South Orange Should Halt Plans to Sell the Water System

The South Orange Mayor and Council are currently pursuing a sale of the Village’s water utility system to NJ American Water for $19.6 million. They are set to hold a vote on Monday, July 29 to decide if they should move ahead with the sale through a referendum on the November ballot.

This is the wrong choice for South Orange. Privatization is a false solution for aging infrastructure and budget shortfalls. It often leaves communities with higher water bills, worse customer service, local job losses, and little control to fix these problems.

A sale to a for-profit company will increase the long-term costs borne by households and local businesses. Though NJ American Water is promising short-term rate stabilization, these can be rejected by the state’s Board of Public Utilities. Under NJ American Water, residents can expect to see a major hike from current costs. Right now the average South Orange homeowner pays about $720 annually in water bills. NJ American Water charges about $850 for the same amount of water. The 16% rate hike they are seeking would bring that amount to $1,000 annually. If the company’s rates are approved, it will charge 36% higher rates than what South Orange currently charges.

There are better options available. For example, South Orange can keep the system public and run the water utility in-house. The mayor has said that even if they pursue that option, they would still need to raise rates to pay for infrastructure upgrades. This isn't necessarily true. Yes, money needs to be spent to upgrade the water utility to replace lead service lines and make other critical updates. But there are some key differences between a publicly owned and operated system and a private one that will impact costs to residents.

Both the Village of South Orange and NJ American Water can seek federal and state grants for capital improvement projects, as well as public borrowing on the municipal bond market. These loans and grants are available to help municipalities upgrade water utilities to replace lead service lines and ensure PFAS are removed below the .04% state mandate. If South Orange ran the water utility, these federal subsidies would be directly reflected in the rates that the community pays for water. NJ American Water, on the other hand, charges uniform water rates statewide, so any grant or loan received for upgrades in South Orange would not lower costs for South Orange residents.

Most importantly, with a privatized system ratepayers are not just paying for their own municipality’s system; you are also paying for the sale price of the system itself, along with and the cost of all the company’s other acquisitions. And you are responsible for the company’s profits; with privatization, a company is authorized to earn a rate of return on its investment of around 10 percent, plus passing on the cost of all property and income taxes in the form of higher rates. NJ American Water is a for-profit company. Profits - not affordability - will always be its number 1 motive.

South Orange should prioritize its residents and keep the system in house. South Orange could manage the water utility with a full-time water administrator and support staff. Or it can explore a shared service agreement with other towns. Much like South Orange participates in the Sustainable Essex Alliance for community electricity aggregation, South Orange could join forces with another municipality for water utility services.

Publicly owned water systems provide residents with democratic control of their most essential resource while allowing ratepayers to benefit from the significant federal and state funding available to address any infrastructure needs. The mayor and council completed a study on alternatives to selling the water system but have yet to publicly disclose the findings. They should pump the brakes by canceling the planned vote to approve the sale at the Village Council meeting. Barring that, voters will ultimately decide the future of the system via a referendum in November.

Sam DiFalco is an organizer with the advocacy group Food & Water Watch.