BAYONNE — The city’s water rate has increased by more than 9 percent this year, the second highest increase the city has had since former Mayor Mark Smith’s administration signed a contract with Suez and a private equity firm in 2012.
The 9.1 percent increase, which translates into a roughly $9.10 per month increase for a resident's average monthly water bill, marks a continued general increase in the city's water rate.
Bayonne’s rate has ballooned by more than 50 percent since the deal was brokered — based on the city’s $1.04 per 100 gallons rate in 2012 and compared to its current $1.57 rate.
In a press release addressing the rate increase Mayor Jimmy Davis said he opposed the deal at the time because it “promised big profits to two private companies at the expense of our residents.”
“To make matters worse,” Davis added, the city is on the hook for infrastructure repairs beyond $500,000 each year “on top of the profits that were already guaranteed.”
Davis said this year's rate increase is "the result of an extensive cold snap and many broken water mains, including four in one night" last year.
The funds Suez was contractually required to put up for repairs “were depleted by the end of June” last year, Davis added.
The December 2012 joint venture agreement, which was brokered between Suez and Kohlberg, Kravis, Roberts & Co., a Wall Street private equity firm, guarantees continued revenue over the contract’s 40-year lifespan.
The investment firm was guaranteed a rate of return of 11 percent annually, the city said.
The private equity firm paid $150 million to the city, and also committed infrastructure investment funds over the life of the contract.
Upon the deal’s signing, residents saw an initial water rate increase of 8.5 percent — the city’s first increase since 2006.
The Smith administration promised a four-year freeze, but that didn’t last very long.
In 2015, the city was hit with a 4 percent raise, and then a whopping 13.25 percent increase in 2016 -- followed by a 3.5 percent and 4.5 percent raise in 2017 and 2018, respectively.
The increases “are in accordance with the joint venture agreement with the city and have been used to cover the costs associated with necessary and substantial infrastructure improvements and increased expenses to provide safe and reliable water service to the residents of Bayonne,” said Ghilianie Soto, a communications manager with Suez.
Rate increases are tied to inflation and capital investments each year, she said, adding that the increases "have been in line with the national average (rate increase) of approximately 6 percent," according to a study by the American Water Works Association.
The annual rates are based off of a "revenue path," a predetermined schedule of how much the city has to pay in water bills. When the city meets the revenue requirement, rates are increased annually by roughly 4 percent. But when the city falls below the revenue path, rates have to be increased to make up the difference.
Any excess revenue, meanwhile, is supposed to be directed into a rate stabilization fund. No monies have ever been sent to this fund, Soto said.
The city said it is looking at ways to "spread out the financing of major repairs over a long period of time" to prevent any additional rate increases.
Opting out or renegotiating the contract, meanwhile, is not an option. Davis said buying out the agreement would cost well over $150 million.
"Simply stated, we cannot afford such an expenditure," he said. "The more practical solution is looking for better ways to spread out the cost of making major repairs to our water-sewer utility."
K.K.R. — which had a 90 percent stake in the December 2012 deal — began shopping its investment in 2016 and, in January 2018, sold the public-private partnership to Argo Infrastructure Partners for $110 million.
The sale netted the firm “a gross internal rate of return of 36 percent and a 2.8 times gross money on invested capital,” according to a report by Infrastructure Investor.
No changes were made to the provisions of the agreement as a result of the sale.
The city, meanwhile, used the majority of its $150 million injection at the time of the deal to resolve debts owed by the city’s Municipal Utilities Authority, which has since been dissolved.