The Peachtree City Council gave its blessing Wednesday to use the city’s backing on a bond refinancing that will save the city’s Water and Sewer Authority $3 million over the life of the 14-year payback.
Taking advantage of lower interest rates will save about $220,000 a year on average, officials said. Beyond that figure, WASA will also be able to reclaim $1.15 million it had to put aside in 2002 as an “insurance policy” in a debt reserve fund.
The remaining $1.15 million will be available as cash reserve and can be used “if catastrophe strikes,” said WASA General Manager Stephen Hogan.
The total savings on the refinancing is just shy of 10 percent of the total funding amount, Hogan said.
The annual savings will help WASA stave off any potential future rate increases, Hogan added. WASA took some heat in October 2010 for instituting a rate increase that resulted in sewer bills increasing by $20 a month for most residential customers. That rate increase was necessitated after WASA had to remove $400,000 from its cash reserves to pay the annual debt service on the capital program that increased the city’s treatment capacity and improved the two sewer plants while shuttering a third, much smaller plant that was the original treatment facility built in the 1970s.
Without the city’s backing on the bond issue, WASA would have lost an estimated $500,000 in savings due to lower interest rates. Also WASA was faced with a potential of having to create another debt service fund which would have tied up more than $1 million as well.
The drought leading into late 2010 was blamed for much of WASA’s revenue drop, though part of it was related to the loss of one of the city’s largest sewer customers, Photocircuits, which closed in 2006.
The agreement between WASA and the city allows the city to keep its veto power over any future expansion of sewer services outside of the city limits. That had been a major sticking point for several council members after WASA initially asked for the veto power to be removed.
WASA soon reversed course however and said that was not a major sticking point as far as they were concerned in the negotiations. The move has resulted in some damaged relations between WASA and council, as council voted last month not to reappoint WASA member Tim Meredith on the basis of what Councilman Eric Imker said was discontent over the 2010 rate hike.
WASA officials have said the rate increase was necessary to meet a covenant in its bond which requires 110 percent coverage of the utility’s debt service payments from year to year. The authority has more than met that goal, officials said.
Furthermore, WASA was granted a “AA-” credit rating by Standard and Poor’s in a pre-bond issue evaluation this year. The analysis noted that WASA’s finances have been strong and stable for the past two fiscal years, WASA officials have said.
“A rating in the ‘AA’ category is considered high investment grade and demonstrates very strong capacity to meet financial commitments,” said Todd Barnes, bond underwriter with Robert W. Baird & Co., who worked on the issue for WASA and the city.
Barnes noted that the credit rating is an opinion that measures “an issuer’s general credit profile, financial strength and economic vitality.”
“This credit rating — and the rationale given for it by the ratings agencies — shows we are making sound financial decisions for what is best for the Authority and our ratepayers,” said WASA Chairman Mike Harman.
WASA also benefitted from the city’s “AAA” credit rating since the city decided to back the bonds, though no city capital outlay is planned.
The WASA board consists of five members on staggered terms, all of whom are appointed by the Peachtree City Council. Over the years, however, council members have lamented on occasion that it is difficult to remove members from its various authorities.