EGG HARBOR CITY — The city did not follow state law in arranging to sell its water and wastewater utility to New Jersey American Water for $21.8 million, according to a letter Tuesday from the Office of the State Comptroller.
The letter from acting Comptroller Kevin Walsh said the city did not use an independent financial adviser and did not send copies of requests for proposal and other documentation to the state for review prior to issuing them, as required under the state Water Infrastructure Protection Act.
Mayor Lisa Jiampetti, who is running for Atlantic County clerk in November, disagreed with the comptroller’s interpretation of the law, saying the city proceeded through the entire process in good faith.
“We have been open and transparent with our actions and invited the public to participate throughout the process,” the mayor said Tuesday. She added that several state entities reviewed and approved every step of the process. “This is the first WIPA transaction in the state, so the city was in constant communication and has been in lockstep with the guidance provided by these state agencies.”
Egg Harbor City is the first municipality to sell a public utility under the WIPA, which was enacted in 2015 and allows municipalities to sell their water supply systems without a public referendum if emergent conditions — such as high contaminant levels or the need for repairs — exist.
City Council voted to sell the utility in March. Officials and the state Department of Environmental Protection agreed earlier that the municipality did not have the minimum of $14 million needed to upgrade the aging system.
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But Walsh has raised concerns about the city choosing to use longtime municipal Engineer Ryan McGowan to both certify emergent conditions and to act as the financial adviser to report on the value of the water and wastewater system and the impact of the proposed sale on residents.
WIPA requires hiring an independent financial adviser “to inform the public of the short- and long-term impacts on water rates, along with the costs of addressing the emergent conditions,” Walsh said in the letter.
McGowan, of Remington & Vernick Engineers in Pleasantville, is not a city employee but has worked with the city under contract for more than a decade.
“OSC finds that allowing a municipal engineering firm to ‘wear both hats’ negates the independence expected under WIPA for the financial analysis,” Walsh said in the letter. “It also denies the governing body and the public at large the opportunity to review a report from an expert in financial matters who is detached from the proposed sale of important public infrastructure.”
The state comptroller does not consider a longtime contract worker to be independent, while the city argues he is independent because he is not officially an employee, the letter said.
But Walsh said it is unclear what can be done about it at this point if the city does not voluntarily address concerns “regarding the financial adviser’s independence, and the underlying procurement issue,” Walsh wrote.
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“No agency involved in WIPA reviews has been given explicit authority to ensure that the financial adviser is independent and, thus, that an objective, unbiased financial analysis has been conducted,” according to his letter.
Three agencies — the Department of Environmental Protection, the Board of Public Utilities and the Department of Community Affairs’ Division of Local Government Services — play a role in the WIPA process, in addition to the Comptroller’s Office. The sale is still under review by the state Board of Public Utilities and the Department of Community Affairs.
Legislators might need to amend the law to designate one of them the lead agency charged with making sure financial advisers are independent, Walsh said.
“The sale of our city’s water and wastewater systems to New Jersey American Water will provide over $21 million to help the city pay off existing debt while leaving additional money to assist in other areas of the city’s budget,” Jiampetti said in March. “Additionally, the company is committed to investing $14 million into much-needed system improvements.”
In 2014, the city built a new $7 million drinking water treatment plant, designed by Remington & Vernick.
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Councilman Karl Timbers voted against the sale, saying funds from the American Rescue Plan could be used for infrastructure and there was no longer the same need to sell.
The comptroller first reached out to Egg Harbor City about its concerns in early April, and an Aug. 24 response from the city was taken into consideration in writing the public letter dated Sept. 21, Walsh said.
The city advised the state it would not take any corrective action because the proposed buyer obtained two appraisals within 7% of the valuation performed by the City Engineer.
“Appraisals commissioned for the benefit of the Buyer, which has a clear self-interest and is not charged with protecting the interests of rate-payers, however, should not be substituted as independent financial reports for the benefit of EHC or the rate-payers,” Walsh said in the letter.
The Office of the State Comptroller is an independent agency tasked with examining all aspects of government expenditures, conducting audits and investigations of government agencies throughout New Jersey, reviewing government contracts, and working to detect and prevent fraud, waste and abuse in Medicaid.
REPORTER: Michelle Brunetti Post