San Diego to Sell Bonds For Water System Upgrade
San Diego Daily Transcript - 8/5/02
San Diego will sell up to $350 million in bonds to begin
paying for the next phase of a massive effort to improve the city's
water storage and delivery system.
In April, the City Council passed a hefty 34 percent
water rate increase, partly to raise money for the annual debt service
on the bonds. The council followed up Monday, clearing the way for city
staff to raise the money to pay for the initial phases of the
half-billion-dollar capital improvement program.
Over the course of the five-year plan, the city's water
department will complete dozens of individual projects. They range from
the replacement of old cast-iron pipes that are responsible for most of
the city's water main brakes to upgrades in the reservoir and water
Under the plan adopted by the council Monday, the city's
staff will have the discretion to sell between $150 million and $350
million in bonds. Exactly how much money will be raised will depend on
cash flow needs and the market conditions when the bonds are sold in
October, according to Deputy City Manager Patricia Frazier.
In addition, the city may use some of its capacity to
refinance a portion of the $385 million in bonds it sold in 1998 to
begin its huge water infrastructure overhaul. That initial, three-year
program is nearly complete.
Under the new program, more bond sales will be required
to keep cash flowing in as the projects are constructed between 2003 and
2007, Frazier said.
There are two primary decisions facing city staff at
this point: whether or not to refinance a portion of the previous bonds;
and how many years of construction to fund in the initial bond sale.
If the city does decide to refinance, it could sell up
$95 million in bonds, resulting in $8 million a year of debt service for
30 years. A cost analysis will be conducted to determine if the city
will save money by refinancing, Frazier said.
The second decision involves how much of the
construction the city will finance initially -- two or three years'
worth of work. At two years, the city will sell up to $180 million in
bonds at an annual debt service of approximately $13 million for 30
years. Under a three-year plan, the city will sell up to $255 at an
annual cost of about $20 million.
The money for the debt service will come from a series
of rate increases approved by the council in April. They will raise the
department's revenue by 6 percent a year over the course of five years.
With some compounding, the rate hikes will result in an overall revenue
increase of 34 percent.
A little more than half the money will go for debt
service on the bonds. The rest will pay for the growing operational and
maintenance costs in the city's water department.
Small users will see the biggest percentage increases
due to the structure of the rate changes. Half of the revenue will come
from increases to the base rates and the other half from the commodity
portion of the bill.
Richard Mendes, the city's utilities general manager,
said San Diego's water infrastructure had been all-but ignored for
decades before the council approved the initial series of three rate
increases in 1997. Those hikes allowed the department to float the $385
million in bonds and begin the massive program. The bond sale approved
by the council Monday will continue the program.