Posts Tagged ‘sell’

The State of NJ has found that Trenton Water Works carries a $12M surplus but that it employs 1/3 of the staff needed to properly run the utility.   The Jackson administration’s own proposed but never passed budget for 2018 estimates a $3.15M surplus that they gleefully carry forward into the municipal budget as revenue.

So, what gives?

If you look at the proposed but not approved budget, you also find that in 2017, the city budgeted $9.3M for staff but spent only $6.3M in salaries.  Additionally, they underspent $221K on social security because they didn’t have the people for whom they budgeted.

So really, the $3.1M surplus is all because the city didn’t spend what even it thought it should on TWW.  And of course, we know how that turned out:  Brown water, pink water, low pressure, boiled water etc.

To figure out the rea situation we need to dig deeper.

The State says we have 1/3 the employees we need.  Let’s take that at face value because we really don’t have a more reliable source for needed staffing levels at this point.

In 2017 we spent $6.3M on salaries, ~$1.7M in statuary benefits expenditures (SSA, Pension, unemployment) and $1M in sick pay and vacation.  That’s a total of $9M in staffing costs.

If we need three times the workforce then we’ll spend three times the staffing costs, or $27M.

For 2018 the city proposes to budget a total of $13.5M (salary, statutory benefits + vacation/sick pay).   Therefore, if we had proper staffing levels we would need to spend $13.5M more ($27M – $13.5M = $13.5M).

That $3.1M surplus quickly turns into a $10.4M deficit.

But wait there’s more!

The FY 2018 proposed budget lists 38 projects that need to be done to make the water utility safe.  They total in value up to $98.9M.  I have no doubt that these are needed but included in the budget only after the State began to take a serious interest.   Nonetheless, this $98.9M represents a large capital exposure.

The city has $16.5M saved up towards the $98.9M, so that leaves an exposure of $82.4M.  That’s a lot of money that we don’t have.   The projects will have to be paid for with debt.   I don’t know the city’s borrowing rate, but let’s assume its 8%. If you work out the math, that comes to a debt service (interest + principal) on that $82.4M of $9.6 over the next 15 years.   That’s another $9.6M added to our deficit!

So now it’s not a $10.4M deficit, it’s a $20M deficit.

TWW isn’t a money maker for the city of Trenton.   It’s getting ready to be a big money loser.  And guess what, that means your rates are going up, a lot. Our current revenue for TWW is only $54M.   If we need to spend another $20M so our revenue will have to increase 40%.   That’s punishing.

To say we should sell the thing is a complex proposition.

The proposal on the table in 2007 was to sell off the distribution system in the suburbs for $100M.   That could have retired a lot of debt.  We’d have lost some revenue but would still be selling water to the buyer.   That was one option.

We could sell the whole thing.  Perhaps we’d get some money out of it but at least we wouldn’t be exposed to the predicted yearly deficits AND importantly we wouldn’t be exposed to the risk of things going wrong (i.e. a Flint situation).

There are lots of options to reduce our exposure to losses, bad service, contaminated water, bad management, corrupt employees and all the other things that have plagued us via TWW over the years.   But the first thing Trentonians need to put behind them is the notion that Trenton Water Works is a money maker and an asset worth having.

Running TWW well is NOT strategic for the city of Trenton.

A well-run water utility won’t attract new homeowners, it won’t improve school performance and it won’t stop crime.   Those are the activities on which our government needs to focus.

There are smart advisors who can work out a good deal for Trenton, but first voters need to at least entertain the notion that Trenton Water Works isn’t the key to Trenton’s future success.