent water main breaks, that Hoboken rate payers will not be responsible for the emergency repair costs (totaling ~$350k through July already).
- Initiating the process to re-bid the management of our water operations so that we can have a contract that is more favorable to Hoboken in terms of both economics and maintenance/repairs – this may or may not result in a change in our provider of these services.
It is important to note that the media have skewed these initiatives into more provocative news headlines – “The Mayor is Suing Water Authority” and “Mayor Declares an Emergency”. Although the Mayor used strong language in the press conference about the importance of taking immediate action given the recent events, these headlines are clearly misleading. That being said the Mayor may be filing a legal complaint to compel Suez to share documentation with us that they are obligated to share as early as today given their resistance to do so.
Prior to this press conference, the Mayor met with and sought input about this plan with the Infrastructure and Finance Subcommittee, which I chair and also includes Council President Ruben Ramos, Council Vice President Jen Giattino, and Councilwoman Emily Jabbour. We all agreed that we need to do more to find solutions and relieve and supported the initiatives as stated above. Councilman Ramos, who like many other council members could not attend the press conference in person yesterday, felt it was critical that residents know that our entire governing body is committed to doing more to find solutions to this vexing problem and spearheaded a written statement signed by all nine council members (bottom of page) stating this unanimous commitment.
Not surprising, Suez followed with their own press conference taking the position that our system was underinvested by Hoboken and that they felt it would be detrimental to the City if we were to switch providers and lose the 24 years’ worth of knowledge and work on our system. Please be mindful that Suez also provides management of the JCMUA water system that feeds ours so should have a strong understanding of the meter chamber project and the effects on both systems.
2016 AND 2017, $10M APPROVED BY CITY COUNCIL TOWARD FIXING OUR WATER INFRASTRUCTURE
In early 2016, after the string of breaks in late 2015, the City Council, with then Councilman Dave Mello as the leading voice on this issue, demanded that the City adopt a plan to stop the bleeding, or in this case, the leaking. As chair of the Finance Subcommittee I advocated for and secured $5M to be added to the capital budget for water infrastructure investment. Our subcommittee, including Councilmembers Giattino, Cunningham and then Bhalla, met with the mayor and explained that we needed to de-couple the Suez water contract from the need to do necessary investment and move forward with the work. As a result, the Administration the administration established a capital investment plan to to fix higher priority / higher risk areas identified and recommended by Suez. In 2017, as again chair of the Finance Subcommittee (and same members), we demanded a further $5M be added for the plan and the City Council unanimously passed bond ordinances to provide this funding. Required approvals for these repairs are underway with the DEP and NJEIT currently.
2017 CITY COUNCIL INFRASTRUCTURE SUBCOMMITTEE CREATED
In early 2017, then councilman Bhalla established an Infrastructure Subcommittee which included me, Councilman Russo and then Council President Giattino. The mandate of this committee was to work with the administration on the many infrastructure issues like our water system, the Washington St. project, public transportation concerns, and a potential smart cities project. I took over as chair of this subcommittee that spring and Councilman Cunningham replaced Councilman Bhalla. In 2018 we combined this with the Finance subcommittee, given the significant budget and capital impact of infrastructure.
REFRESHER - OUR SUEZ WATER CONTRACT
In a nutshell, our current water contract which was entered into 24 years ago and extended twice through 2024, is a fairly brief contract that effectively states:
- Suez manages our system and gets to keep all water revenues paid by Hoboken rate payers.
- These revenues are then used by Suez to cover its costs of billing customers, maintaining the system and making a fixed contribution towards capital repairs that will not exceed $350k per year.
- This contract goes through 2024.
To give you an idea of the economics behind this contract recent revenues generated from the 55K or so Hoboken residents who use water are estimated to be approximately $9M / yr. (give or take). That is a LOT of money, more of which Hoboken should receive as we move forward.
What Hoboken received for selling these water revenues to Suez at a time when our population was more like 35-38K was a series of 3 upfront payments of $5.5M (1994), $5M (1996/7), and $2.7M (2001) that were used to address municipal budget shortfalls at the time. Speculating on whether this was the right thing to do or not would just be an exercise in revisionist history at this point. What we all can agree on now, and a Suez representative admitted as well in an Infrastructure Subcommittee meeting last year, that the current contract as written heavily favors Suez (at the expense of Hoboken).
PROGRESS TOWARDS A NEW CONTRACT
Last summer, Mayor Zimmer proposed an extension of the Suez Water Contract in exchange for arguably improved terms for Hoboken. These terms included:
- Increasing the annual capital contribution by Suez to $650k.
- Establishing a floor for maintenance spend on the system by Suez at $500k (previously unknown how much Suez spent annually).
- Allowing the City to receive 5% of total revenues annually.
- Suez investing >$1M in improved meter technology that would ultimately benefit their ability to more accurately charge for water.
- Suez agreeing to absorb the then estimated $8-10M that the City owed Suez under the existing contract for bulk water increases and reimbursement of emergency repair work relating to the previous few years.
The Infrastructure Subcommittee met with the mayor, administration and financial advisors to review this proposal. Without completely devolving into the politics at the time, in simple terms we asked:
- Were other providers considered? The answer was no.
- Are other providers / operating structures available? The answer was yes.
- Was this proposal considered market? The answer was above market (Hoboken paying more than necessary).
- How much of the total revenues was Suez keeping? The answer was we don’t have that information.
- Can we get the underlying financial model so we can see the projects? The answer was no.
As a result of the above - and I will argue all day long with anyone who wants to that it was not politically motivated - the Infrastructure Subcommittee encouraged the City Council to not support entering into this agreement because we felt that we needed to better understand what our options were and felt strongly there had to be a better outcome for Hoboken. One that would create a better operating partnership for our system, and one where Hoboken would receive the majority of the revenues to reinvest in the system, not line the pockets of the manager. The majority of the council supported this position.
MORE RECENT STEPS.
Since the beginning of 2018, the Finance and Infrastructure Subcommittee has met regularly with Business Administrator Marks, Environmental Services Director Gonzalez, and other members of the administration along with our legal and financial advisors to discuss alternatives that would allow us to replace the existing contract with Suez with one that will be more favorable to Hoboken.
The research compiled by the administration combined with input from our advisors helped us quickly reach consensus that the City of Hoboken, if it goes to out to the market with an RFP, should easily be able to procure a better contract than what we currently have or what was proposed last summer.
Our existing contract can be terminated but with a termination fee which effectively is the unamortized portion of the $13.2M in historical payments made to the City (17-24 yrs. ago); an amount not yet determined but that can be amortized over the life of the new contract and / or potentially can be factored into a new contract.
As a result of this effort, the Finance and Infrastructure Subcommittee was scheduled to meet last Tuesday, the 21st (but rescheduled to the 28th due to conflicts) to review and agree this RFP to prepare to submit to the City Council to vote on at the September 5th council meeting. This RFP would be to solicit proposals, which Suez may also respond to, for a new operating and management agreement for our system.
FINAL THOUGHTS FOR NOW…
We need a better plan for our water infrastructure. We need a better partnership with our water service provider. And we need a better financial relationship with them so that more of the water revenues paid by our residents are reinvested in our system rather than distributed as profits to the service provider. I do want to say that I don’t want to rule out that Suez may still be our partner going forward – they have extensive experience and institutional knowledge of our system that is valuable. But if they are our partner, it would be under a much better contract. But I do think understanding what is out there from a best practice, best technology and best pricing will help us get to a better arrangement that makes more sense for Hoboken than our current contract that is almost 25 years old.
So I will again echo the spirit of what Mayor Bhalla has said. This issue is critical for Hoboken and one that the entire governing body remains committed to solving. It will not happen overnight, but we are hopeful we will have an agreed plan by the first quarter of 2019 (my estimate).
Thank you for your patience and your continued vocal advocacy on this important issue. And as always, if you have any questions or want to discuss this or anything else, please feel free to call me at 201/208-1674. PLEASE ALSO FORWARD THIS TO OTHERS AS THIS IS SUCH AN IMPORTANT TOPIC FOR EVERYONE IN HOBOKEN AND OUR VISITORS.