Important context missing from sewer piece

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I wish to address certain points raised in the June 5, 2014, article appearing in the Advertiser-News regarding the struggle some Vernon property owners are having paying their sewer fees. I am a commissioner of the VTMUA (Vernon Sewer Authority) and also one of its paying customers; and some know me as an ongoing critic of some of the VTMUA’s policies. I am writing this letter however strictly as a private citizen; therefore my comments are not made on behalf of or in any official capacity.

First I wish to commend the Ad News reporter for what was in large part a good piece of investigative journalism; regrettably much of what was reported is in fact accurate. It is true that some businesses and individuals in Vernon are struggling with their new sewer bills. However an important context was in my opinion lacking in this article. One of the primary purposes of the sewer acquisition of 2012 was to relieve the 13,500 Vernon taxpayers who do not use the sewers from actually paying for them via annual payments of as much as $1 million to SCMUA (Sussex County Municipal Utility Authority) using taxpayer funds, a practice that was in place for decades. Instead, this entire burden has now been shifted to the 1,750 entities that actually use the sewers. This transfer of costs from the whole town to only the sewer users is the primary reason why most sewer bills, including my own, went up so sharply and has to be viewed as only fair. I remain a critic however of some of these cost allocations to certain larger users which I believe remains unfair and of the EDU system used to allocate these costs which I also believe needs to be reformed.

It should also be noted that about 95 percent of all the expenses the VTMUA must pay for every year in cash ($2.0 million in 2014 alone) is imposed on it by third parties by contract over which it has virtually no control or negotiating ability. These include the annual SCMUA bill for flow processing, debt service, administrative costs, and pipeline maintenance. Much of these costs are legacy related; the SCMUA expense which is the largest ($1.2 million annually) is over 20 years old and is virtually non-negotiable. The VTMUA runs on a minimalist budget and makes absolutely no profit.

However the most important issue in this article I wish to address was published in the sub-article entitled “How we got there”. The financial side of this issue is complex and at times confusing. Therefore I feel compelled to point out several very serious errors this otherwise quite capable reporter made in describing the situation, undoubtedly due to a simple misunderstanding of the various transactions involved. According to the article, Vernon Township currently owes about $33.0 million in sewer related debt. This number is very substantially and seriously inaccurate. Vernon Township itself is currently the direct obligor for only about $6.7 million in sewer related debt of which only $4.7 million is currently actually being borrowed. This debt is in the form of BANS (bond anticipation notes) with one year maturities and a typical coupon below 1.0 per cent per annum. Almost all this debt was assumed when the sewer acquisition took place in June 2012. All debt payments have since been billed to the sewer users, not the taxpayers.

More importantly the $27.0 million in debt mentioned in this article within the $33.0 million figure (the correct number is actually $32.0 million) is not debt the Township is the actual obligor for but debt SCMUA owes its bond investors. The township pays down this debt, which has a zero coupon in modest annual increments over a 25+ year period in what is essentially a semi-perpetual lease. It is therefore not carried on the township balance sheet as debt but more of an ongoing contractual obligation. Total township debt including all other general obligations (excluding separate Board of Education debt) and including the above mentioned $4.7 million in sewer debt currently totals only about $29.0 million which total has come down by about 10 pecent over the past two years.

In fact Vernon enjoys a strong Aa3/A-2 Long/Short term counterparty rating from Moody’s; a quite enviable rating for a small town and slightly higher than the State of NJ’s S&P rating of A-1. If the town had an additional $33.0 million in sewer debt (which it does not) this rating would sink substantially as the town would exceed its debt limit; which is why I felt compelled to write this letter. There are currently several initiatives underway intended to relieve the burden rate payers are experiencing some of which may happen this year. Undoing decisions from the past is never easy and takes time, but hind sight vision is always 20/20.

Roy Tanfield
Vernon Township

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