Water Bond Ordinance

Overview

The City is in a period of significant capital reinvestment as major components of the City’s water distribution system reach the end of their useful life.

Most of the Island’s water distribution system was constructed 50 to 75 years ago. Though the City has made investments to effectively operate and maintain the water utility, system components are reaching the end of their useful life and require significant reinvestment over the next six years.

Between 2025 and 2030, the water utility requires an estimated $74 million (M) in escalated capital spending.

How the City has Addressed these Infrastructure Needs

Knowing that components of the water utility system were reaching the end of their useful life, City staff undertook a number of steps to help address these needs, including:

• Adopting a six-year Capital Improvement Program (CIP) as part of the 2023-2024 biennial budget.
• Using federal funding to accelerate work on some of the utility capital projects from the 2023-2024 biennial budget.
• Identifying and outlining a strategic financial plan to further acquire, expand, or rehabilitate public infrastructure, including the City-owned and operated water distribution system, as established in the City's current, six-year CIP 2023-2028.

Filling the Gap: Funding through Water Utility Charges and Outside Funding Sources

Historically, the Utility Board has tried to balance the many infrastructure investment needs by maintaining similar year-over-year water utility rate adjustments so not to put an undue burden on current water utility customers.

To fund these critical infrastructure projects, for the next six years, minimal water utility rate adjustments will need to be paired with additional outside funding.

At the September 3, 2024 City Council meeting, staff recommended financing a portion of these investments with proceeds from Bonds that were issued to the City in 2011.

Bond Funding - How it Works

Debt financing spreads the cost of short-term projects throughout the life of the updated infrastructure.

This not only helps prevent spikes in annual rate adjustments for utility customers, it establishes generational equity, where rate payers across multiple generations, who all benefit from these investments, help pay down the associated costs.

The City has an outstanding debt amount of $655,000 tied to Limited Tax General Obligation Bonds that were issued in 2011. Those 2011 Bonds were used to finance a portion of a water system improvement project in the First Hill neighborhood.

The City may have the opportunity to refund (refinance) these outstanding 2011 Bonds for interest rate savings. Bond refinancing (also known as refunding) is an important tool in the local government debt management toolbelt.

Staff have recommended proceeding with the refunding, if it results in savings to ratepayers.

If approved, the City will pledge its full faith and credit to the repayment of such Bonds. Water utility revenues will be used to pay principal and interest on the obligations.

Next Steps

The water rate adjustments in the 2023-2024 biennium assumed a portion of the scheduled water capital projects will rely on debt proceeds, so this outside funding is crucial. Between 2025-2030, staff estimate the water distribution system will require nearly $74 M in escalated capital reinvestments.

This proposal went before the City Council on September 3 for first reading. Review the Agenda Bill (AB 6528), draft ordinance (Ord. No. 24-06), and watch the presentation here.

Staff will return to Council for second reading on September 17.

The competitive Bond sale is tentatively scheduled for the week of October 14, 2024. If the competitive sale goes as planned, Bond closing and the delivery of Bond proceeds would tentatively take place October 30.