Letter: Debt financing
Pueblo West water enterprise personnel made a presentation at the March 11 metro district board meeting, seeking board approval for borrowing up to $16 million from the Colorado Drinking Water Revolving Fund to finance current and future utility system improvements.
When this proposition was first floated several months ago, the proposed loan amount was $6.2 million, to finance current water treatment plant upgrades.
A low interest rate on Revolving Fund money was a selling point.
At 2.5 to 3 percent interest, more than 20 years, the total cost of repayment would be around $8 million, with around $1.8 million in interest charges added to the $6.2 million borrowed.
Of course, at some point, metro board members would undoubtedly increase water-user rates to repay such a loan.
This debt financing proposition is premised on the rationale that the interest rate on money borrowed from the Revolving Fund would be cheap; and that if current and future utility system improvement projects were instead paid for out of existing water enterprise reserve funds – which currently stand at around $15 million, on deposit earning on average a meager one-half of one percentage point in interest – those reserve funds could become substantially depleted over time.
Explanation to identify and justify future projects, however, has been sketchy.
Some proposed projects appear unusual; and it’s doubtful that some would stand up to full scrutiny – for example, a proposal that the Pueblo West metro district should buy a site somewhere upstream along the Arkansas River and build its own water storage reservoir, even though we have Pueblo Reservoir in our back yard.
It sounds like another high cost, low yield – for Pueblo West citizens – SDS money pit.
Borrowing up to $16 million on the strength of what has been presented for future improvements appears to lack solid foundation.
And water enterprise reserve funds for current projects are more than adequate.
Spending $1.8 million in interest charges on borrowed money, when the water enterprise already has around $15 million available to it in reserve funds, certainly looks like a costly venture into debt financing.
Using existing reserve funds to cover the $6.2 million in current utility upgrades, as well as any future utility improvement projects, seems the far more prudent option.
Action on this proposition is pending further consideration and a vote by metro board members.
Board members need to demonstrate some restraint and vote to reject this questionable adventure.