"This is a complicated process that we've been investigating for almost two years," said Anthony Iacono, who serves as both a commissioner on the SMUA as well as the town administrator.
Under the proposal, the authority could take its accumulated net assets, lease them to Wall Street firms for investment purposes, and receive a significant amount of money back as a result.
In leasing assets, investors give money to a business or public entity like the SMUA. Then they get to collect the fees that the SMUA would normally collect from those who use the entity's services. Investors are gambling that the fees will exceed the amount they agreed to pay in the initial contract. Leasing differs from outright purchase of the facility in that the SMUA would continue to run operations. The SMUA is anticipating a significant spike in hook-up fees over the next several years, which would make a leasing package very attractive to potential investors.
"We're looking to get between $3 million and $6 million," Iacono said. "Anything less than $3 million, and this wouldn't be worth for us to do."
The SMUA agreed the first phase of a three-phase process, which would assess the SMUA's worth to see how much it could lease.
"This is a kind of fact-finding mission," Iacono said. "We look at our debt statement, debt, debt history and history of payments. We also look at what are debts are compared with our total assets, subtract the debts from our assets and come up with a net asset number."
Iacono said phase one would not cost more than $50,000, and would give the SMUA enough information as to whether or not it would be advantageous to push ahead with the project.
"If we don't think we'll get at least $3 million, we won't continue," Iacono said. "Authorities at Perth Amboy and Edison found that they wouldn't make enough so they stopped."
Phase two, which Iacono said would involve a significant investment, would have representatives from the town shopping around on Wall Street for prospective investors.
"We would be taking this to the biggest firms," Iacono said.
Phase three would be the sale itself, which would involve additional costs - much in the same manner as closing on a house.
The move, however, would differ from privatization, and issue that has come up several times over the last few years.
"We would not be giving up control of our facilities," Iacono said.
Privatization would have sold the facilities to a for-profit sewerage company, taking the operations out of the hands of town employees. By selling the facility, the town would have also been rid of the SMUA's $40 million debt. It would have also resulted in a change in the way residents are billed. Currently, sewerage fees are included in the tax bill so that taxpayers can deduct their sewerage bill from their income taxes.
"Nothing changes in that regard," Iacono said. "People will pay their bills as they always have. But the town may get extra money over the 40 or 50 year life of the lease to help keep down taxes."
Critics say millions can be lost
The project, however, is not without critics.
John Conners, an alternate member of the SMUA, said he is concerned about the timing of the sale of assets, claiming that the Town Council should be more deeply involved.
"We don't need to do this right now. We just recovered from a scandal, a lawsuit and a refinancing," Conners said. "And we don't know enough about the process to move ahead like this."
Conners said Edison and Perth Amboy had significant enough issues with the process to drop out of the sale.
"I would have to know more about it and would like to get some direction from the Town Council since they are the ones who fund our authority," he said. "What we are talking about here is essentially another refinancing."
Thomas Troyer, who was partly responsible for uncovering the SMUA bid-rigging scandal in the late 1980s, said he did not like some of the people involved in the proposed program. He said Jay Booth, whom the SMUA hired to oversee the program, was also involved in the privatization Meadowview hospital - which recently declared bankruptcy. Booth is also deeply involved in a variety of county projects, something that disturbs Troyer.
"The Board of Education [of which Troyer is a member] just voted against another county person for our insurance, so here we are having the SMUA hiring someone else from the county," Troyer said. "I don't feel comfortable bringing in so many people from the county."
The big issue is that SMUA may be trading away future hookup fees, Troyer said.
"If we sell our assets, it is the investor that gets that money, not the SMUA," Troyer said. "We may be trading away many millions of dollars in the long run."
Troyer said numerous hotels, the new expo center and Allied Junction will bring the town a much larger amount of money than this proposal.
"I want to know, why we are doing this?" he said. "We were told for years that once the lawsuits in the SMUA were settled, everything would run smoothly. Now we're doing this and it bothers me."
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