The Price of Liberty is Eternal Vigilance
City Council February 28
$290 million bond issues by CPW approved
Water and sewage fees to rise annually 4% and 7% respectivelyMarc Knapp
There was not a great deal of discussion about the $290 million revenue bond issues. And indeed, the capital raising is not as big as it seems to be. Of the total $290 million, $110 million is for refinancing outstanding bonds. The redemption of the outstanding bonds and the replacement with the new will save $4 million, Charleston Public Works (CPW) estimates.
Mayor Riley noted that the bonds would raise capital for investment in new facilities and for the maintenance of old. Most of the funds - 98%- would be utilized in the area within the Urban Growth Boundary defined by the County. The high growth of the City and the need to make provision for further growth were cited as reasons for the bond issue.
Concomitant with the bond issue would be an increase in fees. Water rates would be lifted by 4% a year for the next 3 years and Sewage rates by 7% a year for the next 3 years. CPW claimed that its rates are presently about average compared to other utilities in the region. But in our view, rates will be above average after the planned increases.
We rose in Citizen's Participation time to point out that a major reason for the bond issue was also the cost of servicing Daniel Island. The cost of providing water and sewerage facilities to the relatively new housing development has cost CPW about $100 million. And the revenue that CPW derives from Daniel Island is only about $2 million a year. Assuming all the revenue were profit, the return on investment would be only 2%. But in fact, the return is much less and possibly negative considering that there are costs in serving the Island community. Daniel Island developers got a very good deal from the City of Charleston when they planned their community for in effect, they have been subsidized by CPW.
Total revenue for CPW is running between $60 and $70 million a year. With a likely coupon rate of 5%, the utility will need to find $9 million a year to pay the interest on the $180 million of net new bonds, and of course much more than this to amortize the capital amount. However, this should not present a problem. The increase in fees should add around $12 million a year to revenues by 2009 when all the planned fee increases have kicked in.
The Mayor's speech about the need for maintenance and investment to keep the water and sewage services working stuck in our craw. The planned bond issue and the increase in water and sewage fees flow hard on the heel of a 50% increase in storm water fees. If sufficient attention had been paid to investment and maintenance of existing storm water facilities, citizens would not now be facing such a massive fee hike.