Portland water bills may zoom upward
The City of Portland's debt load just gets heavier and heavier. Last week the city borrowed another $79.68 million against the drinking water system. The city's debt manager, Eric Johansen, reports:
The City's water revenue bonds sold last Tuesday, July 29th. Nine firms submitted bids at the competitive sale. Goldman Sachs bought the bonds at a true interest cost (TIC) of 4.570351%. Cover bid was from Prager Sealy & Co. at a TIC of 4.573072%.An interest rate of 4.9 percent on 25-year, double-tax-exempt bonds isn't anything to write home to Mom about. And there are lots more borrowing and a lot more interest payments to come. According to the bond sales pitch, the city is planning to borrow another $72 million for water system improvements next year, and $80 million more two years after that.
Yields on the $79.68 million of tax-exempt first lien water system revenue bonds, maturing from 2009 through 2033, ranged from 2.14% to 4.90%.
The bonds are rated Aa1 by Moody's.
Last week's bond proceeds are set be used to help the city pay some of the $236 million of capital improvements that the water system is projected to need over the next five years. This does not include, however, the estimated $335 million of additional capital costs that will be incurred if the federal government stands firm in requiring the city to install filtering for the germs cryptosporidium and giardia, and to cover or disconnect its open reservoirs in town. The bond document explains:
Commissioner Randy Leonard has directed the Bureau to begin planning and budgeting to achieve compliance with the LT2 Rule [flitering rule] as written. This direction includes the planning and design of an ultraviolet treatment facility at the Bureau’s Headworks facility and a plan for replacing the open finished water storage at Mt. Tabor and Washington Parks with enclosed storage. In addition, Commissioner Leonard has directed the Bureau to pursue variances from the rule requirements with EPA. A variance could conceivably enable the Bureau to avoid the expenses associated with building an ultraviolet treatment facility or replacing its open reservoirs if the City can demonstrate to EPA that, due to the nature of the Bull Run source and the open reservoirs, neither action is necessary. Research, design and development of an effective data collection program is necessary for the City to submit variance proposals to the EPA, which makes it likely that an actual application for a variance will not occur until sometime in 2009. The FY 2008-09 budget includes $1.0 million to evaluate, select and develop the treatment approach to comply with the LT2 Rule and $650,000 to prepare for and request a variance to the rule. The City currently cannot predict whether it will be successful on the request for the variance.Even without the costly measures that the feds are currently demanding, the projections for Portlanders' water bills are not so rosy:
Based on an initial screening estimate, up to $335 million in total capital expenditures over the next eight to ten years may be needed to comply with the LT2 Rule. The estimate includes 1) UV treatment capacity of up to 225 MGD and 2) construction of up to 90 MG of in-town covered finished water storage, including land acquisition, access ways, pipelines, chemical addition facilities, electrical subsystems and site restoration. When complete, the UV improvements will require an additional $3 million annually for operating expenses. The preliminary work approved in the FY 2008-09 budget will develop the next refinement of the estimates classified as "feasible concept level."
The resulting retail rate impact based on these LT2 cost estimates could be as high as 25 percent. If necessary, the LT2 cost to ratepayers could be phased in over many years, most likely during the eight to ten year construction period. The estimated rate impacts will be revised when the cost estimates are revised or refined.
(The footnotes are available on page 67 of this pdf file.)
The price of water is scheduled to increase by more than 10 percent a year indefinitely, and that's even if the city convinces the feds to back off and not require filtering and reservoir covering. If the feds won't budge, it's Katy bar the door. Watch for that $335 million grow to something much higher between now and the time construction ever starts.
In the meantime, an eco-roof for the library! Go by streetcar!