Council to address water utility debt

Issuing and selling bonds, paying off debt and applying for state loans for the Austin Water utility will be up for discussion at City Council’s meeting Thursday.

At their work session on Tuesday, Council members seemed generally supportive of the items, which include: applying for $167 million in loans from the AAA-rated Texas Water Development Board for a smart meter system and improvements to the wastewater and reclaimed water systems, using fees to pay off $18.2 million in debt, and refinancing $295 million in bonds.

Because of the state agency’s high credit rating, interest rates on the debt it carries are lower than that carried by Austin Water, which has a lower rating – thus, the move will save the city money on those projects, said Austin’s Chief Financial Officer Elaine Hart.

She likened the bond refinancing – the conversion of $190 million in short-term, tax-exempt debt to long-term debt, thus freeing up more of the utility’s available commercial paper – to the refinancing of a home mortgage.

“Certainly, there will be savings over time just in budget dollars,” Hart told Council during its work session. “Refinancing those can also help us maintain a lower utility rate, and that is always our goal.”

Council Member Don Zimmerman questioned Hart and Austin Water Director Greg Meszaros on why the city should spend money on reclaimed water systems when Austin doesn’t consume all of the water it could while still avoiding paying the Lower Colorado River Authority fees under a 1999 agreement.

“I’m offended by this expensive money,” Zimmerman said after Meszaros explained that the reclamation process has not yet reached break-even and likely won’t for several years.

Meszaros said that reclaimed systems have been “very, very vetted” and that reusing water is “at the heart of maximizing local resources,” something Austin strives to do.

Regarding the Texas Water Development Board loans, Hart said the agency provides low-interest loans to utilities across the state and will issue $1 billion in funding this year. Austin’s proposals – the smart meter system and system improvements like new reclaimed water filters – both made a priority list of 28 projects submitted to the agency for consideration.

“Our ratepayers for the water utility will gain significant savings if these loans are approved,” Hart said, referencing a 35 percent reduction on the interest rates the city will pay if financing is tied to the state agency’s credit rating as opposed to the utility’s.

Staff repeatedly said that Council’s approval Thursday would not set the projects in motion but would only clear red tape to allow the loan applications to continue. But several Council members seemed eager to start the smart meter project, citing last summer’s spiking water bills.

“I hope we do get the loan and hope that we can do something,” said Council Member Ora Houston. “As Austin and the Central Texas region continue to grow and our population continues to increase, we’re going to have to be very cognizant about our water supply.”

Council Member Leslie Pool cited the smart meter system’s “very cool” technology, which can detect leaks and give users real-time data.

“We could also better manage our public side, the distribution side,” Meszaros said. “Having that much data available gives you options that you don’t (otherwise) have, but it’s a very complex undertaking.”

Council will vote on the utility items separately Thursday. One of the wastewater projects has already been awarded to a contractor, as it and the others under loan consideration are all on the city’s list of capital improvements. If the board grants the loan, funding would be expected in December.

WTP 4 photo courtesy of the City of Austin