N.J. Stat. § 40:62-133
The commission created pursuant to section 40:62-129 of this title to maintain, operate and extend the waterworks, may in addition to its other powers, acquire by condemnation, purchase, lease or agreement any property, or any interest therein, or any right to divert water therefrom, or any additional source of water supply, necessary or convenient for the operation, maintenance or enlargement of the waterworks purchased pursuant to sections 40:62-108 to 40:62-132 of this title, or to prevent or settle litigation growing out of diversion of water by such commission, and utilize the same in connection with such waterworks. The commission may acquire by agreement with any municipality represented by it, or any other municipality, the ownership of or the right to use any water supply, or part thereof or interest therein, or any distribution system of water mains and connections, or any part thereof, which any such municipality may own or control, and utilize the same in connection with the waterworks condemned under said sections 40:62-108 to 40:62-132. The agreement may contain such provisions as to payment for the property acquired as may be agreed upon between the commission and the municipality for which the property is acquired. If any such agreement contains or shall contain provisions as to payment by the commission to the municipality of sums of money not exceeding the principal of and interest accrued on amounts theretofore raised by taxation in the municipality and applied to the payment either of the cost of acquiring or constructing the property acquired or of the principal of or interest on bonds, notes, or other debt incurred to finance such cost, such municipality may incur indebtedness, borrow money, and issue its negotiable bonds in amount sufficient to realize an amount equal to any unpaid portion of such sums of money. Said bonds shall be deemed to be issued and shall recite that they are issued for the purpose of financing the acquisition or construction by the municipality of the property acquired, and shall be authorized and issued in the method or mode of procedure prescribed by article 1 of chapter 1 of this title (s.40:1-1 et seq.). Said bonds shall not be sold except with the consent of the commission and with its approval of the maturities of and rate of interest payable on said bonds. Such consent and approval may be given by resolution and shall be and constitute a formal assumption by the commission of said bonds, and the interest thereon. The amount realized from the sale of said bonds, up to an amount not exceeding the unpaid portion of such sums of money, shall be retained by the municipality in satisfaction and payment of a like amount of such unpaid portion, and shall be applied only to such purpose or purposes as may be financed under any other law by the issuance of bonds, other than funding or refunding bonds, or shall be paid into the sinking fund. The balance thereof, if any, after deducting therefrom the cost of issuance of such bonds shall be paid over to the commission. For all the purposes of sections 40:62-126 and 40:62-127 of this title, said bonds so issued shall be deemed to be and shall constitute debt incurred by a municipality represented by said commission, or its successors, and formally assumed by said commission, or its successors, as part of an agreement with such municipality relative to the acquisition by the said commission or its successors, of the ownership of, or the management and control of, or the right to use any water supply, or part thereof, or interest therein, or any distribution system of water mains and connections, or any part thereof, which such municipality may own or control.
N.J.S. § 40:62-133