The Rainbow Municipal Water District board voted 5-0 Oct. 23 to authorize district staff to pay down the existing loan on the North and Northside reservoir projects from its reserve account, while approving a State Revolving Fund loan agreement for the Beck Reservoir/Pala Mesa Tank and Morro Reservoir projects.
“That will pay for two of our big reservoir projects,” said Rainbow general manager Dave Seymour. “It was a very good financial decision for the board to accept the loans.”
If the state approves the loans for the two reservoirs, Rainbow would borrow $18,227,880 from the State Water Resources Control Board. The money would be repaid over a period of 20 years at an interest rate of 2.0933 percent, which is half the general obligation bond rate obtained by the state treasurer’s office.
“It’s a very low interest rate,” Seymour said, “that will allow us to pay for these projects through a long period of time rather than try to collect the money through our water rates in a short period of time.”
The loans would provide $7,924,076 for the Beck Reservoir/Pala Mesa Tank project and $10,303,804 for the Morro Reservoir work.
During the past six years the Rainbow district has spent approximately $25 million to achieve compliance with state regulations for treated water reservoirs. The district has utilized pay-as-you-go funding rather than bonded indebtedness for most of those upgrades, so district customers are paying a reservoir surcharge of $177.48 per year per meter.
That surcharge is projected to bring in $1.2 million annually for each of the next five years. Since the approximate cost of paying back the State Revolving Fund loan is $1.1 million per year, the reservoir surcharge will cover the payment for that time. Repayment in future years may be covered through existing rates or through projected development.
The new SRF loan would allow the district to repay a previous SRF loan for the North and Northside reservoirs. The current debt for those reservoirs is $3.4 million. The district’s Ordinance 95-1 requires a public vote if the district has more than $1 million in debt and seeks to borrow an additional amount, but no public vote is necessary if the district’s debt is less than $1 million. There is no prepayment penalty if an SRF loan is paid off early.
Although the repayment of the North and Northside debt will bring Rainbow below the $1 million indebtedness level when the new SRF loan is obtained, the new loan will bring the district above that threshold. “It is going to be many, many years before we’re down below that million dollar level again,” Seymour said.
The board’s Oct. 23 agenda also included a potential modification of Ordinance 95-1, but the arrangement to bring the debt below $1 million before accepting the SRF loan led to that item being tabled with no action taken. “We don’t foresee any need to go out for any loans,” Seymour said. “There’s no reason to try to modify 95-1.”