Llewellyn Jones comments on Sewer Utility

A few weeks ago I wrote a letter to the editor about my opponent's not having kept his promise to undo the sewer utility.

Read it first if you haven't already, as it sets the backdrop for this explanation of the sewer utility. Then this blog entry is for the purpose of giving the full history and background on the issue for those who like all the details.

A Brief History and Explanation of SP Sewer Utility

The issue of the Scotch Plains Sewer Utility has been a political hot-potato in Scotch Plains for several years now. To fully understand the issue, it is necessary to go back to the beginning and explain the history.

Several years ago, the Rahway Valley Sewer Authority (RVSA), was mandated by the state to upgrade its physical plant.  (The RVSA serves part of Scotch Plains, while the Plainfield Area Regional Sewer Authority, PARSA, serves the remainder). RVSA services 11 different municipalities.

Before the mandated upgrade, the annual bill from RVSA to the township of Scotch Plains was approximately $1.7mm per year.  RVSA issued bonds to raise money to pay for the upgrade, and now must pay off those bonds. As a result, the RVSA had to increase its bill to all 11 municipalities it serves. For Scotch Plains, the annual bill jumped from approximately $1.7mm to $2.9mm. That was a 1 year increase of $1.2 million. For a town with a municipal tax levy of approximately $16mm, that works out to a 7.5% tax hike, before any other cost increases. At the same time, there was a cap on how much the council was allowed to raise taxes (today it’s a 2% cap, back then I believe it was a 2.5% cap).

Scotch Plains was (and still is every year) obligated to pay the bill.  The council was left with 3 options then:

1) Cut approximately $1.2 million from the town budget to stay under the cap and keep the sewer bill in the property tax levy. This would have required steep service cuts to the town, including substantial layoffs to the police force and public works department.

2) Have an approximately 10% tax hike by keeping the sewer bill in the property tax levy. This would require approval from voters in a referendum. If the voters voted down a 10% tax hike – a likely scenario – then the council would have found itself much further into the year and still needing to come up with $1.2 million in service cuts to stay under the cap, resulting in even deeper cuts than option 1.

3) Take the sewer bill out of the property tax levy and make it into a stand-alone utility.

The council chose option #3, in a bipartisan vote, to create the sewer utility (those voting for it were Mayor Nancy Malool, Councilman Jeff Strauss and Councilman Dominick Bratti). That was no doubt a tough vote to take, but it was the right decision.

The current setup of the utility leaves some things to be desired. It would be better if it could be billed in conjunction with the property tax, rather than at 2 seemingly random times during the year. It does mean that some people lose the ability to deduct it on their income tax return. However, that is largely offset because more entities now pay into the utility than did before, and some big users also pay a larger amount commensurate with their larger usage. For example, the Union County Vo-tech schools now get billed, whereas previously they got a free-ride from Scotch Plains property tax payers.

After the utility was created, local Democrats Kevin Glover, Colleen Gialanella and their Chairman Lou Beckerman, ran a campaign that called the utility’s creation a gimmick to get around the property tax cap and promised to undo the sewer utility and put it back in the tax levy.

This year, they hired a consultant to study doing just that. That consultant’s report is linked to above, and says that you can’t just put it back in the budget. Doing so would still require a tax increase exceeding the property tax caps, and therefore requiring a voter referendum.

Mayor Glover and Lou Beckerman both like to say that Chris Christie called this a gimmick, and that the bi-partisan vote to create the utility was done as a way to sneak through a big tax hike.

The truth is that they are taking the Governor out of context. He made that comment not about Scotch Plains, but about the topic in general when towns did it get around the cap when there was no such increase in the bill from the Sewer Authority, unlike the $1.2 million increase that was being passed to Scotch Plains from the RVSA.

Further, it was the case that the municipal portion of the Scotch Plains tax rate did in fact go downthe year the sewer utility was created. But very few people noticed it, because the property tax bill is made up of taxes for 3 items ( municipal,  board of education, and union county), and the other components – county and BOE – went up by more than the municipal amount went down, so people still saw their property taxes going up.

Another item of contention about the sewer utility was the amount of money in the utility’s accounts. The first year, because the utility was new and it was unknown how many people would pay in a timely fashion, the rate imposed was high, to be certain enough money would be collected. For the most part, people paid and the collection process worked, resulting in a excess money sitting in the utility. The appropriate thing to do with that money, in my opinion, would be to return it to those who paid into it, by charging a lower rate in subsequent years. However, Mayor Glover and now Lou Beckerman this year instead used that money, taking it out of the utility’s accounts, to pay for general township operating costs.

Most of the payers of the sewer bill are also property tax payers, so to a large degree it’s fair to say it is a bit of a left pocket/right pocket thing. But to some, like many of the non-profit’s in town who do pay a sewer utility bill, it serves as a transfer from the non-profits back to the residents of the town. A bit unfair in my opinion. But too tempting to resist for my opponent in the name of coming up with a low headline number for the tax rate increase this year.

Finally, the consultant’s report concludes with 2 other interesting and noteworthy observations. First, so much money was taken from the utility’s accounts to pay for operating expenses that next year there will have to be a rate hike. And secondly – and incidentally more costly than the coming sewer rate hike – the study says that based upon the consultants review of the township’s finances and obligations, next year Scotch Plains taxpayers can expect to have a tax rate increase of $400k above the 2% cap. With an approximately $16mm tax levy, that implies an approximately 4.5% tax hike next year. So after having been under the 2% cap every year since Governor Christie instituted the 2% cap, Lou Beckerman and Mayor Glover by way of this year’s budget have set up Scotch Plains for a tax hike well above 2% for the first time.