Diving Into Water Part Two A

A cost update on water projects from our Public Works Director

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I have been in touch with Jeff Arthur our Public Works Director to get more information on the water situation. I heard that the golf course uses non-potable city water and I asked him how that water is paid for. Since I had his ear I threw in a bonus question about city parks. We might as well know all we can about how water is used and paid for in Lafayette.

Here's what he told me: "The golf course has some of it's own ditch rights, but the majority of the water comes from the city's overall water rights portfolio. The water is metered and the golf enterprise is charged for the raw water."

When I asked about parks he said: "The golf course is an enterprise and covered by user fees. Other city facilities also pay a water bill from their corresponding funding source i.e. water for a City park would be paid for from the general fund (tax dollars) and not from rates/fees assessed to other water customers."

UPDATE ON THE COSTS FOR UPCOMING WATER PROJECTS

I sent Director Arthur the list I got from a 2020 council presention conducted by him and other staff members. I shared that with you in part two. He gave me updated information and numbers for projects on that list.

JA: Most of these numbers have changed since 2020.  Not all of them have gotten worse . . .

From the 2020 executive summary:

Major water supply projects include NISP: $87M

JA: We are planning to debt finance NISP.  Current estimates are in the ballpark of $7M/year for 30 years.  $7M per year of additional cost is still huge in a fund that currently only brings in about $10-11M per year.  NISP recently got it’s federal permit, but most recent reservoir projects have had years of litigation (and associated construction cost escalation) and large settlement payment.  We need to plan for as early as 2025, but there is a good possibility that this project will hit at a later date at a higher cost. 

Windy Gap Firming $6M ($600,000 debt service to be paid annually over 30 years = $18M total)

JA: I’m thinking this number was before the project was financed.   The project was group financed and interest rates in 2020 were much, much more favorable than the rule of thumb noted below.  Our annual debt service on Windy Gap is actually $200k/year for 30-years. 

Goose Haven Reservoir Complex Expansion $47.5M

JA:This project has a very unusual contract and payment structure.  The City made an arrangement where a company is operating a gravel mine on the property and will convert the excavations into reservoirs at the conclusion of the mining.  The contract included a cap on annual payments, but requires that the balance be paid upon substantial completion (unlike a conventional bond where the project could continue to be paid off after completion).  Substantial completion is expected in 2025.  We are continuing to look at options to reduce the amount due in 2025 and the financials presented at the workshop were based on a substantially lower number.  I’m thinking the $47.5M may also have included the associated reuse pipeline from the water reclamation plant to Goose Haven.  The information that was recently presented proposed debt financing for the pipeline (about $2M/year for 20-years) which helps reduce the near term rate impacts. 

Gross Reservoir Expansion $2.4M

JA: This is still correct.  We have a final payment of $1.2M in 2024.

When considering debt financing, a rough rule of thumb is that a $1M bond requires $100,000/year in debt service payments. As with any other types of debt, the total amount paid is substantially more than the construction cost due to interest payments. 

JA: This is a fairly old rule of thumb and isn’t indicative of the extended period of low interest rates we’ve experienced.

JA: Water Treatment Capacity – This one isn’t on the list above.  The City's water treatment plant is close to maximum capacity which is problematic for reliability and not just growth.  If something breaks (which things regularly do) during peak summer months, there is very, very little window to get it fixed.  Water plants are built with separate treatment "trains" so that you can still meet demand with one train out for repairs, but we currently need every part of the plant running full tilt on a peak day.  We have been using $25M as an estimate for a new plant and/or expansion of the new plant, but are in the process of commissioning a study to better understand options and costs.  If the City bonds for the plant (which is typical for that type of project), tap fees assessed to new customers over the life of the bond could be used to help pay the annual debt service.

I hope that’s helpful.  I’m happy to discuss or answer any questions.