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How customers' rates would be affected by water bond

Sunday, October 26, 2008 | 8:30 p.m. CDT; updated 9:51 a.m. CDT, Wednesday, October 29, 2008

COLUMBIA — Large-scale renovations and additions to the city's water system will be supported by the purchase of $38.9 million in bonds if city voters approve Proposition 1 on the Nov. 4 ballot.

Financing with municipal bonds isn't required for the completion of the project, but many agree that it would put less burden on utility rates.

Official ballot language for City Proposition 1

CITY PROPOSITION 1

Shall the City of Columbia, Missouri issue its Water and Electric System Revenue Bonds in the amount of Thirty Eight Million Nine Hundred Forty Thousand Dollars ($38,940,000.00) for the purpose of extending, expanding, improving, repairing, replacing and equipping the City-owned waterworks and electric systems?

The authorization of the bonds will authorize the City to fix, establish, maintain and collect rates and charges for the use and service provided by the City through its Waterworks and Electric Systems, including all extensions and improvements thereto hereafter constructed or acquired by the City, in addition to the other rates and charges for such services provided by law, as will produce income and revenues sufficient to provide funds to pay the costs of operation and maintenance of the Waterworks and Electric Systems and the principal of and interest on the bonds as they become due and to retire the same within thirty-five (35) years from the date thereof, and to provide for the establishment of reasonable reserves therefor



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Connie Kacprowicz, a spokesperson for Columbia Water and Light, said purchasing a bond is much like taking out a loan on a house.

"You take out a loan and pay for a house steadily over time instead of all at once when you need it," Kacprowicz said. "Then you can still use the house without spending all your money at one time."

The economic woes of the past month are a concern, however, for the purchase of bonds.

"One issue that comes up among voters is if the market will be receptive to the purchase of this bond," said Kee Groshong, co-chair of a mayoral committee supporting the issue. He said concerns over credit and availability are legitimate but the bond itself is a safe investment even in that type of market.

The utility's rates and fiscal planning manager Jim Windsor also said  the bonds are prudent. "We'll work with financial advisers to determine the best time to sell them," Windsor said. "Municipal bonds are still very secure, and the city has a very high rating."

He said the bonds would be sold around the end of 2009 to finance the projects in Proposition 1.

 To support the initial purchase of the bonds, rates for utility customers would rise steadily over the next six years.

The expenses would be paid by residential and commercial customers in the form of rate increases. Over six years, there would be two annual increases of 1.5 percent on the monthly rate and four more of 5 percent, accounting for a total rate increase of 23 percent.

The average residential customer now pays $20.79 per month. The increases would result in a monthly rate of about $26.08 for the average customer at the end of the six-year renovation.

"Commercial rates would rise according to similar percentages," Windsor said. "These estimates are based on a cost of service study that shows how much we need to charge to provide that service."

Without the bond, utility rates could increase by about 70 percent for four years and decrease by about 25 percent for the last two, according to Water and Light's estimates. These numbers arise from the cost of completing the project in the same six years.

"That would be the worst-case scenario," Windsor said. "If the bill didn't pass, we would need to re-evaluate and determine what projects are more important than others and what needs to be done on the same timeline.

"Ultimately, though, these are projects we need to do," he said. "Without the bond, they might have to be pushed back, but rates would still rise much more dramatically than they would if the bond was approved."

The bonds would allow customers to pay smaller increases and avoid that initially large rate.

The last renovation project was approved by voters in 2003 and resulted in the purchase of $28.3 million in bonds, mainly for water treatment purposes. The construction of a new pump station was completed recently but is not yet in operation. All other projects from 2003 have been completed and are functional.

"So far, the feedback from voters has been positive," Groshong said. His committee will meet with community groups over the next few weeks to support the purchase of the bonds.


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Comments

joe shmo October 27, 2008 | 11:50 a.m.

Ok so this explains who pays for the $39 Million (we do) but what kind of monkey math is this? As far as I know, borrowing money costs more than paying out of pocket. Econ 101 – borrowing money requires a percentage to be paid in interest vs. paying out of pocket = no money being paid in interest. According to this article, NOT borrowing $39 Million is going to cost the residents of Columbia MORE on their utility bill – how can that be? Furthermore, the $28 Million in bonds we approved in 2003 partly went to a new pump station that has yet to be operational. This further supports my opinion of poor management if every 5 years the city water department wants us to give them $28.3 – $38.9 million.

(Report Comment)
Charles Dudley Jr October 27, 2008 | 12:16 p.m.

One thing I do not like about this issue is I have not found anywhere they state they will expand the testing they do now to include other contaminates.

(Report Comment)
John Schultz October 27, 2008 | 12:56 p.m.

I think the rationale is that it is cheaper to the rate-payers to float the bonds every five years instead of jacking up people's rates before the projects start. Due to inflation and probably cost of materials, you are essentially getting a better deal to use "current" dollars than trying to pay as you go.

Chuck, I don't think testing is covered by this at all since it's a capital project. Testing would something covered by everyday operation if the city chooses to do so.

(Report Comment)
Ayn Rand October 27, 2008 | 1:05 p.m.

Look at the map infographic that accompanies this article. Where are most of the red dots? On the city's urban fringes. So if you don't want tax increases every few years to pay for extending infrastructure such as water, sewer and roads, tell the city council to start making developers and residents pay the full price of building on the edges of the city. While you're at it, tell the city council that "density" is not a bad thing.

(Report Comment)
Charles Dudley Jr October 27, 2008 | 1:17 p.m.

Well John Schultz testing and improved methods of testing should be included.

(Report Comment)
joe shmo October 27, 2008 | 4:17 p.m.

John, I see where you are going with that but if the city planned on these upgrades, say, 5 years ago, and they raised rates at that time gradually, then we could have reaped the benefit of interest paid on that increasing sum over 5 years. Now we will have to pay the interest out in the form of a loan, when we could have been saving up and getting the benefit of the interest. I guess it depends on if inflation and materials cost equals more or less than interest.

Ayn, I had already looked at the map as well as the entire breakdown of the project list. $20.1 Million of the total is for increased distribution. I think developers and residents should have to pay full price for building on the edges of the city instead of taxing current residents but honestly I'm not a big fan of population density - especially around here where land is relatively inexpensive.

(Report Comment)

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