Tuesday, February 04, 2014

No New Rate Increases for Additional Water Projects?

Wicks asks pressing questions; administration provides some answers.

By Dan Schroeder

At least one Ogden City Council member is asking some good questions about the $30 million increase in planned water infrastructure spending over the next ten years. Councilmember Amy Wicks submitted a list of nine written questions shortly in advance of last Tuesday’s work session, and received nine short answers on Friday:
One of the answers will come as good news to Ogden utility ratepayers: “It appears that rate increases outside those already accepted will not be necessary.” Though this statement is tentative, it is consistent with the results of my own financial analysis. (The “already accepted” rate increases include a 3.5% hike this July plus annual increases for inflation.)

In another of its answers, the administration suggests that additional bonded debt may be in the water utility’s future, when it comes time to spend an estimated $17 million to replace the 36-inch pipeline in Ogden Canyon. This is the larger and newer of two parallel canyon lines, first installed in 1937; the older 24-inch line was replaced last winter. The administration and its consultant are now recommending that the 36-inch line be replaced within six to ten years, whereas the 2012 version of the master plan put this project in the 11- to 40-year time frame.

My own analysis indicates that all of the proposed water projects, including the 36-inch line replacement, can be completed without any new bonds. Then the water fund would keep its debt interest payments from growing yet again, and could reduce rates (or forgo inflationary increases) after the end of the ten-year period of intensive upgrades.

However, the administration and its financial consultants (LYRB) seem to favor paying for projects with bonds, rather than dipping into the water fund’s cash balance. That balance stood at nearly $10.7 million last June and should reach approximately $15 million by this June. The cash is earning less than 1% interest, while the water utility is paying 4.45% interest on its most recent bonds.

The administration’s unwillingness to spend this cash is also reflected in another of its answers, in which it explains that “available funding” dictated the relatively modest capital spending rate of only $4.3 million per year over the first five years of the new plan. This is less than the rate at which surplus cash will accumulate in the water fund, thanks to the recent rate increases. Under the proposed plan, I project that the cash balance will reach $20 million by 2019.

Of course the administration won’t rely on my financial projections, or even try to do its own. Instead it is again retaining consultants LYRB to update the projections they did two years ago. (Those projections weren’t very accurate: they under-estimated the June 2013 cash balance by $4.7 million. This low estimate contributed to the city’s decision to issue new bonds, with LYRB as its paid financial advisor for the bonding process.) The council will have to wait a few more weeks to see the revised LYRB projections, and to discuss the water fund’s current cash position.

Wicks’s final question concerns two proposed new wells on the west side of the Wasatch Range. The city’s engineering consultant originally projected that these wells would be needed to meet growing demand in about 18 years (from now). Furthermore, the city recently achieved some unanticipated water savings by replacing the leaky 24-inch canyon pipeline. The administration, however, asserts that the two new wells should be dug only six years from now, “for both source redundancy and capacity.” There is no mention, in the proposed master plan revisions, of the possibility of avoiding the need for new wells through water conservation.


Dan S. said...

I don't think any BDO money was ever used for water projects. In fact, it's the other way around: the water fund subsidizes the general fund, while BDO is subsidized through tax increment financing and thus doesn't pay for the city services it receives. And to top it all off, BDO gets free irrigation water from the city during the summer! However, BDO does generate lease revenue, which the city spends on various things including subsidizing The Junction.

Shutting down The Junction wouldn't cut our losses, because we'd still have to pay off the debt that financed the redevelopment. The Salomon Center is making its lease payments, and these reduce the city's share of those debt payments.

rudizink said...

You're missing the Point, Dan. When then-Senator Robert Bennett handed the BDO property over to Ogden City on a silver plate, according to his coordination with "then" Mayor Glen Mecham, Ogden city became "
fat City."

Franlky, I'm stil Gobsmacked that that Ogden City water infrastrucure improvements "won't be financed" from the BDO "Cash Cpw."

Dan S. said...

I don't disagree about what the intentions were at that time, though I have no personal recollection of that so my knowledge is based on hearsay.

On the other hand, I don't have a problem with charging ratepayers the full cost of operating and maintaining the water system. I do think it's wrong to force ratepayers to subsidize the city's general fund, as they're currently doing.

rudizink said...

Yes. The Soloman center, and other junction tenats are still making their below market rent payments, whilst Ogden City taxpayers still make up the bulk of Junction loan payments, to the tune of over a $half-million per year.

rudizink said...

"I do think it's wrong to force ratepayers to subsidize the city's general fund, as they're currently doing.'

With that I agree, Dan.

On the other hand I continue to disagree that " ratepayers [should pay} the full cost of operating and maintaining the water system," since that was never the intention when Mecham hammered to deal to turn Defense Depot Ogden over to the Ogden lumpencitizens.

Dan S. said...

Rudi, I haven't heard that any of the written terms of the original DDO/BDO agreement have been violated. So if it's true that the "original intention" isn't being honored, I would put at least half the fault on Bennett and Mecham for not drawing up a contract that put the intention in writing.

Now, I suppose you can still argue that we should follow that original intention, because that was the intention. But do you think the idea of having BDO subsidize the water department is actually a good one, on its own merits? If so, why?

James F. said...

question on the city owned Junction and leases, what revenue does the
city have coming in from the Junction and offset by BDO revenue.

rudizink said...

I got the information from an interview with former Mayor Mecham years ago. Although Bennett and Mechham's intention wasn't formalized in the BDO transfer documents, he told me that applying BDO revenue to infrastructure would have been his primary application, if he hadn't withdrawn from politics due to his health.

Dan S. said...

I summarized The Junction's financial situation in a series of articles in 2009:

Junction 101

The Junction -- A Good Investment?

The Junction: What Next?

The graph in the second article is updated with an additional year of data here:

Ogden Administration Uses Tax Dollars to Deceive Citizens

I'd like to update that graph again, but I suspect the situation isn't so much different today. The main difference would probably be the addition of a new segment on the graph for the Hot Tub Hotel. The Junction still isn't bringing in enough tax revenue to cover the bond payments, so these are supplemented with lease revenue from BDO. And as far as I know, the Boyer properties at The Junction still aren't generating any lease revenue. There would also be some sales tax revenue from the movie theater and restaurants and retail shops, but those amounts are private, and the city probably isn't inclined even to disclose the total amount because it's probably still short of what was projected.

Nope said...

"There is no mention, in the proposed master plan revisions, of the
possibility of avoiding the need for new wells through water

Nope. Of course not, as the City regards Ogden water fees as a "cash cow," designed to fatten city coffers.

Ron said...

I can't speak for anyone else, but my water bills kill me most months. I have a family of six and during the "non-lawn-watering-months", my water bill floats between $80 and $85.

We do not have access to secondary water, which forces me to use drinking water to keep my lawn green (per city code), so during the summer months, my water bill rises to the $150-$160 range, with relatively minimal watering (two times a week - 20-25 minutes per section).

I have no problem paying for the water I use, but I do have a problem with being forced to keep a lawn green during 100 degree heat as well as subsidizing the rest of the general fund.

Dan S. said...

Try converting some of your lawn to native shrubs and other drought-tolerant plants. I do have secondary water, but I've been measuring how much I use and the total for an entire season would cost me only an extra $15 if I took it out of the city water system. http://dvschroeder.blogspot.com/2013/06/meter-that-water.html

Ron said...

I'm with you there, Dan. Part of the issue is coming up with the $$$ to do that, which, to your point, may be cheaper than continuing to pay to keep my lawn semi-green in the summer.

Either way, I think the city is using the water system as a way to keep it's revenues on the plus side, rather than simply charging for use. Thanks for the suggestion, I'll definitely look into it.

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