City Council – Mountain Water Spar Over Short Term Versus Long Term Financing And Capital Improvements
At Wednesday's Missoula City Council Committee of the Whole meeting, differing views were raised over the issue of financing the debt incurred by the city to purchase the utility, as well as projected capital expenditures.
The meeting began with a recap from attorney Natasha Prinzing Jones over some of the underlying issues about why it was more necessary for the city to own the utility, as opposed to a for-profit firm like Park/Carlyle Water Company.
"55 percent of the pipes are 45 years or older, and 20 percent of the mains had exceeded their useful life,"Prinzing Jones said. "Four billion gallons of water were lost on an annual basis for a leakage of an unprecedented magnitude of 50 percent or greater, and all this information was based on Mountain Water's own internal documents."
Spokesman John Wilson brought a report by HDI that included a five-year capital improvement plan once the city takes over operations of the water utility.
"With the big problem with water loss, the improvements would focus on water main replacement," Wilson said. "Out of that $29.5 million, the plan calls for $18.5 million to go for water main replacement. That would ramp up over time. Each year we would have routine annual capital expenditures for equipment and controls. Eventually, we would be ramping up that investment up to $3.8 million per year in water main replacement by year five, and expect to maintain that annual investment."
During the public comment period, two individuals spoke on behalf of Mountain Water Company. The first was in-house counsel Ross Miller, who referenced a letter from the management of the utility critical of the city in several issues.
"Short term financing is a huge risk," Miller began. "To hear the city could not acquire the system under fixed-rate long-term financing, and is instead asking the council to approve short-term variable rate financing adjusted monthly which is currently 2.8 percent is shocking. You were given extremely bad news at your November 30 Committee of the Whole meeting. when you were told unequivocally that you do not qualify for long-term financing. That was big news for this entire community."
At that point, chairperson Marilyn Marler interjected, 'For the record, that's not true'," she said, but asked Wilson to continue.
"Because this is a revenue bond," he said, "water rates must automatically increase, or expenses must automatically decrease if there's not enough revenue to cover the bonds. Given that payroll is the primary non-fixed expense, payroll is the most likely area to cut expenses, meaning these risks may fall directly on the employees backs."
Mountain Water Company President John Kappes also spoke during the public comment period and challenged the city's numbers on capital expenses, but when he offered to answer any questions the committee might have, the chairperson, Marilyn Marler, suggested that 'if staff at Mountain Water Company would like to get together with our legal counsel and our finance team, that would probably be a more productive format.getting up to speed on what's really going on with this, instead of only seeing each other in court, or only getting a letter 10 minutes before the meeting.'
Marler said another update on the city's progress on taking over operations of the water utility will come in a few weeks.