Newark’s $120M Lead-Line Upgrade Won’t Mean Fiscal Woes for Brick City

Moody’s cites Newark’s steadily improving economic health, notes other sources of funds to help city pay off bonds being used to finance service-line replacement
Credit: Edwin J. Torres/ Governor's Office
Replacing lead service lines in Newark, September 2019

Newark’s plan to spend $120 million replacing lead service lines in response to a drinking-water crisis should not have a significant impact on the city’s improving fiscal health, a major Wall Street credit-rating firm said yesterday.

A notice issued by Moody’s Investors Service highlighted $155 million in new lease payments the city will receive from the Port Authority and a recently enacted federal law that could free up even more dollars to help Newark pay off bonds that are being used to fund the project to replace the service lines.

“The new revenue sources available to pay for the debt will help avoid a roadblock in Newark’s financial progress, with finances having steadily improved since 2014,” the Moody’s report said.

A statement issued in response by Newark Mayor Ras Baraka indicated the city is likely the first in the nation to take on such an infrastructure project without passing along any major tax hikes or increasing water fees.

“We’re very happy Moody’s recognizes that we have made a significant infrastructure investment without jeopardizing our financial health,” Baraka said.

But Moody’s also cautioned investors that Newark’s ongoing economic rebound remains fragile, and it said the new revenue the city will be receiving is not legally obligated to cover its bond payments.

Filter failure

The plan to replace service lines leading to individual properties in Newark has become a top priority this year after ongoing concerns about lead in the city’s drinking-water system were heightened this past summer. This was after tests showed that some tap-water filters installed as a stopgap were not adequately removing all traces of the contaminant.

Experts believe acidic water from Newark’s Pequannock water-treatment plant has caused lead to leach out of the service lines in sections served by the plant; up to 18,000 lines are being replaced under an aggressive city-led effort. Replacing the lines can cost as much as $5,000 to $10,000 per home, according to city officials.

Thanks to proceeds from a proposed $120 million bond issue facilitated by the Essex County Improvement Authority — which the city is planning to pay back over several decades as a low-interest loan — the timeline for completing the service-line replacement has been cut to two to three years, officials said.

Moody’s suggested the city should also save some money since Essex County is backing the bond issue with its own guarantee. The county’s bond rating is also better than Newark’s, a factor that should generate better terms for the city.

Another key factor highlighted by Moody’s was the recent announcement of a new lease agreement between the city and the Port Authority, which operates a number of facilities in Newark, including Newark Liberty Airport. The city will receive an estimated $155 million over the next 30 years, which is nearly enough to cover the estimated $6.2 million annual bond payments, officials said.

Another source of funding

Meanwhile, Newark could also receive additional funding to help pay for the lead-line replacement under a recently enacted federal law that will let state officials tap a pool of federal dollars that has now been made available for drinking-water projects.

“Every day, children and families are facing the realities of our country’s aging infrastructure and worrying about the safety of their drinking water,” said U.S. Sen. Cory Booker (D-NJ), after the bill was signed into law late last week by President Donald Trump.

“The federal government has a responsibility to restore their peace of mind, and this legislation will give states desperately needed resources to repair and upgrade their drinking-water systems,” said Booker, a former Newark mayor who was a leading sponsor of the legislation.

Although the new revenue sources are appearing at a good time for Newark, Moody’s noted the lead line replacement will use resources that could have otherwise gone to other infrastructure projects needed to strengthen the city’s ongoing economic rebound.

Still, the Moody’s notice went on to note the city’s lead-remediation efforts are “vital from a purely public health point of view with lead’s deleterious health effects well-known,” and that “in order for Newark’s credit quality to keep improving, the tax base and population growth must continue and the income figures must improve, all of which will be made more difficult the longer it takes to replace 18,000 lead pipes.”

“By eliminating the lead pipes, the city can take a meaningful step towards improving property values and preventing educational declines, both of which will help build on its recent economic successes,” the notice said.

In his own statement, Baraka said Newark has been “leading the way in how cities must face, finance and fix their own infrastructure problems — especially when it comes to a health issue like lead in the water.”