Sussex COUNTY MUNICIPAL UTILITIES AUTHORITY 34 SOUTH FIT. 94, LAFAYETTE, NJ 07848 September 21, 2018 The Honorable Harry Shortway, Mayor Township of Vernon 21 Church Street Vernon, NJ 07462 Re: Response to Vernon Township August 30, 2018 Notice of Non-payment Issued - Pursuant to Vernon Township-SCMUA December 9, 2013 Service Contract Dear Mayor Shortway: The Sussex County Municipal Utilities Authority or ?Authority?) Board of Commissioners asked me to respond to your August 30, 2018 notice that the Township of Vernon (?Vernon? or ?Township?) will not be paying ?the debt service due on the SCMUA Bonds? issued pursuant to the November 2, 2005 Service Contract between SCMUA and the Township of Vernon, as amended and restated on December 9, 2013 Service Contract? or ?Agreement?). Vernon?s non-payment extends beyond the debt service payments and includes sewer user service charges. At the outset, I note that we anticipate SCMUA continuing to work with the Township and the Vernon Township Municipal Utilities Authority (?Vernon while Mountain Creek Resort, Inc.?s May 15, 2017 voluntary Chapter 11 bankruptcy petition ?ling is adjudicated. We expect that the bankruptcy court will ensure that Mountain Creek honors its commitment to Vernon, the Vernon MUA and Vernon residents under the July 8, 2012 Sewer Agreement between Vernon and Mountain Creek (that superseded and replaced the October 24, 2005 Vernon Township?Mountain Creek ?Resort, Inc. Sewer Funding Agreement) as supplemented by the July 26, 2004 Developer?s Agreement which is attached thereto as Schedule 1 (?Vernon?Mountain Creek Sewer Agreement?), and that the Township will ful?ll its commitments to SCMUA. The Court is no doubt aware that rights and privileges to the use of the public sewerage treatment and disposal system comes with responsibilities and consequences that impact several levels of local and county government and the nearly 150,000 people they represent. SCMUA has contractual, statutory, and ?duciary obligations to act fairly and in the best interests of all system participants and ratepayers. As Vernon is one of several participating municipalities in the SCMUA wastewater treatment system, we are '_'constrained in the assistance we can offer unilaterally in the face of Vernon?s non- payment, and are guided in this respect by Section of the Agreement SCMUA is bound to treat all system users fairly in accordance with its obligations, in accordance - with the Municipal and County Utilities Authorities Law, N.J.S.A. e_t. seq. Law?) and the terms of the wastewater service contracts with each municipality, - including the Service Contract. Upper Walikili Valley Water Adminisnative Office Solid Waste Facility Poliu?oon Control Facility {973} 579-8998 {973] 579-8988 {973} 827-8880 . Fax: {973] 579?7819 Fax: 578-?819 Eav- CID7RQR7 Page 2 Mayor H. Shor?vay September 20! 8 As you noted in your August 30, 2018 letter, our legal counsel, Thomas Pro], Esq. has been in contact with the Township?s and the Township legal counsels on these issues and we expect that dialogue will continue. You indicated that Vernon will advise SCMUA of the results of its efforts to enforce its rights within the bankruptcy action, including whether ?such legal action [will] result in Vernon having the ability to make a payment on the SCMUA Bonds.? However, Vernon?s payments extend beyond the bonds and include sewer user charges. The Township is required to address its de?ciency immediately under the terms of the Service Contract. Absent a cure and restoration of full contractual compliance, we direct you to the Service Contract and the MUA Law for the consequences of the Township?s failure to pay, some of which are discussed below. Vernon?s payment of $411,381.75 was due on August 15, 2018 with a 30?day grace period provided under Section of the Service Contract. Once that grace period passed on September 14, 2018, interest charges began accruing under the Agreement at the rate established at N.J.S.A. in addition to other consequences of non-payment pursuant to Section 602. We remind you that the Township and Vernon MUA collects approximately 38 per cent. of its revenue payments from system users other than Mountain Creek. We expect that Vernon will tender those collected funds immediately as a partial payment of its contractual obligation. We will accept the partial payment without waiver of our rights or remedies to pursue the outstanding balance which will remain due and owing and accruing interest as stated in the Service Contract. Vernon?s and Vernon continuing retention of those user fees and revenues received from other Vernon system participants is a matter of grave concern and will be viewed in a different light not only by SCMUA, but by other participating municipalities in the system. Moreover, we call your attention to the Letter of Credit that Mountain Creek was required to post under Section 6.03 of the Vernon-Mountain Creek Sewer Agreement as a guarantee of payments due under Article and VI from Mountain Creek. The LOC is available to call by the Township without limitation or precondition other than Mountain Creek?s failure to pay, and the Authority expects that Vernon will take swift action to access those funds in order to meet the overdue contractual payment obligations. We expect that Vernon will take immediate action and, if necessary, issue emergency appropriations under its budgeting process, as required under Section of the Agreement, and develop a plan that returns the Township to contractual compliance. Absent that and the efforts to do so, SCMUA will be required to notify the NJ Division of Local Government Services of the municipality?s contractual obligation and non-payment, and request that it ensure that Vernon?s approved budget contain provision for the municipality to meet its obligations under the Agreement. Page 3 Mayor H. Shortway September 21. 2018 SCMUA values its ongoing relationships with Vernon and Vernon Township MUA and will continue to work with both, limited only by the boundaries of law and contract. We waive no rights or remedies by the statements in this letter, including reservation of rights under the Agreement, and its statutory rights and legal authority to record priority liens and undertake collection, enforcement and legal action independently vis-a?vis system participants and real property Owners or occupants who connect to, contract for, contribute to, or eauSe or may cause sewage to enter the wastewater treatment system, but fail to provide payment and/or meet their other legal and contractual obligations. Please contact me with any questions. We look forward to your response in this regard. John Hatzells, Administrator cc: Sussex County Board of Chosen Freeholders SCMUA Board of Commissioners Vernon Township Council Vernon Township MUA Thomas H. Prol, Esq. response to shomvaydoc