City government

Council asked to issue $30 million in bonds to start paying for surface water project

By From page A1 | October 08, 2013

The City Council will be asked to approve issuing $30 million in bonds Tuesday so the city can begin paying off its share of the Woodland-Davis Clean Water Agency Surface Water Project.

Priced at an estimated $106 million to Davis, the project will pump water from the Sacramento River, treat it at a facility in Woodland and pipe it down to Davis and over to Woodland.

The new supply of drinking water, which largely will replace the city’s long-serving well water system, is expected to be ready by 2016. Several deep wells will remain in operation as a supplemental supply.

The council’s meeting starts at 6:30 p.m. in the Community Chambers of City Hall, 23 Russell Blvd. Watch it live on Comcast Channel 16 and AT&T U-Verse Channel 99; stream it on the city’s website at www.cityofdavis.org/media.

Only $16 million of the $30 million in bond proceeds will go toward future design and construction costs of the project. The city will use some of the cash to pay off $12 million in accrued debt from previous water project costs up to this point.

City Manager Steve Pinkerton said Monday the $12 million that’s already been spent is included in the overall $106 million figure.

Meanwhile, because the city is still fighting a lawsuit that’s challenging the legality of its newly adopted water rates, this initial loan appears to be a measure to keep interest rates down in the short term until the city and the rates are free of litigation.

The council hiked rates in March to begin raising revenue to pay for the city’s share of the project.

The terms of the loan, if approved by the council Tuesday, would carry a variable interest rate starting at about 1.3 percent, far lower than what Pinkerton says the city would pick up with a fixed rate at this time, given the market and given the fact that the city’s water rates are still under legal challenge.

Since the variable rate would provide the city no long-term certainty of debt service payments — under the loan agreement, the lender can raise rates each month — Pinkerton hopes once the lawsuit is resolved in December, the city can refinance with a low-interest fixed loan, preferably using a state revolving fund loan.

“This is to get us to the point where we can get our final financing,” Pinkerton said Monday.

In their report to the council, city staff say the chances of receiving full funding for the project from the state revolving fund are “very likely.” SRF loans, earmarked by the state for water quality projects, traditionally carry extremely low interest rates.

If Davis locked in loans from the SRF program for the remainder of the project, it could save up to $60 million in debt service costs over the next 20 years, Herb Niederberger, general manager of utilities, development and operations for the city, told the council earlier this year.

Residents would not see the savings on their utility bills, however, until after the debt service has been paid off in 20 years, which is the traditional payback period of an SRF loan. Water bills are still expected to triple over the next five years, and continue to rise thereafter, as a result of the rates that were raised to pay off the project.

If the council approves the bonds and the project schedule remains on track, water agency officials say construction of the project would begin in March 2014.

— Reach Tom Sakash at [email protected] or 530-747-8057. Follow him on Twitter at @TomSakash

Tom Sakash

Tom Sakash covers the city beat for The Davis Enterprise. Reach him at [email protected], (530) 747-8057 or @TomSakash.
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