Longmont councillors weighing cash v. debt for Windy Gap participation

Map from Northern Water via the Fort Collins Coloradan.
Map from Northern Water via the Fort Collins Coloradan.

From the Longmont Times-Call (Karen Antonacci):

The Longmont City Council on Tuesday will make several high-level decisions on how to finance the Windy Gap Firming Project.

In March, the council opted for the costlier 10,000 acre-foot level of the $387.36 million project, which would bring the pricetag for Longmont up to about $47 million. In April, the council directed they would prefer to pay with cash rather than debt for the $47 million, which would save money in the long-term but mean steep rate hikes in the short-term.

Now, staff has come back with a third option — a mix of cash and debt financing.

The council has already approved and codified raises to rates of 9 percent in both 2017 and 2018. If the council chose to finance the complete $47 million through rate increases, rates would need to rise 21 percent in 2017 and 22 percent in 2018, staff wrote to council in a memo.

But, raising rates is a little unpredictable for staff, because people might use less water in order to save money. While that helps with the city’s water conservation goals, it could make financing a huge project like Windy Gap tough.

“What we do know is that if we have a rate increase, it dampens consumption because people do react to an increased cost. What we’ve seen over time is that initial reaction tends to go away over time,” said Dale Rademacher, general manager of Longmont public resources and natural works…

By contrast, if Longmont chose to finance the $47 million project with $16.7 million in bonds, rates would not increase beyond the planned 9 percent in 2017 and then by 14 percent in 2018 and another 14 percent in 2019. The downside to debt is that it costs more in the long-term.

At a projected 4.25 percent interest rate, bonding out $16.7 million would cost the city $55.75 million over 20 years.

In the middle, staff has proposed bonding out only $6 million of the cost and financing the rest through rate increases.

This option would mean rate increases of 17 percent each in 2017 and 2018, between the two extremes of 21 percent with all cash and 9 percent with the higher debt option.

Rademacher said council could choose to bond out $6 million of the cost without a vote of the public…

Council on Tuesday needs to decide which financing option they want, and by extension, how much rates should raise in 2017.

Rademacher said all the rate raises are projected to happen by January 1, 2017 and if a major bonding issue needed to go to the ballot, staff are projecting to put it in front of voters in November, 2017.

Council could also decide to wait on the financing decision and get more public feedback on the issue. While there were questions related to Windy Gap on the regular Longmont resident survey, staff decided to remove those questions and ask council about a more specific survey.

National Research Center submitted a bid in order to survey Longmont residents about whether they would prefer to pay cash or debt for Windy Gap. To do an online-only survey would cost $3,440. To mail out a survey to randomly selected households would cost between $5,130 and $11,850 depending if NRC targeted 800, 1,500 or 3,000 households.

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