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This page contains a single entry from the blog posted on July 18, 2012 7:47 AM. The previous post in this blog was Double mindscrew. The next post in this blog is An important day for Team Rachel. Many more can be found on the main index page or by looking through the archives.

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Wednesday, July 18, 2012

Did City of Portland breach a water bond covenant?

We noted yesterday that the City of Portland is not disclosing, to prospective buyers of its latest round of water bonds, its contract for cut-rate water sales from the Columbia well fields to its cozy private contractor, Carollo Engineers. We stumbled across the Carollo deal last September, and have written about it in a number of posts. The salient facts are these:

Who's the second largest consumer of water purchased from the Portland Water Bureau?... [I]t's an outfit called Carollo Engineers. In the year ended June 30, 2010, that firm purchased 291.5 million gallons of water, more than 60 million gallons more than the parks bureau and more than 125 million more than the public schools. Carollo is second in consumed volume only to Siltronic Corp., the silicon chip maker, which purchased 549.2 million gallons that year.

So who in the heck is Carollo Engineers, and what are they doing with all that water?

As best we can tell, Carollo is a private company that designs, tests, and oversees construction of ultraviolet treatment equipment that other private companies, such as Berson, Calgon and Wedeco, build and sell to municipal water systems that need UV treatment. Carollo has built a central testing facility out at the city's Columbia well fields (out beyond Costco on Airport Way), and it runs all those hundreds of millions of gallons of Portland water through the facility in order to test the effectiveness of the manufacturers' equipment before it is shipped off to the water system customers around the country, and even overseas....

Carollo is getting a darn good price [for the water]. It's no. 2 in usage, but it's no. 17 in what it paid the city for water. For its 291 million gallons, it paid the city just $0.000643 a gallon. Compare that with what the school district was charged for its 165 million gallons: $.003688 a gallon. The schools got charged more than five times as much per gallon as Carollo. The parks bureau paid about the same as the schools -- $0.003428. Siltronic, the city's top non-wholesale customer, paid $.003227 a gallon -- again, five times what Carollo paid.

One reason for the price disparity is that Carollo gets untreated water, whereas the city's other customers get treated water. But regardless of that, the question whether the Carollo contract is a good one for Portland ratepayers and taxpayers is open to a wide range of opinions.

We've been through all of that before, and nobody in town really seemed to care much. What's more interesting to us at this time is whether the Carollo deal, which was struck in 2002 and 2003, violates the promises that the city has been making to investors when it has gone to the bond markets to borrow money for the water system over the years. In the current bonds, being sold next week, the city promises bondholders that it will "[n]ot enter into any new agreement to provide Water System products or services at a discount from published rate schedules or to provide free Water System products or services (except in case of emergencies)."

That covenant is not new. Even back in 2000, when the city was selling an earlier version of the water bonds, its covenants included a promise that "it will not enter any new agreement to provide Water System products or services at a discount from published rate schedules or to provide free Water System products or services (except for fire suppression and in case of emergencies)."

Does the Carollo contract violate those covenants? At least as to the bonds that were issued before the Carollo deal was entered into, it would be interesting to hear the city's argument that there was no violation. Maybe they'd say that the untreated water is not a "Water System product"; maybe they'd say that there was no "published rate schedule" for that type of water, and so the city didn't deviate from such a schedule. But whatever the excuse, it may be a moot point. The 2000 bonds have now been paid off, and the oldest water bonds now outstanding are from 2004, after Carollo started up its sweetheart operations. And as to the outstanding bonds, the Carollo deal was not a "new agreement."

Comments (11)

Does it matter when there isn't anyone to enforce the rules? CoP has gone renegade.

What does Carollo do with water when they are done?

Do they dump it in the sewer or bottle it?

Why do I get a sense that after Randy "retires" with two pensions, he'll have a job at either Carollo or Montgomery Watson Hamza (MWH)?

Carollo dumps into the Columbia Slough. Mostly clean water, sometimes with a little mercury, what the hey.

My understanding of the bonds both Water and BES use is that there is, for tax purposes, look-back provisions, even when the bonds are paid back/refinanced with newer bonds. Wonder if that is the case for covenant provisions as well.

Who was in the water bureau at the time the Carollo deal was negotiated, names of those responsible for selling our water at a cheap rate, while our rates are skyrocketing and allowing this corporation in our community using our water for their testing?

Someone in the PWB took our community for a ride. Our PWB is not working for the people, but is going the path of favoring privatization at our expense. Outrageous that our schools are paying five times the rate.

This isn't stopping, and our city council just sits there and continues on the path. This despite the heated testimony by businesses and citizens at hearings to stop more spending and debt. In my opinion, our community has been betrayed by the very people who have been elected to be good stewards of our great resource, our water.

I know this is a pipe dream but how about the two mayoral candidates issue a joint statement that they request the current city council halt all debt financing and special projects until one of them takes office and they have a chance to review the budget and planning objectives?

It's gonna be like shootin' fish in a reservoir!

That includes those snakehead fish and walking catfish like SamRand who think they'll be clear of it when they leave office.

Tim, they can say what they want, but the 2 candidates are beholden to the ones who created the problem.

The bonds contain extreme details about every aspect of the water system *except* this. When they ventured into the area of selling groundwater from the Portland water system to a private company, for the benefit of their 'bottom line', not to resell it to the public (as with the wholesale agencies), they seem to have been doing something worth noting. Any way that they get revenue, is worth noting in the bonds. All of that revenue should have a trail of how much it is, who's buying it and that it got deposited in the right place. THERE IS NOTHING ABOUT THIS IN THE BONDS despite the high volume of water being sold (which is also not disclosed, nor the terms of the 'public/private' agreement).

The only detail about this, comes before the CC every year and they approve the price per ccf to sell groundwater (supposedly to anyone who asks). Maybe PPS should switch to groundwater to save money....it's so much cheaper? I heard that students aren't allowed to drink out of the fountains at school because the quality is so questionable. I guess it's only for the toilets and watering?

You'd also think they would mention it on the online page about the wellfields.....again= NOT EVEN MENTIONED.
IF I WERE A BONDHOLDER, I'D BE VERY CONCERNED ABOUT THIS in this time of municipal defaults and hanky panky!!

Another issue is the interest rate swaps that is tormenting NYC and California especially, and a reason for there being no money for basics things for the public. Apparently, this is another new revenue stream for the big banks, along with all the default fees. With the banks being allowed to borrow for money for nothing, municipal agencies have to pick up the slack for money not coming in to pay bondholders, or pay high fees to try to get out of the agreements that run for 20+years. These were involved in bond problems in Jefferson County, AL and their water/sewer system.....WHOSE NEXT?

In NY it affected the library, schools, transit, water and everything else. What's being paid in these agreements (now that banks get money for free) is in a report by non-profit sponsors in 12/2011 that can be found at:

http://www.strongforall.org

One of them that is fighting for equity and protections and the nullification of these agreements (which go forward even if a bond is cancelled....one example).

The report is: "Money For Nothing": How interest rate swaps have become golden handcuffs for New Yorkers

Does anyone even know if we can support giving this huge amount of water to a superfluous use. Is there a third party
study showing the ability to pump them this much water and destroy or damage the base resource ?


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