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In re Petition for Referendum on City of Trenton Ordinance 09-02

December 17, 2009


On appeal from the Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-548-09.

The opinion of the court was delivered by: Carchman, P.J.A.D.



Argued October 14, 2009

Before Judges Carchman, Lihotz and Ashrafi.

This appeal requires us to consider: 1) whether the Optional Municipal Charter Law (the Faulkner Act), N.J.S.A. 40:69A-1 to -210, mandates a referendum when a portion of a city's water system is sold; and 2) whether N.J.S.A. 40:62-3 to -4 excepts this sale from the assertedly mandated referendum. Here, respondent City of Trenton (the City) proposed to sell a portion of its water system to intervenor New Jersey American Water Company, Inc. (NJAWC).*fn1 Petitioner, the Committee of Petitioners, a group of citizens in Trenton, opposes the sale and asserts that the ordinance enabling the sale must be placed on the ballot consistent with the public referendum provisions of N.J.S.A. 40:69A-185 (Section 185).

In response to petitioner's challenge, the City sought a declaratory judgment that the ordinance was not subject to a public referendum. Following a plenary hearing, Assignment Judge Feinberg, in the Law Division, granted the relief. Petitioner appealed.

We agree with the judge's finding that the sale was subject to the exception provisions of N.J.S.A. 40:62-3.1 (Section 3.1), involving a sale "serving less than 5% of the population of the municipality" and was not subject to a referendum under the Faulkner Act. We affirm.



Our consideration of the relevant statutes requires a brief review of the factual underpinnings of this dispute. The City, a Faulkner Act municipality, operates a water utility system, the Trenton Water Works (TWW). The City has identified two components of TWW: the Inside Water Utility System (IWUS), which serves the City, its residents and businesses; and the Outside Water Utility System (OWUS), which serves and delivers potable water exclusively to residents and businesses within the Townships of Ewing, Hamilton, Hopewell and Lawrence (the Townships). The water facilities located in IWUS are physically and hydraulically interconnected to the water facilities in OWUS. Physically, OWUS is located in the Townships, outside the City.

In 2000, the City retained Killam Associates to prepare a study (the Killam Report) to determine whether OWUS and IWUS could operate as separate entities. The City took no action following the completion of the report. In 2005, however, the City commissioned MWH, an engineering consulting firm, to prepare a comprehensive report (the MWH report) to update and supplement the Killam report. The MWH report provided the City with an assessment of the feasibility of dividing the Trenton water distribution system into two separate systems, proposed a plan to separate the systems and submitted an estimate of probable construction costs for separation.

Based on these findings, the City determined that separating OWUS and IWUS would promote public health and safety and would benefit both the City and the Townships. The City also determined that subject to the supervision and regulation of the New Jersey Board of Public Utilities (BPU), as required by Section 3.1, the best interests of the public would be served by selling OWUS to a private water utility.

On February 27, 2007, the City prepared and distributed a Request for Proposals (RFP) for the sale of the OWUS. After receiving responses to the RFP, the City determined that NJAWC submitted the most advantageous proposal. The offered purchase price was $100 million. The City negotiated a contract (the agreement) with NJAWC for the sale of OWUS, conditioned upon NJAWC purchasing water from the City on a long-term basis. The City Council, by ordinance adopted in December 2007, authorized the implementation of the transaction.

The City submitted the agreement to the BPU for review and approval. Since several parties affected by the terms of the agreement submitted petitions to intervene in the BPU proceedings, the BPU sent this matter to the Office of Administrative Law as a contested matter. Several meetings were held with regard to BPU's approval of the Agreement, including a July 23, 2008 public hearing, at which members of the public voiced their concerns. As a result, the City and NJAWC accepted some changes to the Agreement. The Administrative Law Judge reviewed the stipulation and Agreement, issued an initial decision accepting the settlement and referred the case back to the BPU for approval. On February 3, 2009, the City Council adopted Ordinance 09-02, which approved the final terms of the sale of OWUS to NJAWC with amendments made to the original agreement. Mayor Douglas Palmer approved the agreement on February 5, 2009.


Not all parties viewed the sale positively. On February 25, 2009, petitioner filed a petition demanding that Ordinance 09-02 be placed on a ballot for approval by voters pursuant to the Faulkner Act public referendum provisions, Section 185. The City responded by seeking a declaratory judgment that the Petition was null and void. NJAWC sought and was granted intervention.

The inquiry in the Law Division focused on whether Section 3.1 supersedes Section 185; whether OWUS served more than five percent of the City's population; and whether OWUS and IWUS constitute a single system or two separate systems.

After the initial filings, without taking testimony,*fn2 the judge concluded:

In this particular case, the petitioner[] challenge[s][] the sale to the New Jersey Water Company, they allege that the system is one and they allege that a sale requires that it go before the voters. Now when you look at 40:62-3.1, it's really quite clear and is really not subject to more than one interpretation. It permits a municipality to sell its water and to do that without submitting it to the voters, if the sale involves services or water that does not serve - that serves less than 5 percent of the population in the City of Trenton. So, the issue is will the City of Trenton be impacted by the sale.

What I have before me from the Board of Public Utilities and prior cases, representations from the New Jersey Water Company, the City of Trenton, review of the public hearings is that sale of the water company only impacts residents from outlying municipalities. It will not affect people in the City of Trenton. It will affect Ewing, Hamilton, Lawrence and Hopewell. The fact that they share [pipes] is not dispositive as indicated by counsel. That is not unusual. The water comes in and ultimately the water is distributed.

The certification of Mr. Guhl who used to be the municipal manager in the 90s, is not an engineer and was obviously involved in the budget process and has provided information about the impact of one system on the other, but it doesn't change the fact that the sale of OWUS will not affect the residents in the City of Trenton, they're just not serviced by that water company.


And so it's the Court's conclusion that this sale, although clearly under the Faulkner Act, an ordinance is subject to referendum, and we give voters the opportunity to voice their position at the polls, but when you have a specific statute and this is about as clear as you can get, that stands for the proposition that if you meet the requirements in 40:62-3.1, and 40:62-4 and 40:62-5, just does not apply and that's not incompatible with 40:69(a)-184, 85, or 86.

And so, it's the Court's conclusion that the petition should be declared void and that this matter may proceed whenever the BPU hearing is scheduled and that the sale assuming it is approved, would go through.

On April 3, 2009, during the pendency of the hearing in the Law Division, the BPU issued an order adopting the City's and NJAWC's stipulations. The BPU determined that N.J.S.A. 40:62- 3.1 guided the Board "in reviewing the proposed transaction from the perspective of the seller." The BPU further determined, among other things, that the proposed sale was unlikely to have any negative impact on the provision of safe and proper service, the sale would not adversely affect competition and customers in OWUS would receive a rate reduction.

Petitioner moved for reconsideration. Both petitioner and respondents served expert reports. Petitioner's expert, Frederick Yoerg, P.E., filed a certification opining that IWUS and OWUS were part of a "single, integrated water system" and that fifty-eight percent of the population would be affected by this sale.*fn3

NJAWC served its expert report (the Tambini Report). The Tambini Report concluded:

a) The TWW is currently comprised of IWUS and OWUS;

b) OWUS serves less than 5% of the population of the City;

c) The assets and facilities in IWUS provide water utility service for the customers in IWUS and to customers in OWUS;

d) The assets and facilities in OWUS do not provide water utility services for customers in IWUS. The assets and facilities in OWUS only provide water utility service to customers in OWUS;

e) Water stored in storage tanks in OWUS does not flow "back" to serve IWUS customers, including during periods of seasonal and daily peak demands and during fire flow demand conditions. IWUS system does not "float" off of OWUS tanks. OWUS tank water levels fluctuate and OWUS tanks flow to meet demands within OWUS and they do not "float" and flow to meet demands in IWUS;

f) Water utility service water demands, including fire flow and storage needs within IWUS are met only from the City's water treatment plant, the Pennington Reservoir and the Central Pump station. These assets are located in IWUS;

g) The City does not need to currently construct additional storage for IWUS nor does it need to construct additional storage for IWUS post-separation, that is after the sale of OWUS.

Following the hearing, the judge concluded that the Tambini report was "reliable [and] persuasive." She ...

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