A4793

An Act concerning certain water and wastewater treatment and conveyance systems and amending P.L.2015, c.18.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 2 of P.L.2015, c.18 (C.58:30-2) is amended to read as follows:

2. The Legislature finds and declares that:

a. The maintenance and operation of water and wastewater treatment and conveyance systems is vital to ensuring the protection of water quality and clean drinking water in New Jersey;

b. There are public water and wastewater systems in the State that present serious risks to the integrity of drinking water and the environment because of issues such as aging infrastructure systems, the deterioration of the physical assets of the systems, or damage to infrastructure so severe that it is beyond [governmental] the system’s capacity to restore;

c. Under the appropriate circumstances, the transfer of these threatened water and wastewater assets to a capable private or public entity with the financial resources and expertise to improve management, operation, and continued maintenance of the assets could help ensure the protection of drinking water and the environment; and

d. It is in the public interest that public entities have the option to reform, transfer, lease, or sell water or wastewater assets if there exist emergent conditions that threaten drinking water or the environment.

(cf: P.L.2015, c.18, s.2)

2. Section 3 of P.L.2015, c.18 (C.58:30-3) is amended to read as follows:

3. As used in this act[,] :

"Board" means the Board of Public Utilities.

"Capable private or public entity" means any private or public water system owner who, at the time of submitting a proposal to long-term lease or purchase public water or wastewater assets, currently (1) owns a system serving no less than the number of residential and commercial accounts as the system which the entity is proposing to lease or purchase, and (2) is not a significant noncomplier, as defined pursuant to section 3 of P.L.1977, c.7 (C.58:10A-3), is not currently the subject of a formal enforcement action initiated by the New Jersey Department of Environmental Protection to address a material violation by the entity which has not been corrected over a reasonable period of time given the specific situation, or is not substantially out of compliance with an administrative consent order, settlement agreement, stipulation of settlement or judicial consent order entered into with the department.

"Department" means the Department of Environmental Protection.

"Director" means the Director of the Division of Local Government Services in the Department of Community Affairs.

"Governing body" means a "governing body" as defined in section 3 of the "New Jersey Wastewater Treatment Public-Private Contracting Act," P.L.1995, c.216 (C.58:27-19 through C.58:27-27).

"Licensed engineer" means a professional engineer licensed pursuant to P.L.1938, c.342 (C.45:8-27 et seq.).

"Long-term lease" means a lease of longer than 30 years under which the municipal owner seeks to transfer ownership of the system at the end of the lease term.

"Owner" means any municipality, except a municipality that is a city of the first class with a population of 270,000 or more according to the latest federal decennial census, that owns water or wastewater assets. Municipalities constituting a joint meeting, and the joint meeting itself shall not be considered an owner for the purposes of this definition.

“Reformation assessment” means an independent evaluation of a system that analyzes the present condition, performance, and administration of water or wastewater assets and identifies alternative pathways for reforming system ownership, governance, management, operations, maintenance, and finances for the purpose of enabling the system to: (1) correct emergent conditions, (2) promote durable financial, technical, and managerial capacity, (3) sustain long-term reliability, and (4) comply with applicable State and federal laws and regulations concerning the protection of public health, safety, and the environment.

"Registered apprenticeship program" means an apprenticeship program registered with and approved by the United States Department of Labor and which provides to each trainee combined classroom and on-the-job training under the direct and close supervision of a highly skilled worker in an occupation recognized as an apprenticeable trade, and which meets the program performance standards of enrollment and graduation under 29 C.F.R. s.29.6.

"System" means the plants, structures, and other real and personal property of an owner that is, or is to be, acquired, constructed, or operated for the purpose of processing water or wastewater, including sewage, for distribution or treatment.

"Water or wastewater assets" means any system along with any other related buildings, equipment, or other infrastructure.

(cf: P.L.2015, c.18, s.3.)

3. Section 4 of P.L.2015, c.18 (C.58:30-4) is amended to read as follows:

4. a. If an owner determines that emergent conditions exist, the owner may long-term lease or sell its water or wastewater assets to a capable private or public entity pursuant to the provisions of sections 5 through 9 of P.L.2015, c.18 (C.58:30-5 through C.58:30-9). An owner may so long-term lease or sell its water or wastewater assets without any referendum except as may be required pursuant to subsection g. of section 5 of P.L.2015, c.18 (C.58:30-5).

b. If the department determines that emergent conditions exist, the department may, subject to available appropriations, retain the services of independent professionals to undertake a reformation assessment of the affected system. A reformation assessment shall be conducted by a neutral professional services firm with water sector expertise and shall include: (1) a valuation that appraises existing system assets and liabilities, considering reasonably anticipated service obligations, regulatory requirements, and corresponding capital needs, and (2) a comparative analysis of alternative forms of system governance, which shall include, but may not be limited to, alternatives to the existing system ownership structure, organizational framework, operations and maintenance paradigm, asset management program, and fiscal strategy. In comparing alternative forms of system governance, a reformation assessment may evaluate the role of shared municipal services, system consolidation, sale, long-term lease, or the establishment of a joint meeting, municipal or regional utility authority, public-private partnership, or other entity as authorized by law. A reformation assessment shall not be limited to an evaluation of the potential sale or long-term lease of water or wastewater assets to a capable private or public entity.

(cf: P.L.2015, c.18, s.4)

4. Section 5 of P.L.2015, c.18 (C.58:30-5) is amended to read as follows:

5. a. [The] A determination that emergent conditions exist [shall] may be made by: (1) a system owner, by certification of the mayor, the mayor's designee of the municipality, and a licensed engineer; or (2) the department, through certification of the director of the Division of Water Supply.

b. Emergent conditions shall exist if at least one of the following conditions is met:

(1) The system is located in an area designated by the Department of Environmental Protection as an Area of Critical Water Supply Concern I or II, or any future designation or newly added area of critical water supply concern;

(2) The owner of the system is a significant noncomplier, as defined pursuant to section 3 of P.L.1977, c.7 (C.58:10A-3), has been the subject of a formal enforcement action initiated by the department, or is substantially out of compliance with an administrative consent order, settlement agreement, stipulation of settlement, or judicial consent order entered into with the department; or

(3) There is a present deficiency or violation of maximum contaminant levels established pursuant to the "Safe Drinking Water Act," P.L.1977, c.224 (C.58:12A-1 et seq.), concerning the availability or potability of water, or concerning the provision of water at adequate volume or pressure, or distribution or treatment of wastewater;

(4) There is a demonstrated lack of historical investment, repair, or sustainable maintenance as determined by the department, or material damage to the infrastructure of the system; or

(5) The system owner lacks the financial, technical, or managerial capacity to adequately address any of the foregoing on a sustainable basis or own and operate the system in a way that supports economic activity in the municipality on a sustainable basis

c. Should [the owner determine that] one or more emergent conditions contained in subsection b. of this section [exists] exist: (1) the department may authorize a reformation assessment and shall complete the assessment and a written report of the assessment’s findings no later than 12 months upon providing written notice to the owner. The owner shall cooperate with the department and any independent professional the department has contracted with to complete the reformation assessment in a timely manner by: (a) facilitating interviews of system personnel, (b) inspecting water or wastewater assets, (c) reviewing all records, books, documents, materials, data, and information systems, or (d) taking any other action as may be deemed necessary by the department. Within 10 days of the report’s completion, the department shall make the report available for public review on its Internet website and shall transmit copies of the report to the owner, the board, and the director. The department’s determination that emergent conditions exist pursuant to subsection b. of this section, the performance of a reformation assessment pursuant to this subsection, or the issuance of a reformation assessment report pursuant to this subsection, shall not constitute a final agency action of the department; and (2) as determined by the owner, who certifies that it is necessary to take steps to effectuate the sale or long-term lease of its water or wastewater assets to a capable private or public entity pursuant to this act to address [these] the emergent conditions and to operate and maintain the system, the owner shall through the utilization of applicable public procurement laws of the State of New Jersey retain the services of an independent financial advisor to review, analyze and report on the value of the system and the short and long term impacts to rate-payers of the cash-flow structure of the proposed transaction and to provide an estimate as to the financial requirements necessary to address the emergent conditions and to operate and maintain the system. Upon completion of the analysis and review, the independent financial advisor shall transmit its report to the owner. Within 10 days of the approval of the report by the owner, the owner shall transmit copies to the board, the director, and the department and shall make the report available for public review.

d. After the independent financial advisor has completed its analysis of the financial aspects of the proposed transaction and has presented its report to the owner, a public hearing on the owner’s proposed emergent condition certification shall be held. The owner shall provide notice of the public hearing no less than 30 days prior to the date of the hearing. The notice shall prominently state the findings upon which the owner’s certification of emergent conditions is based, a summary of the findings by the independent financial advisor and that the certification is in anticipation of a proposed long-term lease or sale of water or wastewater assets to a capable private or public entity. Notice of the public hearing shall be published on the official Internet website of the municipality and at least once in one or more newspapers circulating in the municipality. Notice of the public hearing shall be published on the official Internet website of the county and at least once in one or more newspapers circulating in the county. If an applicable official website does not exist, notice of the public hearing shall be published on the official Internet website of the Department of Community Affairs.

e. After the public hearing and after giving due consideration to the findings of the independent financial advisor, the governing body of the owner shall, by resolution adopted by at least two-thirds of its authorized membership, certify that one or more emergent conditions exist and that the owner intends to sell or long-term lease its water or wastewater assets to a capable private or public entity to address these emergent conditions and to operate and maintain the system. Within five days of the adoption of the resolution, the governing body of the owner shall transmit a true copy of the resolution, to the department, the board, and the director. Within 30 days of receipt of the resolution by the department, the department shall approve or reject the owner's emergent conditions certification as contained in the resolution.

f. Upon receipt of the department’s approval of the owner’s emergent conditions certification [by the Department of Environmental Protection], the owner shall publish notice of the approval if the owner chooses to proceed with the sale or long-term lease of its water or wastewater assets to a capable private or public entity. The notice shall prominently state that the certification is in anticipation of a long-term lease or sale of water or wastewater assets to a capable private or public entity. Notice of the approval shall be published on the official Internet website of the municipality and at least once in one or more newspapers circulating in the municipality, and shall prominently state that a petition may be filed within 45 days after the publication of such notice to require a referendum before a resolution authorizing the long-term lease or sale of water or wastewater assets may take effect. If an applicable official website does not exist, notice of the approval shall be published on the official Internet website of the Department of Community Affairs.

g. A petition may be filed with the municipal clerk, no later than 45 days after the notice of the approval of the owner’s emergent conditions certification is published, protesting the lease or sale of water or wastewater assets without a public referendum. If the petition is signed by a number of legal voters of the municipality equal to at least 15% of the total votes cast in the municipality at the last election at which members of the General Assembly were elected, a resolution to lease or sell water or wastewater assets shall not take effect unless the lease or sale of such assets is approved pursuant to R.S.40:62-4 and R.S.40:62-5. If a petition is not filed pursuant to this subsection, a resolution to lease or sell water or wastewater assets shall not be subject to a public referendum.

h. Within 120 days of the owner’s receipt of a reformation assessment report from the department, the owner shall propose a responsive reformation plan and hold a public hearing. The owner shall provide notice of the public hearing no less than 30 days prior to the date of the hearing. The notice shall prominently state the findings upon which the department’s certification of emergent conditions is based, a summary of the findings of the reformation assessment, and a summary of the owner’s proposed reformation plan. Notice of the public hearing shall be published on the official Internet website of the municipality and at least once in one or more newspapers circulating in the municipality. Notice of the public hearing shall be published on the official Internet website of the county and at least once in one or more newspapers circulating in the county. If an applicable official website does not exist, notice of the public hearing shall be published on the official Internet website of the Department of Community Affairs.

(cf: P.L.2015, c.18, s.5.)

5. Section 6 of P.L.2015, c.18 (C.58:30-6) is amended to read as follows:

6. a. A request for qualifications from a capable private or public entity wishing to be considered for the long-term lease or sale of the owner's system shall be advertised after the owner’s emergent conditions certification pursuant to subsection e. of section 5 of P.L.2015, c.18 (C.58:30-5), but no less than 30 days prior to the date on which responses to the request are due. The advertisement of the request for qualifications shall be published on the official Internet website of the municipality and at least once in one or more newspapers circulating in the municipality. An owner shall also publish the advertisement of the request for qualifications at least once in one or more newspapers with Statewide circulation. If an applicable official website does not exist, the advertisement of the request for qualifications shall be published on the official Internet website of the Department of Community Affairs.

b. After an owner’s emergent conditions certification is made pursuant to subsection e. of section 5 of P.L.2015, c.18 (C.58:30-5), the owner shall determine the qualified respondents. The owner shall issue a request for proposals to each qualified respondent no less than 14 days prior to the date established for submission of the proposals. The request for proposals shall include relevant technical submissions, documents, and criteria including but not limited to a description of the facilities and the debt related thereto and the evaluation criteria to be used in the selection of the designated respondent. The proposals shall include and shall be evaluated by, at a minimum, the following:

(1) the documented deficiencies of the owner's system upon which the owner’s emergent conditions certification is based and a description of the corrective measures to be undertaken by the respondent to address and correct the identified emergent conditions;

(2) a description of the financial, managerial, and technical capabilities of the respondent to operate and maintain the system in compliance with all applicable State and federal laws and regulations, as well as a description of all the respondent's outstanding and pending violations of the "Pollution Prevention Act," P.L.1991, c.235 (C.13:1D-35 et seq.); P.L.1942, c.308 (C.58:11-9.1 et seq.); "The Realty Improvement Sewerage and Facilities Act (1954)," P.L.1954, c.199 (C.58:11-23 et seq.); and the "Safe Drinking Water Act," P.L.1977, c.224 (C.58:12A-1 et seq.);

(3) an analysis of the relevant expenditures associated with such activities and the projected impact on customer rates;

(4) an analysis of any Internal Revenue Code or other tax code issues that may arise from the long-term lease or sale of a publicly funded water or wastewater asset, as well as any potential short-term or long-term costs arising there from;

(5) a long-term capital improvement or asset management plan; and

(6) any other pertinent information required of or deemed appropriate by the owner.

c. Upon a review of the proposals submitted by qualified respondents, the governing body of an owner shall, by resolution adopted by at least two-thirds of its authorized membership, designate one qualified respondent, whose proposal the governing body finds to be the most advantageous to the public, taking into consideration the evaluation criteria set forth in the request for proposals and as specified under subsection b. of this section. The resolution shall include a detailed summary of the governing body's findings that the proposal of the designated respondent is most advantageous to the public. The summary shall be published in accordance with the notification requirements of section 5 of P.L.2015, c.18 (C.58:30-5).

(cf: P.L.2015, c.18, s.6.)

6. This act shall take effect immediately.

STATEMENT

This bill would permit the Department of Environmental Protection (DEP) to authorize a reformation assessment of a water or wastewater treatment and conveyance system if the DEP determines that emergent conditions exist. A reformation assessment is defined by the bill as an independent evaluation of a system that analyzes the present condition, performance, and administration of water or wastewater assets and identifies alternative pathways for reforming system ownership, governance, management, operations, maintenance, and finances for the purpose of enabling the system to: (1) correct emergent conditions, (2) promote durable financial, technical, and managerial capacity, (3) sustain long-term reliability, and (4) comply with applicable State and federal laws and regulations concerning the protection of public health, safety, and the environment.

A reformation assessment would be conducted by a neutral professional services firm with qualifying water sector expertise and would include: (1) a valuation that appraises existing system assets and liabilities, considering reasonably anticipated service obligations, regulatory requirements, and corresponding capital needs, and (2) a comparative analysis of alternative forms of system governance, which would include, but may not be limited to, alternatives to the existing system ownership structure, organizational framework, operations and maintenance paradigm, asset management program, and fiscal strategy.

The DEP would be required to complete the assessment and a written report of the assessment’s findings no later than 12 months upon providing written notice to the owner of the water or wastewater treatment and conveyance system. The owner would be required to cooperate with the department and any independent professional the DEP has contracted with to complete the reformation assessment in a timely manner. Within 10 days of the report’s completion, the DEP would be required to make the report available for public review on its Internet website and is required to transmit copies of the report to the owner, the board, and the director.

Within 120 days of the owner’s receipt of a reformation assessment report from the DEP, the owner would be required to propose a responsive reformation plan and hold a public hearing. The owner would be required to provide notice of the public hearing no less than 30 days prior to the date of the hearing. The notice would prominently state the findings upon which the DEP’s certification of emergent conditions is based, a summary of the findings of the reformation assessment, and a summary of the owner’s proposed reformation plan.