In an attempt to determine how best to deal with $78 million in outstanding debt for a trash incinerator that was never built, Passaic County, N.J., is considering various options - including defaulting on $27 million of unsecured bonds.
County officials concede that it is unlikely they will let the Passaic County Utilities Authority default on the bonds, but some of the freeholders - members of the county's governing board - continue to ask whether such a move would harm the county.
The debate over how to deal with the PCUA's debt is expected to heat up when the freeholders later this month unveil their plan for refinancing the debt. County officials said they are currently working on at least four options to present to the freeholders.
Like many of New Jersey's counties, Passaic must deal with a U.S. Supreme Court ruling that said a state law requiring private haulers in each county to bring garbage to a designated disposal facility was unconstitutional.
Scott Elliott, a principal with NW Financial Group - the firm hired to help the county come up with a plan - said one of the options being considered is to refinance the debt over a longer period of time, dismantling the PCUA, and replacing it with an improvement authority. Other options include working within the existing authority.
The proposal getting the most attention, however, is the proposal to dismantle the PCUA. The concept was approved by the Democratically controlled board last month, but Republicans are criticizing it as a tactic aimed at removing their party members from office. Most PCUA officials were appointed by a previous Republican-majority freeholder board.
The authority and the county do not appear to be working together to come up with a solution. Elliott said that while his firm and the county are working on one plan, the PCUA, which had already submitted a plan, has its own staff and financial advisers.
Passaic County auditor Steven Wielkotz said it is no secret that the freeholder board is unhappy with the PCUA, but said it has more to do with its performance then its politics.
The PCUA submitted a refunding plan about a year ago which the current freeholder board does not support, Weilkotz said. Under the PCUA's plan, the agency's debt would be refinanced with county-backed bonds that mature in 2008, and the authority would include $27 million of previously unsecured debt in the refinancing. The board opposes both measures.
Wielkotz said the board is looking at making repayment of the bonds easier on the community by extending the final maturity of the debt by 10 to 12 years. The board has yet to make a clear decision on what it believes should be done with the $27 million in unsecured bonds.
Separately, Paterson is attempting to challenge the PCUA's refinancing and a proposed environmental impact charge the authority wishes to levy on waste producers, in the Appellate Division of New Jersey Superior Court. Oral arguments in the case are expected to be heard on Oct. 26, but no decision is expected.
Paterson does not like the authority's plan because it does not believe the PCUA has the authority to retroactively secure debt, and it believes it would be unfairly penalized by the EIC. Its residents and businesses generate more trash then other municipalities, and would be charged about $1.5 million.
While many on the freeholder board agree that the authority did not have the ability to retroactively secure its debt, the board has filed a motion in support of the EICs. Elliott said whatever plan the board comes up with will probably include such fees.
In the meantime, the PCUA is expected to make its next debt payment, which is due Nov. 15. Officials also expect to get some relief from the state if a Nov. 3 ballot measure on a state bailout plan wins approval. Passaic stands to get about $13 million if it passes.
