The Scotch Plains Mayor and Township Council voted 3-2 Wednesday night to use most of a $780,000 sewer-utility surplus to offset predicted rate hikes in 2012 and 2013, rather than to refund money to ratepayers this year. It also voted to allocate the remaining portion to pay for a sewer-inspection and cleaning vehicle, rather than to finance the purchase through bonds.
According to Chief Financial Officer Lori Majeski and Assistant Engineer Joseph Timko the surplus arose from an over-collection of sewer fees. When the township – separating it from the regular tax bill to ensure that Scotch Plains remained under the state-mandated 2-percent property tax cap – it added a 10-percent reserve, to ensure that delinquent payments from residents, businesses and nonprofits unaccustomed to the new charge would not jeopardize the township's ability to pay its own bills on time. In 2010, far more collections were paid on time, which left the township with the nearly $800,000 surplus that went unnoticed at a council meeting April 5.
The surplus – and how to use it – sparked what the mayor and council members called a "philosophical debate" that ultimately fell along party lines. Council Republicans – Mayor Nancy Malool, Deputy Mayor Mary DePaola and Councilman Bo Vastine – approved the plan. Democratic Councilmen Kevin Glover and Mickey Marcus opposed it.
Glover and Marcus argued for immediate refund of $500,000 to the ratepayers. Under the scenario they advocated, average homeowner sewer bills would have fallen from about $254 in 2010 to about $215 in 2011, but then increased to $261 in 2012, and $266 in 2013.
For high-volume users, such as restaurants, laundromats and schools, however, the dollar impact would have been more significant. According to projections prepared by the township's engineering office, a commercial business that uses about 1.4 million gallons of water per year would have seen its bill fall from about $13,000 in 2010 to $10,000 in 2011, rebound to its previous level in 2012, then rise by more than $4,000 in 2013.
"Plain and simple: We overtaxed you. We overcharged you." Glover said in arguing for his plan. "We have money we should not have. How dare we keep that money? It's your money." He proposed applying the remainder of the surplus to the 2012 sewer bills, and emphasized that an immediate refund of most of the surplus would be accompanied by a letter warning each ratepayer that rates would sharply increase from 2011 to 2012.
Malool, DePaola and Vastine, however, pointed to painful rate hikes predicted by the two sewer authorities that serve the township. The Rahway Valley Sewerage Authority, which mostly covers the south-side of Scotch Plains, has stated that its bill to the township will likely increase by about 16 percent in 2012 and by another 3 percent in 2013 – largely because the authority's own surplus has been depleted, Timko said. The Plainfield Area Regional Sewerage Authority, which mostly covers the north side of town, predicted that its bill will rise by about 8 percent in 2012 and another 8 percent in 2013. Neither authority would predict its rate for 2014. But according to Timko, "To say we're not going to have an increase in 2014 is naive."
The Republicans argued for using the surplus to offset and stabilize the projected rate increases, effectively refunding the money in roughly $200,000 increments in 2011, 2012 and 2013.
"People like to anticipate what they're going to pay – they don't like to have the spikes up and the lows," Malool said. "We're giving them back their $780,000, one way or another."
Vastine asserted that giving most of the money back immediately, rather than spacing it out over time, would have been "politically expedient," rather than "the prudent and responsible thing to do."
He also acknowledged the unusual change-of-position that the plan presented to the council's Republican and Democratic members, with Republicans endorsing a plan for the government to hold on to the money for longer, and Democrats calling for an immediate refund.
"I'm someone who believes that it's your money," Vastine said. "But I also know there's going to be a collateral effect when these businesses or nonprofits get hit in year two, three or four."
Vastine, Malool and DePaola also approved paying for the sewer-inspection and cleaning vehicle, also known as a "sewer jet truck", with money from the surplus, rather than issuing bonds to finance the purchase, as the township normally does with large purchases. Although bond rates are currently low, Majeski, the township's CFO, argued that because the township has the cash, it should simply pay for the truck in full, rather than having to pay for the truck plus interest. Glover and Marcus, by contrast, argued that the township should have bonded for the truck as it had originally planned.
Township Manager Christopher Marion estimated that the vehicle will cost about $125,000.
The need for a new truck was undisputed. The township's current sewer jet truck is about 12 years old, Malool said, and "we're not sure whether the truck will make it through the year."