Hoboken friends and neighbors –
Happy New School Year and welcome back! I hope you all were able to have some enjoyment this summer. There are a couple of important things I want to update you on, but one in particular in advance of tonight’s City Council meeting: the proposed terms for the extension and restatement of the contract between Hoboken and Suez Water for water services and the concerns I have with the proposal.
Overall my concerns with the proposal are as follows (more details below):
- The profitability to Suez vs. Hoboken residents – the proposed contract still has Suez keeping the majority of our water revenues which will continue to grow.
- The accounting, appropriation and/or disclosure treatment of the $8.3 million liability of the City that has been accruing for four years relating to increase in water rates and system improvement costs that has not been appropriated for.
- The fact that our consultant did not speak with any other potential service providers as a potential alternative.
Why is this important to you?
- Whether you own or rent, your monthly costs to live in Hoboken include the cost of water – indirectly through higher rent, or directly through your water bill, your maintenance bills (if you live in a condo) or in some cases your property taxes.
- As you are all aware, we have an old water system in Hoboken that requires substantial investment to fix and be sufficient for the next generations. A water services contract can cover anything from operations and distribution of water to full repairs of the system, and everything in between.
- This is a long term contract that we are asking to sign that will have implications to all residents of Hoboken for the next 17 years.
- If you just moved to Hoboken, you will be bearing the full financial impact of a liability that has been accruing, but not paid for previously, for the last four years.
Our current contract with Suez which expires in 2024 effectively provides Suez with 100% of the revenue from water bills (estimated at ~$9 million / year) and requires that Suez only pay $350,000 per year towards repairs which we know are estimated to be in the tens of millions of dollars. And apparently Suez are able to push through all increases in the costs of water to the City of Hoboken, thus Hoboken taxpayers, as opposed to those who actually pay for water.
If it doesn’t sound like a good deal, it isn’t. A former mayor traded the future water revenues for one time payments totaling ~$18 million to fill then current year budget deficits on three different occasions. And the contract says we would have to pay the unamortized portion of this payment back if we terminate the contract early. So he effectively borrowed from our future to meet the needs in those individual years. Suez clearly had no financial incentive to modify the contract until now when it wants to extend the term of it.
The proposal that our current administration has put forth to be considered on face value appears to be an improvement over the existing contract. It effectively increases Suez’s annual contribution from $350,000 to $1.3 million in the first year, growing 2% annually. Suez has also agreed to modernize its monitoring system to make billing more exact and user friendly for residents. And they will “forgive” $8.3 million that the City owes Suez pertaining to increased water rates and system maintenance costs incurred over the past four years. In exchange, Suez still gets all of the revenues which are expected to grow with our growing population. And they get these revenues for 10 additional years through 2034. Although the City supposedly gets $30+ million. Suez will get much more.
Last night we had the third subcommittee meeting relating to this contract. The first was the Infrastructure subcommittee meeting held at the end of July and was attended by Councilmembers Bhalla, Giattino and me. Councilman Russo was invited, but did not attend. At this meeting, when I asked the question "is the contract At, Above or Below Market", our consultant said above market. And when I asked how much, he said he didn't know.
Then, after the Council meeting in early August where a number of questions were raised by council members (and the vote on the proposal was carried), we had a second subcommittee meeting – this time an ad hoc meeting of finance and revenue and infrastructure subcommittees where I was joined by Council members Giattino and Cunningham. Councilman Russo did not attend. At this second meeting we became aware of and raised the concerns in more detail about the amount of profit going to Suez and the accounting treatment of the $8.3 million liability. And in both meetings we asked for the underlying financial analysis for the proposed contract.
Because of the complexity of the agreement and our lack of comfort with the responses given, I sent a letter to the administration the next day calling for a third subcommittee meeting and requiring the attendance of the City’s auditor as well as a closed session with the entire City Council so they could be educated on the contract in sufficient detail to comfortably vote. This would be attended by the City’s financial consultant.
At the third subcommittee last evening, attended by councilmembers Giattino and Cunningham and me (Russo was inadvertently not invited), we were told the auditor was not available, but that he will provide a letter prior to tonight’s meeting. As of this writing, we have not received this letter. Additionally, we asked for the third time to see the underlying financial analysis for the contract and were told by the administration that they would not provide it. Also, the administration declined scheduling a closed session with the entire council prior to the vote.
As stated by the Mayor, we are governed by the Faulkner act which means the Mayor negotiates contracts on behalf of the City, and the city council just votes up or down. One approach would then be to provide the city council with sufficient information so they could comfortably vote.
Another approach is to deny the governing body such an accommodation. The latter is not how I would approach something this critical to our City. But here we are. At tonight’s meeting we will ask a lot of questions. So I hope you will tune in to learn more about this critical contract for Hoboken. Hopefully you can appreciate my concerns and that our attempt to understand the details of the proposal is so that we can ensure we are getting the best outcome for Hoboken.
Please feel free to send me any thoughts or questions. All input is welcome.