Now that the Petitioners have won their court case, the voters may need to decide on whether to do the Water Deal. This is a complicated decision and presumably will be on the ballot this December. In the meantime, the city will have to pass along at least an $.80 / $100 tax hike. That’s assuming there’s not another tax hike on top of that to make up for money the State is taking away.
With the tax hike as currently proposed our tax rate will go from $4.69 / $100 with an effective rate of $2.784 / $100 to a rate of $5.49 / $100 and an effective rate of $3.26 / $100. On a $100,000 home tax would go from $2784 to $3260 or up $476.
We will move into 4th place in NJ for highest taxes and 1st place for towns over 25k residents.
That’s all very nice, but we as citizens still have some high finance to sort through.
1) First, a new administration could decide to abandon the sale all together. We may not have
2) If the issue does go to a referendum (and I think it should despite the new administration)
- The ONLY question you should have as Trentonians is: is it a fair price?
- Despite all the risks and loss of future revenue, there is a price at which we should sell.
- The question is, “Is $80M that price?”
- Astute financial analysts should presumably be deployed on both sides of the debate to convince the public as to the correct valuation
- Since the general public, doesn’t typically understand what a valuation is, both sides will resort to non-financial arguments, that will no doubt distort the issue (as they already have)
3) In reality, you would be voting one way or another because you either trust the people who negotiated the deal to have negotiated in good faith, or you don’t trust them
In the long history of this debate, I’ve not found a single person who would turn down the deal if it were priced at $1B. OK. What about $500M? $100M?
See how it’s really about valuation.
There are plenty of risks:
- Will the company actually buy water from us in 20 years?
- Will our neighbors be mad at us?
- Might our neighbors agree to pay us more money for water in the future, and we would have lost out on our opportunity to squeeze them?
- All future cash flows carry some risk and therefore need to be discounted and turned into a present value
All of these risks can be factored in to a proper valuation and hopefully they were. An intelligent question for the administration would have been, and may still be, could you show us your math for valuing these risks.
As for whether this is a stop-gap or not, that’s a different issue.
The current plan was to use 80% of the proceeds to pay down long term debt. When selling off a long term asset, it’s generally wise to pay off corresponding long term debt. We could argue about whether 80% or 100% should be applied to debt, but the effect will generally be to reduce Trenton’s future interest expense. This should offset the loss of net income from the water wholesale business.
I understand how this issue got to be emotional, but really it should have just been a business deal. That said, it’s a BIG business deal and the owners should have had a vote.