Part 2 of 2
A 10-percent increase in water rates would help the city’s water utility ween itself off tax dollars in the near term and help pay off the debt over the next 20 years to fund upgrades at the nearly century-old water treatment plant on Westfield Avenue. The average Rahway homeowner likely would see their water bill go up by about $40 annually, from about $432 to $472 per year.

The City Council is expected to approve a $1.4-million bond ordinance next month during a special meeting on Aug. 28 that will get the ball rolling on engineering and design, in addition to some immediate repairs. Another ordinance (O-39-13) would increase water rates. ***CORRECTION***

At the council’s last meeting Aug. 12, Mark Tompeck of engineering firm Hatch, Mott, MacDonald outlined the operations and processes at the water treatment plant and the options before the governing body. He suggested the most cost-effective and appropriate option would be to upgrade the treatment plant.

Dieter Lerch of Lerch, Vinci and Higgins, the city’s auditing firm, detailed the costs and financing of the $16.65-million upgrade:
* Hard construction, $14 million ($12 million, plant upgrade, $2 million, interconnection);
* Construction engineering and inspection, $1.4 million;
* Engineering design and bidding, $900,000; and,
* Legal and financing costs, $300,000.

Half of the the hard costs ($8.15 million) could be financed through the New Jersey Environmental Infrastructure Trust on an interest-free basis, saving some $3 million over the life of the bond, Lerch said, while roughly $8.5 million would be financed at market rates, according to Lerch. Average annual debt service would be about $1 million on a 20-year financing plan. The city could apply for the state environmental trust financing in October, with financing beginning in 2014, and $1 million payments beginning in 2014, Lerch said.

The city’s water payment contract runs on a bell curve, with larger payments in the beginning of the contract (about $2 million to $2.5 million in the first few years), Lerch said. The benefit comes back to the city starting in 2015 when the payment drops significantly, making it an opportune time to finance the plant upgrades, he said. The Water Utility has existing debt of about $1 million for improvements from about 15 years ago.

A 10-percent increase in water rates would generate about $500,000 in revenue for the water utility, which would make it self-sustaining, not requiring additional funds from city taxpayers. The utility ran a deficit of about $500,000 in 2013, spending $6.1 million but collecting only $5.6 million, with the difference made up through city’s operating budget. For 2015, the utility is expected to need $6.4 million for operating purposes.

The City Council raised rates earlier this year by about 15 percent, after a recommendation last year by the administration to boost rates 5 percent annually for three years after another water utility deficit of $322,000. Instead, the council approved a 5-percent hike at the time for 2012. In 2010, the utility ran a $170,000 deficit.

The water contract was always designed to give the city “significant financial relief” if it needed help in other areas, Lerch said, with lower payments at the beginning and end and higher payments in the middle. The city has passed the midway point of its contract with United Water, maybe 12 or 13 years or so into the 20-year contract that leased the facility to the firm in about 2000. An increase that would take effect in 2015 would be coupled with a scheduled reduction in the payment to United Water of $1 million (from $4.2 million to $3.2 million). Lerch suggested the city’s payment could be substituted with the debt service on the new plan for upgrades.

The average Rahway homeowner currently pays about $432 per year (or $108 per quarter). A 10-percent increase would raise the average water rate to $472 per year (or $118 per quarter). An increase of $40 a year, Lerch said, would yield a lower water rate than the city’s neighbors in Woodbridge ($576 annually, $144 per quarter), and Clark and Linden ($644 annually, $166 per quarter).

Part 2 of 2