The Voices of Union County NJ

[St. Paul]

Debate heats up over sewerage authority privatization proposal
Sunday, November 04, 2007
BY CARLY ROTHMAN AND JONATHAN CASIANO
Star-Ledger Staff

The Rahway Valley Sewerage Authority is in the midst of a $250 million facility upgrade, but after the work is done, the public authority may be turned over to private managers.

Last year, RVSA -- which treats sewage for 11 municipalities in Union and Middlesex counties -- commissioned a $50,000 engineering study to begin exploring private management agreements.

In October, the authority's commissioners voted to solicit proposals for another round of legal, engineering and financial research to further vet the idea.

Proponents of the studies say privatization can increase efficiency and lower rates for the authority's 300,000 residential and commercial customers. They point to recent private management deals, like Rahway's water system, as evidence of the advantages.

"We want to know if somebody's out there that could manage the facility and do a better job," said Commissioner Frank Mazzarella of Clark. "We owe (the public) due diligence, looking at alternate ways to streamline our operations."

Opponents, on the other hand, say those advantages are being oversold, and question the timing of the possible turnover. They argue the private firm will be handed a shining new facility still being paid off by the public, with no incentive to reinvest profits into plant maintenance.

"These guys are going to come in here with a brand new plant, do minimal or no maintenance, and equipment that should have lasted 20 to 30 years is going to have to get replaced in 10," said Anthony Gencarelli, RVSA's manager of regulatory compliance. "The ratepayer is going to end up getting hurt in the long run because they're going to end up paying more and getting less."

A licensed engineer with 30 years in the wastewater treatment industry, Gencarelli has become one of the most outspoken voices against privatization at the RVSA, speaking out at meetings and drumming up opposition in the authority's member municipalities.

Union leaders, meanwhile, worry the management firm will send experienced workers packing in order to maximize profits.

"In the beginning there's savings, of course. That's how they get in the door. But how long can you go without making a decent profit?" said Kenneth Goley, president of USW Local 4-149. "The bottom line isn't safety, the bottom line isn't service, the bottom line isn't workers. The bottom line is money."

The RVSA is not the first New Jersey sewerage authority to consider privatization. In the late 1990s, the Passaic Valley Sewerage Commission hired an engineering consultant to investigate bringing on a private firm to handle the plant's day-to-day operations.

But the authority's commissioners ultimately decided against going private, spokesman Rich Ambrosino said, because the commissioners worried the benefits of a decades-long, publicly funded renovation would be reflected in the private firm's profits instead of ratepayers' bills.

"We would be spending money to improve a plant that would help a private operator make more money," Ambrosino said.

A similar conclusion was reached at the Joint Meeting of Essex and Union Counties a decade ago, when it also conducted extensive research into privatization.

Joint Meeting Executive Director Samuel McGhee said privatization was "heavily discussed," but the commissioners concluded they would be ceding too much control to private managers.

"They felt that with privatization they would actually lose control of running the Joint Meeting and, therefore, there might be escalating costs that they would not have anticipated," said McGhee, who was not director at the time of the discussions. "They felt that probably in the long run, it would be cheaper to have the municipalities be in control."

Supporters at RVSA, however, contend that private management offers compelling benefits that must be considered.

Commissioner Peter Pelissier of Rahway said Rahway's water management contract with United Water set a fee schedule years in advance that covered the cost of labor, meaning that the city's annual payments would not increase because of rising costs of health benefits, pensions and salaries.

Furthermore, Pelissier said the firm's pre-set fee includes access to in-house resources such as engineers, information technology specialists and other experts -- resources the city contracted for separately in the past.

"It's the economics of scale," said Pelissier, who is also Rahway's business administrator.

As for plant maintenance, United Water spokesman Rich Henning said private firms can actually enhance maintenance by implementing computerized systems that focus on preventative measures.

"It's like when you change the oil on your car every 3,000 miles. With our centralized maintenance planning system, we do that for every part and every operation in the facility," Henning said.

Mazzarella and Pelissier added that provisions can be built into the management contract to protect current employees from layoffs and ensure that the commissioners retain the power to set rates.

"You could put anything in the contract," said Mazzarella, who is also a Clark councilman. "You could set the parameters."

Peter Gleick, director of the Pacific Institute, an Oakland, Calif.-based think tank, has studied water and wastewater privatization agreements across the country and said these types of contractual safeguards are essential to any private management contract.

Otherwise, he said, the public, and even the commissioners, can slowly lose their grip on the authority.

"There is often a fear that private companies will raise rates, take profits out of the community and fail to reinvest in the long-term maintenance of the facility, and I think that's a legitimate fear," Gleick said. "Whether it is publicly run or privately run, this is a monopoly ... and in any monopoly there has to be strong public oversight, monitoring, regulation and enforcement for whoever runs the system, or else you run the risk of abuse."

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