Flush with Cash: Utilities eating up taxpayer dollars

Public water and sewerage authorities a haven for political patronage, nepotism and even crime.

By JASON METHOD
Gannett New Jersey

Editor's note: Despite huge surpluses, many public water and sewer utilities continue to raise rates to support high spending levels. In the first of a two-part series, Gannett New Jersey examines the problems of political patronage, nepotism, no-bid contracts, pension boosting and even criminal activities.

 At a time when the state struggles with multibillion-dollar shortfalls and residents face ever-rising property taxes, one part of government remains flush with more than a half-billion dollars in cash: New Jersey's 126 public water and sewerage authorities.

The authorities have amassed $565 million in reserves, according to financial records collected by the state Department of Community Affairs. That sum is enough to run every state-level courthouse for a year.

Despite the huge surpluses, almost all of the agencies have increased spending faster than the inflation rate from 2002 through 2004, a Gannett New Jersey investigation has found.

Most modern municipal and county utilities were created in the 1950s and 1960s as independent government units to ensure that basic necessities of life, such as clean water and effective sanitation, did not fall prey to the whims of local politicians or shoddy planning.

But over the years, many of these little-known agencies have become havens for political patronage, nepotism, no-bid contracts, pension boosting and even criminal activities.

The authorities also offer some of the highest salaries in the state. The Passaic Valley Sewerage Authority in Newark pays its executive director $218,244 a year -- about $43,000 more than New Jersey's governor earns.

Like those Russian nesting dolls in which a smaller figurine pops out from inside a larger doll, some authorities have been created for the sole purpose of treating wastewater from other authorities.

Each authority is run by a board of political appointees who often are offered full health benefits, enrollment in the state pension system and thousands of dollars in stipends for the part-time work.

Moreover, the massive surpluses held by the agencies -- some equal to four times their annual operating budget -- may not be needed, some experts say. The state provides billions of dollars in cut-rate loans for almost all authorities seeking to replace aging pipes and sewer treatment plants.

"I think they should all be disbanded," said Daniel Schleifer, 58, of Brick, who has faced four consecutive years of increases in water and sewer rates.

"Obviously, they don't know how to manage the funds," Schleifer added. "It's like that Family Circus cartoon: 'Not Me, I Don't Know and Maybe Who?' Each one has an excuse. Somebody's got to take the blame."

Authority and trade group officials say nepotism and ethical lapses within the utilities are no different than what is found at other levels of government. All authorities shouldn't be judged for the misconduct of a few, they say.

Moreover, the reserves are needed to offset the continued need to keep the treatment plants and pipes working so customers have water to drink and toilets to flush, utilities officials say.

Recent issues at municipal utility authorities include:

Criminal acts. Two municipal utilities authority officials in Marlboro and Ocean townships in Monmouth County pleaded guilty this year to extorting or accepting bribes. Richard Vuola, the former head of the Marlboro Township MUA, was charged with shaking down a building contractor for $15,000 in exchange for water and sewer permits.

High-end salaries. Top officials rank among the highest paid in the state. At Passaic Valley, 46 officials make more than $100,000 a year, including three who are paid more than the acting governor. More than 120 of an estimated 4,400 public utilities employees statewide top $100,000 a year in pay. In Monmouth and Ocean counties, 12 authority workers exceed $100,000 a year.

Free sewage service. Daniel F. Newman Sr., former mayor and Brick Township MUA chairman, did not pay $10,878 in sewer bills for his plumbing company for 20 years, officials revealed in March. The authority is now trying to fire the executive director who uncovered the matter. Newman, who was cleared of any criminal wrongdoing by an Ocean County grand jury, later paid the authority for sewer usage.

Ethical questions. A hearing officer said in May that the Township Committee should censure the four Neptune Township Sewerage Authority commissioners because they bypassed normal practices to make the husband of township Committeewoman Patricia Monroe the MUA's executive director. A computer in that same authority was found loaded with pornographic images downloaded from the Internet.

Nepotism. The hiring of relatives appears throughout the industry. A review of local authorities' employee lists shows there are 480 people sharing the same last names who work at the same authorities, or about 11 percent of the authorities' statewide work force. Common last names such as Smith and Gonzalez were excluded from the count by Gannett New Jersey.

Questionable spending. The Western Monmouth MUA blew through most of its $12 million surplus in two years, in part for a new $2.5 million administration building, a cost that has angered the Marlboro Township Committee. This year, user rates increased 30 percent. The MUA director said the new facility was needed to improve security at the plant.

The Monmouth County Bayshore Outfall Authority, which has a budget of $1.3 million, spent close to $200,000 on an early-retirement package last year for its executive director, Richard W. Ellison, who also is the mayor of Union Beach.

And in Brick, the MUA spent $13,000 for a plaque that memorialized the opening of a $34 million, 1-billion-gallon reservoir that few towns have tapped into. The plaque contains the engraved names of the MUA commissioners.

Raising questions

The examples of spending and misconduct raise questions about the effectiveness of local authorities.

Democratic gubernatorial candidate and U.S. Sen. Jon Corzine is calling for an elected state controller to review and audit authorities and commissions, calling these agencies New Jersey's "invisible government."

Authorities now operate without much scrutiny, Corzine has said.

"There's no transparency in this. No one's held accountable, except to the political process. (Authorities) should be accountable to ethical and legal standards. These are basic elements in financial disclosure for public companies."

Republican gubernatorial candidate Doug Forrester said an elected auditor general is needed to examine government agencies. He has promised to eliminate unnecessary authorities.

Marc Holzer, chairman of the Rutgers University Department of Public Administration in Newark, said the state should more closely monitor utility authorities.

"This is another way property owners are paying," Holzer said. "If we're really going to reduce property taxes, and reduce the burden, we have to look at these entities."

Dissenting opinion

 But the director of an association that represents local and regional utilities authorities disagreed.

Ellen Gulbinsky, executive director of the Association of Environmental Authorities in Hamilton, said there is no more patronage, nepotism or wasteful spending at MUAs than in other government entities.

If residents want to see such practices eliminated, they should become more involved in local government, she said.

"Sometimes when I see the results of elections, it seems people forget whose names kept showing up again and again with difficulties," Gulbinsky said. "It's citizens not paying attention to things and letting things go without comment."

In a statement, the state Department of Community Affairs, which oversees MUAs, said it follows the New Jersey tradition of "home rule," which allows local officials great latitude to conduct their affairs.

Utilities authorities are convenient places for political patronage.

Their plants lie hidden in industrial parks and off back roads as sewage drifts quietly through treatment fields. The waste is screened, separated and compacted through a highly automated system. Bacteria and gravity do much of the work for free.

Elected officials appoint authority board members for specific terms and therefore face less pressure from ratepayers. Even with modest fees, facilities can rake in extra cash, which can be used for salaries of officials and their relatives. Meanwhile, politically connected attorneys and engineers can be rewarded for their campaign contributions with contracts from the authorities.

As long as rates are stable, ratepayers typically don't notice the difference until a political grenade explodes.

Some municipalities found that they do not need an MUA at all.

Stafford Mayor Carl W. Block said his township absorbed its MUA after several pay increases awarded to former Executive Director Robert J. Sheppard in the late 1990s. The increases raised Sheppard's salary to $172,578, nearly double the $94,587 he was earning in 1994.

Boon to taxpayers

Block said abolishing the MUA in 2001 saved ratepayers at least $270,000 a year. Annual water and sewer fees were cut by $90 per household then. They were raised by $42 this year but remain below former MUA rates. An average four-person household is expected to pay $379 a year now.

Block said all towns should study whether they need a separate agency to run water and sewer systems. He thinks that for most municipalities, there's a 90 percent chance an MUA is not needed.

"It's easier for an elected official to keep an eye on everything if you have it under one roof," Block said.

Holzer said it makes sense for independent agencies to run water and sewer systems, but it's more efficient if those agencies are county or regional authorities providing the service to numerous towns.

Many of the authorities hold millions of dollars, and pay to borrow more from Wall Street, even though the state has a special trust fund that provides loans for less than half the cost.

Although the state requires daily testing of treated sewage water and reams of paperwork to satisfy environmental regulations, the state does not regulate sewer and water fees.

The state does not even collect information on how much the authorities charge customers.

The rates are not even contained in the annual budgets and audits submitted to the state for review, Gannett New Jersey found.

A cursory check on such rates shows they can vary greatly. Annual sewer fees can range from $55 in Lindenwold in Camden County to $240 a year in Middletown in Monmouth County and to $325 in West Berlin, Camden County.

Although state law requires utilities authorities to annually recalculate their fees to connect to their systems, no one ensures that the fees are as low as possible.

Corzine said he believes that because private water companies must receive state approval to raise rates, authorities should have to seek approval for rate increases as well.

Surplus money

 One-third of the authorities have multimillion-dollar surpluses that exceed their budget, which means they could stop billing customers for a year and remain solvent by using surplus funds.

Collectively, the local authorities have $565 million in reserves, an amount equal to half of their $1.1 billion 2004 expenditures. That's down from $737 million in reserves in 2002, according to financial records compiled by the Department of Community Affairs.

Officials at the authorities argue that much of this money is not simply cash but has been set aside for future construction projects, cash-flow needs, reserves to pay bonds or emergencies. The money is tied up in Treasury bonds and other safe investments that are not as easily converted to cash.

The Ocean County Utilities Authority, which serves all of Ocean County and five towns in Monmouth County, had a $62 million surplus for 2004, the largest surplus of all the authorities and equal to the authority's annual budget. That's $121 for every person in the county. Despite the huge surplus, the authority raised rates this year. Ocean County Utilities Authority Executive Director Richard Warren said his agency's surplus is indeed too high, but the authority does not plan a rate cut for member towns. Warren said $37 million of the surplus should be used to pay for replacing sewage pipes, pumping stations and treatment facilities that are up to 30 years old.

The authority plans $113 million in improvements in the next five years.

Still, Warren said, the authority should maintain a surplus of $25 million, about a third of its current surplus.

The authority raised rates by 4 percent this year. Warren expects a similar increase next year. The member towns can pass on the increased rates through their local MUAs, which are generally responsible for billing and maintenance of local piping.

If the authority used more of its surplus, then eventually rates would have to be raised to a "totally unpalatable double-digit (percentage) increase," Warren said.

Costing taxpayers

The Camden County Utilities Authority held a $39 million surplus, even though ratepayers there foot the bill for $81 million in annual payments for prior loans.

The Morris County Utilities Authority's $9 million surplus is three times its $2.9 million budget for 2004.

The $3.2 million surplus at the Jackson Township MUA is four times the agency's $780,000 budget. Though the MUA surplus is not directly related, that amount of money would have been enough to cover the Jackson Township Committee's $2.9 million cut to the school board's budget this year after voters defeated the tax levy. The opening of the new Jackson Liberty High School was delayed as a result of the budget cuts.

Most municipalities and school districts keep less than 10 percent of their budgets in surplus. The state does not tell local governments or authorities how much money to keep on hand.

Gulbinsky said surplus money is needed to pay for replacement of old systems, upgrades to meet new environmental standards, and emergencies.

"You see what's going on with the hurricane (Katrina)," Gulbinsky said. "Imagine if we had a catastrophe to our systems."

But Holzer, of Rutgers, said local citizens and state government need to more closely watch these agencies, which typically receive little attention.

After all, Holzer said, water and sewer rates are another tax on residents, even though all their revenue comes from utility bills.

"In some of those cases, the municipal utilities authorities are stockpiling too much cash," Holzer said. "It's worth looking at cozy relationships and agencies that are not in the public eye and are not open to scrutiny that local governments are. They're operating at a different basis. (The) salaries are higher, and transparency is much lower. They need more scrutiny."


Comments (1)

kim
Said this on 10-3-2009 At 07:36 am
i would like to see info on lower township mua

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