Office of the State Comptroller issues public letter on Egg Harbor City’s proposed sale of its municipal water and wastewater system

Egg Harbor City is the first municipality to sell its water systems under the Water Infrastructure Protection Act, which requires hiring an independent financial advisor

– Today, the Office of the State Comptroller (OSC) issued a public letter to Egg Harbor City raising concerns about the independence of the financial advisor chosen by the City to report on the value of the water and wastewater system and the impact of the proposed sale on residents.

Egg Harbor City is the first municipality to use the New Jersey Water Infrastructure Protection Act (WIPA). WIPA 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. WIPA requires municipalities to hire an independent financial advisor to inform the public of the short- and long-term impacts on water rates, along with the costs of addressing the emergent conditions.

In April 2021, OSC became aware of an agreement between Egg Harbor City and a buyer to purchase its municipal water and wastewater system for $21.8 million. Although public entities in New Jersey are required to submit all contracts above $12.5 million to OSC before issuing requests for qualifications and proposals, Egg Harbor City did not comply with this requirement. 

After requesting and reviewing documentation about the agreement, OSC found that Egg Harbor City hired its municipal engineer to act as an independent financial advisor, even though that engineer had also certified the existence of emergent conditions in the systems on behalf of Egg Harbor City.  

OSC finds that allowing a municipal engineering firm to “wear both hats” negates the independence expected under WIPA for the financial analysis. 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.

A different firm – one that did not play a role in assessing the physical conditions of the systems – should have been hired to review the financial impact on residents of the proposed sale, as compared to retaining and upgrading the systems. OSC’s findings indicate this is a reasonable approach to meeting the independence requirement of a financial advisor under WIPA.

OSC’s letter notes that no single state agency is tasked with ensuring the integrity of a proposed sale from beginning to end. Due to the permanence of a sale of municipal water systems and the potential impact on residents, OSC believes that a review of the process for a WIPA sale at the State level may be appropriate.

The Office of the State Comptroller (OSC) is an independent State agency that works to make government in New Jersey more efficient, transparent and accountable. OSC is tasked with examining all aspects of government expenditures, conducts audits and investigations of government agencies throughout New Jersey, reviews government contracts, and works to detect and prevent fraud, waste and abuse in Medicaid.

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