New Jersey Towns Are Taking Water, Sewer Privatization To The Polls

NEW JERSEY — An ongoing trend of privatizing New Jersey’s water and sewer infrastructure found its way to the ballot box again this year.

Three towns in New Jersey – South Orange, Manalapan Township and Gloucester Township – asked voters to take part in a referendum as part of the 2024 general election. The question: Should the town sell its publicly owned system to a private company?

It’s a question that more and more municipalities in the Garden State are asking themselves these days.

Supporters say privatization help towns to dodge costly repairs, including the state-mandated replacement of lead service pipes. They say the sales won’t negatively impact water rates, adding that experienced companies are able to provide better service – with less of a headache for the town.

Critics argue that selling water or sewer systems increases costs for homeowners and businesses over the long term, while selling off a “precious public resource” to a private company that is only interested in its own bottom line.

So how did South Orange, Gloucester Township and Manalapan Township vote on Nov. 5?

According to unofficial election results, the answer was “yes” in South Orange, where voters were asked if they wanted to sell the water system to New Jersey American Water (NJAW). Voters in Gloucester Township have apparently rejected a call to sell their sewer system, also to NJAW, and voters in Manalapan Township have apparently agreed to sell their water system to Veolia Water New Jersey.

• See Related: See South Orange 2024 Election Results For Water Referendum
• See Related: 'No' Vote Has Commanding Lead In Gloucester Twp. Sewage Referendum
• See Related: Manalapan Votes On Water Sale: See Unofficial Results

The three above towns aren’t the only ones in New Jersey to debate selling their water or sewer systems in the past few years, however.

Other municipalities that have recently found themselves struggling with the same dilemma include Bound Brook, Long Hill Township, Mount Ephraim, Manville, Egg Harbor City, Somerville and Salem (learn more below).

PAYING FOR WATER: MORE OR LESS?

Will people who live in towns that sell their systems see lower bills – or higher ones? That depends on who you ask.

Veolia told Manalapan Township officials that local rates would stay stable for at least two years if sold to the company, with 3 percent increases the following three years. See Related: The Manalapan Water Sale (What You Need To Know)

Likewise, New Jersey American Water also offered several years of rate freezes in South Orange and Gloucester Township.

In South Orange, the deal is for five years of “rate stabilization” – although NJAW makes no promises after that time period. There would be no rate increase for the first two years after the sale, and water bills would go up 3 percent in the third, fourth and fifth years.

NJAW has also pledged to make its “H2O Help To Others Program” for low-income customers available to South Orange as part of the deal.

According to South Orange Mayor Sheena Collum, if the village kept its system, rates were projected to increase 74 percent over the next five years. Over the past five years, the average increase has been roughly 5 percent.

In Gloucester Township, rates would remain the same for its first two years of ownership. The company expects to raise costs by 9 percent over the following three years (5 percent in Year 3 and 2 percent in Years 4 and 5) before raising rates about every two to three years.

When asked about the deals to freeze rates in South Orange and Gloucester Township, Brian Lipman, the director of the New Jersey Division of the Rate Counsel, told NJ Spotlight News that will be true – as long as American Water has control over those rates.

“But once it goes to the [New Jersey Board of Public Utilities] as part of a rate case, the board is going to set a new rate for all ratepayers – and they’re not going to honor an agreement that American Water had with the town,” Lipman said.

Critics of selling water/sewer systems have included nonprofit advocacy group Food & Water Watch, which recently released a list of “3 Reasons Why Water Privatization Is a Bad Deal for New Jerseyans.”

“Water privatization is expensive, and water companies are allowed to pass those costs right onto their customers through higher bills,” the group argued. “On average, private water companies charge 59% more than public systems, and private ownership is the single biggest factor associated with higher water bills.”

“Private water is more expensive primarily because of the 10 percent profit that corporations earn on their investments,” the group continued. “This is an automatic markup on the cost of every project and acquisition. On top of that, companies can pass on the cost of their income taxes and property taxes to customers by raising rates.”

In August, the state’s Board of Public Utilities allowed New Jersey American Water to hike customer rates by nearly $80 million, including an after-tax return on equity of 9.6 percent, Food & Water Watch reported. See Related: Rate Hike Approved For New Jersey American Water Customers

Private companies can also take advantage of the lack of competition to secure more favorable terms, advocates claimed.

For example, Manalapan’s request for proposals only resulted in one bidder: Veolia, the same company implicated in the lead-in-water crisis in Flint, Michigan.

In the following video, Food & Water Watch and the Association of Environmental Authorities of New Jersey host a virtual forum in opposition to water privatization on Sept. 4 (article continues below):

MAKING REPAIRS: A COSTLY ENDEAVOR

Another big selling point from private companies and local elected officials has been the looming cost of repairs to aging pipes and other expensive equipment.

Manalapan Mayor Mary Ann Musich said that if the referendum doesn’t pass, there would be changes for the entire town due to improvements that need to be done to the water system.

“If we don’t sell the water utility and we end up keeping it, all the improvements that have to be done — probably $20 million plus — we would have to bond for,” Musich said. “So everybody in the town will then have to pay for that.”

New Jersey American Water would spend $90 million on Gloucester Township’s wastewater system in a decade, according to its published plan. See Related: Voting Yes On the Sewer Sale Makes Sense (OP-ED)

In South Orange, parts of the water system are more than 100-years-old, NJAW's president recently told Patch.

"As New Jersey’s largest water provider, we are able execute a robust capital investment program while maintaining affordable water rates for our customers," Mark 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.

Notably, the company already purchases water from NJAW under a bulk service agreement – and has been doing so for decades.

“Water and sewer is all we do, and as the long-time contract operator and water provider in South Orange Village, we are deeply committed to making the needed improvements to help ensure the community’s water service is safe, reliable and affordable,” McDonough said in the wake of Election Night.

There’s also another factor to consider, according to South Orange’s mayor: New Jersey American Water has the power of numbers behind it.

“Our customer base is approximately 4,500, whereas NJAW's is 668,000,” Collum wrote in the fall edition of the municipal newsletter. “The cost of infrastructure upgrades is spread throughout all ratepayers, creating greater stability, particularly with a very volatile regulatory environment.”

“As a small community of just 2.8 square miles, it simply makes sense to partner with a reputable and regulated company that already owns and operates water systems in surrounding towns like Maplewood, Millburn, West Orange and Irvington,” Collum added.

In the following video, supporters of selling the water system in South Orange elaborate on the reasons to vote "yes" for privatization in a video released prior to Election Day (article continues below):

CASH IN HAND

Each town would get millions of dollars for selling their respective systems.

Manalapan Township would get $4 million for selling its water system to Veolia Water New Jersey.

South Orange would get $19.7 million from its deal with New Jersey American Water. The money received from the sale would first go to retiring debt associated with South Orange’s water utility. Any remaining funds would have to be applied to retiring municipal debt.

The stakes are highest in Gloucester Township, which would have raked in $143 million for selling its wastewater-collection services to NJAW. Local officials have said that the deal would wipe out the municipality's debt of $65 million, while bringing in a company with access to capital that will allow for quicker repairs and improvements.

The town's mayor, David Mayer, serves as New Jersey American Water's director of government affairs, which has led to concerns from some residents about a potential conflict of interest. See Related: Residents Blast Proposed Sale Of Gloucester Township's Sewer Utility

One resident recently asked via email whether Mayer had any role in the sale, and whether New Jersey American Water would give him a bonus or incentives for a successful transaction.

Mayer has not and cannot participate in any discussions of the sale, council president Orlando Mercado said at a recent public meeting.

"The bidder (New Jersey American Water) certified that no employee from the township assisted the bidder in the preparation of their bid," Mercado said. "In regards to any incentives or bonuses that the mayor may receive if the sale goes through, we're not aware of any incentives or bonuses. That's between American Water and Mayer."

In the wake of the election – and an apparent defeat in Gloucester – Food & Water Watch claimed that a grassroots campaign of residents, union workers and even Girl Scouts came together to "counter the corporate agenda."

"Residents saw this deal for what it was—a billion dollar corporation and machine politicians trying to enrich themselves on the public’s dime," said Kate Delany, an organizer in South Jersey.

RIPPLE EFFECTS

Selling a water or sewer system doesn’t happen in a vacuum: it can have a ripple effect – no pun intended.

For example, the Gloucester Township Municipal Utilities Authority currently manages the township's sewage services. A sale to New Jersey American Water would disband the public entity.

This has been a major concern of advocates such as Food & Water Watch, who say that “privatization also leads to layoffs of local workers and loss of local control.”

Towns that deal with multiple companies – or where residents use well water – face other complications.

Currently, there are three main water sources in Manalapan; well water which supports 5 percent of homes, Gordons Corner Water Company which supports 76 percent of homes, and Manalapan Township Water (currently managed by Veolia) which supports 18 percent of homes.

Homeowners who receive water from Gordons Corner Water Company, Manalapan Township Water and from well service all pay for improvements to the Manalapan Water System through taxes and the municipal budget. Despite paying for these improvements, only those who receive water from the Manalapan Township water system benefit from them.

OTHER TOWNS, OTHER ELECTIONS

South Orange and Gloucester Township aren’t the only New Jersey municipality that NJAW has been trying to make a deal with over the past few years.

The company acquired the 2,800-customer Bound Brook sewer system in 2022, the 2,900-customer Long Hill Township sewer system in 2020, and the 1,800-customer Mount Ephraim sewer system in 2019.

Earlier this month, NJAW completed its acquisition of the wastewater collection system of the Borough of Manville for $6.5 million. The agreement to purchase the system was approved in a voter referendum in November 2023, which passed in a landslide fashion – with 83 percent of the voters approving the sale. Read More: Manville Sewer System Sold For $6.5 Million To NJ American Water

“The sale will allow us to pay off municipal debt, stabilize property taxes, and secure long-term, affordable rates for our residents,” Manville Mayor Richard Onderko said. “Most importantly, New Jersey American Water has the resources needed to invest in critical infrastructure improvements that will benefit Manville for years to come.”

Other recent talks include:

EGG HARBOR CITY – In June 2023, the company announced it completed its acquisition of the water and wastewater systems of Egg Harbor City for $21.8 million. The sale of these systems was estimated to serve about 3,000 customer connections. The deal with Egg Harbor City was the first in the state to be completed through the Water Infrastructure Protection Act of 2015, which permits the sale or lease of municipally owned water or wastewater systems under certain conditions. Under the agreement, New Jersey American Water agreed to invest $14 million in the first 10 years to make needed upgrades to the city’s water and wastewater systems, including $9 million in the first five years, while “keeping rates stable for customers.”

SOMERVILLE – In October 2023, the company announced that it completed its acquisition of the wastewater collection system of the Borough of Somerville for $7 million. The municipally owned system serves about 3,800 customers, most of whom already were already receiving service from New Jersey American Water. The agreement to purchase the system was approved in a voter referendum in November 2022, which passed with 75 percent of the voters approving the sale. As part of the agreement, NJAW committed to invest a minimum of $9.5 million in sewer system improvements over the next 10 years.

SALEM – In June, the company announced that it completed its acquisition of the water and wastewater systems of the City of Salem for $18 million. The systems serve more than 2,300 water and 2,300 wastewater customers. The deal followed a voter referendum that took place in November 2023, which passed with more than 60 percent of voters approving the sale. As part of the agreement, New Jersey American Water agreed to invest more than $50 million in improvements over the first 10 years.

This article contains reporting by Josh Bakan and Sara Winick, Patch staff

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