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Thursday, October 16, 2008

Stop this deal!

The reasons for supporting the proposed sale of outlying Trenton Water Works infrastructure to a private, foreign-owned company for $100 million just don’t add up, no matter what side you look at.

The folks reviewing the matter have apparently begun taking the same position lately, as evidenced by reports detailing vague feelings of doom on the part of city officials, who are apparently aware of what is going with the deal.

For the City of Trenton, this appears to be a cheap, one-time injection of revenue to shore up a $27 million budget gap caused by years of financial mismanagement. But regardless of the city’s budget problems, it bears remembering the words of wise financiers, who almost always say that selling off a long-term asset to fix a short-term problem is never a good idea.

Even worse than selling of a long-term asset to fix a short-term problem is selling that asset off for less than half of the original price.

That’s apparently what the city faces now, after independent experts told the state that the City of Trenton should only get a little over $50 million for the infrastructure instead of $100 million, because much of it was built by the townships and developers, rather than the city.

Constantly putting forth lame excuses for the deal is Trenton Mayor Douglas H. Palmer, who is always quick to point out that the city will continue to profit from the water infrastructure because the company, New Jersey American Water, has signed an agreement to continue buying water from the city for 20 years or so.

But after that, there is no guarantee that the city will receive any revenue from the outlying infrastructure, especially given the existence of numerous connections to other areas of New Jersey American Water infrastructure that could be used to pump in outside water in the future.

Apparently Mayor Palmer could care less about the city's long-term future.

For the suburban townships surrounding Trenton – which, with Trenton, make up “one family”, according to Mayor Palmer – this deal makes no sense whatsoever. They will be taken over by a company that has just made a $100 million expenditure, which, in addition to other costs, will eventually be recouped, right out of the pockets of ratepayers.

Also, the new company that will be providing them water under the deal has shareholders, pays dividends, and operates as a for-profit venture, unlike the Trenton Water Works.

City officials have said that suburban customers will get a better deal because New Jersey American Water will do a better job of maintaining the infrastructure and providing better service. But that's not so, according to people from other areas where American Water has taken over. They have said that the real trend is almost always a drop-off in service.

Arguments over better regulation are ridiculous as well.

While it is true that the City of Trenton’s rate hikes are not regulated by the state, such regulation is not really a safeguard against significant rate hikes, especially when the company requesting them can demonstrate that they recently spent more than $100 million.

Also, companies like American Water are known to repeatedly ask for exorbitant hikes, knowing the state will grant increases lower than what the company requests. But if a company makes enough of these requests, the end result is the same: higher water rates and poorer ratepayers.

Under the city’s control, rates are hiked by city ordinance. The state may seem like a better bulwarj against unnecessary rate increases, but in reality, if the city continually tried to hike water rates, there would be outcry, both immediately and probably later, at the city ballot boxes.

Also, Trenton citizens wary of exorbitant rate increases could take to the streets and defeat any ordinance effecting a rate increase through a petition drive, which would get the rate hike ordinance on the ballot. It is quite a stretch to imagine city residents voting to pass rate hikes on themselves.

In sum, this is a bad deal for Trenton, a really bad deal for the suburbs, and a good way of seriously damaging relations between the two. The only entity that benefits from such a deal is the Palmer administration, which will be able to plug budget holes for a year or two, until the mayor and his people are safely out of town.

Once again, Trenton will be left holding the bag.

1 comment:

Old Mill Hill said...

It's interesting that the very "golden goose" that Palmer relied upon to fund his budgetary excesses is now on the auction block.

For years, the administration took money from the water utility's surplus to plug holes in the city's leaky budget. At first they got away with it, then suburban business administrators wise to Palmer and Feigenbaum's fiscal trickery called them on it and they had to scale back the pillaging some.

Then there was something about rate equilization between city customers and suburban customers or Trenton would face further scrutiny by the BPU.

Now there is the proposed sell-off of the asset for questionable short-term financial game at potentially greater long-term loss.

Palmer is up the Assunpink without a paddle and no amount double-talk is going to prevent him from having to wade ashore, muddying his expensive suits and high-priced shoes in the process.