What To Know About South Orange Water Referendum: 2024 Election

SOUTH ORANGE, NJ — The fate of South Orange’s water system will be in the hands of local voters when they head to the polls on Tuesday, Nov. 5.

As part of the 2024 general election, South Orange residents are being asked to vote “yes” or “no” on an important ballot question: Should the village sell its water system to the New Jersey American Water Company (NJAW)?

If the referendum passes, it won’t represent a final deal with NJAW – it only clears the way for South Orange to ink a sales agreement at a price of $19.7 million. Any final agreement would face review from the New Jersey Board of Public Utilities.

The referendum has seen serious debate on both sides (learn more about each argument below).

Supporters say the deal would help South Orange dodge some costly upcoming repairs, including the state-mandated replacement of lead service pipes. They say the sale won’t negatively impact water rates, adding that NJAW is able to provide better service – with less of a headache for the town.

Critics argue that the deal will increase costs for homeowners and businesses over the long term – especially for low-income customers – while selling off a “precious public resource” to a for-profit company that is only interested in its own bottom line.

• See Related: Should South Orange Sell Its Water System? Voters Will Decide
• See Related: Early Voting In South Orange For 2024 Election (What To Know)

WHAT IS AT STAKE?

If the referendum passes, the village would get the go-ahead to sell all of its “rights and interests in the land and improvements comprising the system” to NJAW, which would provide and maintain all water distribution and transmission services for existing customers in South Orange.

Other terms of the agreement include:

• The company would make “substantial capital improvements” of at least $50 million, including the replacement of lead-lined drinking water pipes
• NJAW would make its “H2O Help To Others Program” for low-income customers available to South Orange
• The company would provide water service to municipal properties “without cost for a period of years”
• There would be a phased-in hydrant tariff that takes place “over a period of years”

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.

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.”

According to Mayor Sheena Collum, if the village keeps its system, rates are projected to increase 74 percent over the next five years.

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

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 village has hosted several public town hall events about the referendum and proposal. Watch video footage from the Sept. 11 meeting here, and the Sept. 25 meeting here.

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.

Here are some of the pros and cons, according to the task force:

Positives:

• “Village oversight dramatically simplified; no longer addressing water-related matters and issues.”
• “Village staff workload reduced.”
• “Some or all of water utility debt and potentially some village debt will be retired – reducing the tax burden.”
• “South Orange’s water service will be comparable to Maplewood, Irvington and West Orange which do not own their water utilities.”
• “Future village capital improvement project costs will be paid by all regional rate payers, not only village residents.”
• “Identified capital projects in the current plan may be accelerated.”

Negatives:

• “Village residents currently interface with NJAW as the village water utility’s O&M and billing contractor. The village water utility administrator is a resource to residents to assist in resolution of issues. After a sale, future interface on water issues would be like the current approach with PSE&G, Cablevision, etc. Village government no longer will have dedicated staff, but could advocate for customers.”
• “Depending upon a customer’s water use, annual water costs may increase … A residential customer annually using less than about 181 units would have higher annual water costs. This could be mitigated as part of the sale by an agreement.”
• “Village government would have to pay for its own water consumption.”
• “Coordination of street infrastructure work will require coordination with the new water system owner.”
• “Identified capital projects in the current plan may be delayed or cancelled.”
• “Water rates will include capital project recovery for projects beyond South Orange.”
• “There will be no village control of water rates, which will be governed by the NJBPU, in response to tariff applications of the system owner.”

SUPPORTERS SPEAK: ‘SELL THE WATER SYSTEM’

While some advocates may be urging the village to hold onto its water system, there's another angle to consider, NJAW's president recently 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," 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.

Several village officials have also stood up in support of the proposal, including Mayor Collum, who made a pitch for selling the system in the fall edition of the municipal newsletter.

“The conclusion is clear: New Jersey American Water is in a stronger position than we are to own and manage our water utility – offering better service, faster improvements and lower costs than the village can provide,” Collum wrote.

Here are three things to consider, she continued:

Liability, Not An Asset – “Most of our infrastructure has passed its useful life (over 100 years old) and will need $50 million in capital improvements over the next 10 years.”

South Orange Doesn’t Have Its Own Water Source – “We purchase our water from NJAW under a bulk service agreement. To be dear, the village has been buying its water for over 30 years. A water supply/reservoir and treatment plant would be an asset – we don't have one.”

Economies of Scale – “Our customer base is approximately 4,500, whereas NJAW's is 668,000. The cost of infrastructure upgrades is spread throughout all ratepayers, creating greater stability, particularly with a very volatile regulatory environment.

The mayor said that the sale is “fully supported” by the South Orange water administrator, village administrator, village engineer, chief financial officer, purchasing agent, village attorney and the Water Utility Task Force chair.

“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.

• See Related: Vote ‘Yes’ to Repair and Modernize the South Orange Water System (Op-Ed)

Councilmembers Olivia Lewis-Chang, Summer Jones and Jen Greenberg are also supporting the referendum and encouraging voters to cast a “yes” ballot.

The three council members issued a joint statement about the proposal:

“We’ve thoroughly examined our options, and it’s clear that this is the best path forward for our community. Approving the referendum will help us avoid steep rate increases while ensuring that our aging infrastructure, some of which is over 100 years old, gets the necessary updates and repairs it desperately needs. This is truly a win-win situation, especially considering that all lead and galvanized steel service lines will be replaced at no direct cost to residents. Moreover, the $19.7 million purchase price will allow us to pay off all water utility debt and reduce municipal debt, while New Jersey American Water commits to investing $50 million by 2035 to modernize our water system. This investment not only safeguards our community’s health and safety but also promotes long-term stability and transparency in our water rates.”

According to a website set up by advocates of the sale, councilman Bobby Brown is also endorsing a “yes” vote in the referendum.

Meanwhile, three members of the South Orange Water Utility Task Force have joined the “yes” movement: Douglas Newman, Steve Schnall and Cliff Pomerantz.

“Speaking from my experience as a village trustee for nine years, the South Orange government does many things well and we should focus on those,” Schnall said, noting that the list does not include the “challenging and complex issue of essential water infrastructure management.”

Newman, the chair of the task force, said his recommendation to sell comes down to “deciding the best way to operate and maintain our aging water system, make needed infrastructure repairs, modernize it, and fund all this without significant future rate increases.”

Pomerantz, a consulting engineer with 43 years of experience designing water and wastewater systems, said he also understands the complexities of managing them.

“After serving on the Water Task Force and evaluating the future of South Orange's water system, it became clear that challenges such as aging infrastructure, state mandates, and staffing issues present significant risks to the village,” Pomerantz said.

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CRITICS SPEAK: ‘DON’T SELL THE WATER SYSTEM’

Critics of the proposal have included nonprofit advocacy group Food & Water Watch, which recently released a list of “Three Reasons Why Water Privatization Is a Bad Deal for South Orange.”

Their arguments included:

Privatization Leads to Higher Costs and Higher Bills – “Water privatization is expensive, and water companies are allowed to pass those costs right onto their customers through higher bills. On average, private water companies charge 59% more than public systems, and private ownership is the single biggest factor associated with higher water bills. While NJ American’s proposal to South Orange includes two years of rate freezes, the company can’t actually keep that promise — the final decision rests with the Board of Public Utilities. And even if the Board allows the freeze, the bill will eventually come due. NJAW’s proposal explicitly includes a 9% hike from the third to fifth year after the sale, and rates could continue to rise after that.”

Private Companies Put Profit Over People – “Clean water and sanitation are human rights, and everyone should be able to afford access to these essential resources. But private companies like NJ American Water don’t have access or human rights top of mind. Their number one priority is profit. Besides rising bills, this can have a variety of negative consequences for a community. It can result in clashes with local policy and government, including on projects for economic development and sustainability. There is no incentive for private companies to cooperate with neighbors or local governments to protect drinking water resources and watersheds or ensure equity and sustainability of water and sewer services. Private companies may also cherry-pick which areas they provide service in or where they invest in projects to avoid serving low-income communities where they won’t make as much money. When profit is the priority, low-income residents can come last, as they are more likely to struggle to pay their water bills.”

Privatization Takes Away Local Control and Democracy – “Publicly owned utilities provide residents with democratic control over their water and sanitation. Handing them over to a private company limits public accountability and prevents residents from demanding changes to systems that don’t serve them.”

Instead of selling its system, South Orange could pursue federal and state grants and low or zero-interest loans to fund the replacement of lead pipes, Food & Water Watch suggested.

“In fact, some of these are only available to publicly owned water systems,” the group said. “The system can then pass the savings from these grants and loans to the community by lowering rates.”

Another possible option? Explore a new water supply partnership with the North Jersey District Water Supply Commission and shared services with neighbors, advocates said.

• Read More: South Orange Should Halt Plans to Sell the Water System (Op-Ed)

Food & Water Watch has questioned some of the calculations that South Orange officials have been using to make rate comparisons, which they alleged may “mask” the added costs for low-income households under private ownership:

“South Orange Village said that the average customer uses 9,000 gallons a month to calculate the bill differences between public and private ownership. This estimate appears to be the total usage in the village divided by the total number of customers. The average residential customer uses 6,500 gallons a month, based on data provided in information requests to the company. A typical – or median – household is expected to use even less, as larger uses tend to skew the average higher. Currently, households with lower water usage enjoy larger savings with public ownership, and low-income households tend to use less water. Under current rates, an average household using 6,500 gallons of water a month pays 29 percent less if they have service from South Orange Village than if they have service directly from New Jersey American Water. A household with a more typical indoor usage of 5,000 gallons a month pays 39 percent less for village water than corporate water.”

When the South Orange Village Council voted in favor of an ordinance that put the referendum on the ballot earlier this year, two council members voted against it: Bill Haskins and Karen Hartshorn Hilton.

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

“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.”

• See Related: Vote No On Privatization For The South Orange Water System (OP-ED)

Food & Water Watch recently pointed out that two other New Jersey towns will be holding referendums to potentially sell their water or sewer systems in the 2024 election: Gloucester Township (to New Jersey American Water) and Manalapan (to Veolia Water New Jersey).

• See Related: The Manalapan Water Sale: What You Need To Know
• See Related: Residents Blast Proposed Sale Of Gloucester Township's Sewer Utility
• See Related: Council President: Why Sewer System Sale Is Good For Gloucester Township

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