Friday, April 18, 2014

EID bond refinancing approved: Will save $1M annually; term not extended

From page A1 | January 31, 2014 | 16 Comments

A majority of the Board of Directors of the El Dorado Irrigation District Jan. 27 approved saving $1 million a year by refinancing $133 million of its debt at a lower interest rate.

The vote was 3-0-1. Voting for the refinancing were Board President Alan Day and Directors George Osborne and Bill George. Director Greg Prada abstained and Director Dale Coco was on a prior-announced absence.

By the time the existing bonds are swapped out for the new issue in mid-February, the savings this year is expected to be $300,000.

At the final moment when the general manager, finance director, bond counsel and bond underwriter decide whether backing the bond issue with bond insurance is the most economical approach, the district could wind up with fewer bonds on the books at a lower rate without extending the term of the bonds. It could also come up with a bonus when they are sold.

The bonds were chosen for refinancing because they are callable, meaning EID can pay them off before they mature. The new bonds will have the same maturity date of 2039. In addition to the $1 million savings through 2025 and $400,000 thereafter, there will be a net present value saving of $6 million-$8 million, according to Finance Director Mark Price.

Net present value analysis, according to Fundamental Accounting Principles by Larson, Wild and Chiappetta, “applies the time value of money to future cash inflows and cash outflows so management can evaluate the benefits and costs at one point in time.”

Price told the board the savings could be used to decrease future rate increases and fund smaller capital projects on a pay-as-you-go basis.

The bonds, called Certificates of Participation, were issued in 2004 at an original true interest cost of 4.144 percent and will be refunded at a rate of approximately 2.8-3 percent. The 2009 original true interest cost was 5.964 percent and the refunding rate will be approximately 5.1-5.25 percent, according to Price.

The district has $360,561,000 in outstanding debt. Thirty-one percent of the debt is in variable-rate bonds backed by a letter of credit from Citibank. From March 1, 2004, to Dec. 30, 2013, the rate has varied from a high of 3.828 percent in 2008 to a low of 0.991 percent Dec. 30, 2013.

The district actually earns more on its reserve funds than it pays in variable rate interest, said Dave Houston of Citibank. “The reserve funds are invested in the State Treasurer’s Local Agency Investment Fund and can be withdrawn anytime. It’s a net cash positive versus what the district is paying,” Houston said.

Houston said the variable rate debt is “tailored for EID to have the best match to liabilities” and “to take the volatility our of your budget.”

Price noted that in the last couple of months the variable rate of the district’s bonds had been 0.03 and 0.04 percent.

Tuesday General Manager Jim Abercrombie told the Mountain Democrat the latest indications from the bond market are that the actual savings from the refinancing may be as high as $1.4 million annually.

In an e-mail to the Mountain Democrat sent at midnight Monday, Director Greg Prada explained his abstention as follows:

“With regret today, I abstained on voting for the debt refinance due to my concern that the Preliminary Official Statement contained materially misrepresented projections as to the district’s intent to raise rates 5 percent annually in 2016-2017,” Prada said.

“I believe that the debt refinance opportunity is in the district’s best interests but only if it can be obtained using financial projections which reflect only board-approved rate hikes and further are consistent with the campaign representations three board members made to the public in getting elected,” Prada said.

“Things can change regarding rate hike intentions by one or more of these board members, but to date the board has had no scrutiny of 2015-forward budgets and spending alternatives,” Prada said. ”I am disappointed that the financial projections being presented to prospective new bond holders precluded my ability to vote for the debt refinance.”

Prada did join a unanimous vote for the EID ”Disclosure Procedures,” which he had wanted more time to study when it was presented at the Jan. 13 meeting.

Six actions were approved by the board:

1. Resolution authorizing issuance of the refunding revenue bonds.

2. Indenture of Trust agreement making Union Bank trustee for the eventual bond holders.

3. Preliminary Official Statement disclosing all material aspects of the district.

4. Continuing Disclosure Certificate describing reporting requirements for the duration of the bonds.

5. Escrow Agreements making Union Bank the recipient and escrow agent for the borrowing proceeds.

6. Bond Purchase Agreement contract with underwriter Citigroup Global Markets Inc., valued at about $900,000.

Another $300,000 covers the cost of the bond counsel, the cost of the rating agencies to rate EID’s bond issuance, EID’s financial adviser and other costs of issuance. Total cost of the refinancing, according to Price, is $2.3 million. The savings figures touted for the refinancing included the transaction costs, he said.

Prada’s objection was to a No. 3, the Preliminary Official Statement. The POS is a treasure trove of information about the district. A statement on page 30 brought his opposition:

“The district is currently projecting water system rate increases of 5 percent in fiscal year 2016 and 5 percent in fiscal year 2017,” the POS stated.

However, the very next two sentences stated, “Any increases in water system rates in fiscal years 2016, 2017 and thereafter are subject to notice, public hearing and protest process as described under … Proposition 218. ”

The final sentence of the POS stated, “There can be no assurance that such increases will be approved by the Board of Directors or that a majority protest against the increase will not occur.”

On page 31 was a list of bimonthly water service charges for single-family residents, with EID’s lower than Grass Valley, Elk Grove, Placerville, Rancho Murieta, Placer County Water Agency, Nevada Irrigation District and South Lake Tahoe. At $94.34, EID’s rate was slightly higher than flat-land districts like Sacramento Suburban and Folsom, and definitely higher than Citrus Heights’ $57.28.

El Dorado Hills resident Paul Raveling produced a graph showing rates, operating expenses and inflation from 1996 to 2013.

“Rates increased 5.6 percent between 1990 and 2009,” Raveling said, adding the Consumer Price Index rose 81.5 percent in the same period. “EID is catching up with inflation.”

Prada also objected that the Facility Capacity Charges (hookup fees) for 2014 were too low at $17,578 plus the cost of the meter and any potential road crossing charges.

“The financial plan was submitted last year. The board approved the financial plan document. The budget was approved in October,” said Day. “The board did not approve rate increases for 2016. That would have to go through a Prop. 218 process.”

“The information is a snapshot in time,” said Day. “So long as we pay our bills we’re OK.”

Michael Raffety


Discussion | 16 comments

  • Garth HoffmannJanuary 29, 2014 - 4:56 pm

    This story should make all of us that supported Greg Prada for the EID board very happy to see that he is doing exactly what he said he would do in the campaign. He is unable to support a document that projects rate increases that have not been approved by either the EID board or the voters. How can you make financial projections based on a cash flow that has no basis in reality? Where is the other new board member on this issue? Dale Coco campaigned on using his extensive management skills from his role as a hospital administrator to bring good management practices to the EID board. I guess from the standpoint of a medical professional only 5% increase every year in perpetuity IS good management practices. The other issue here is the low cost of the hook up fees. I know $17,578 seems like a lot. But compared to an average cost of a new home at $500,000, it is less then 4/10 of 1%.. Even if it were double that at $38,000 it would be less then 8/10 of 1%. I know that would not make the developer happy, And I know Dr. Coco's campaign was paid for by the developer. So he isn't going to support a hook up fee increase, But as someone who has been paying for the capital improvements of EID for the past 11 years in ever higher water rates, I think someone new buying a home in this district should pay their fare share as well. To Greg Prada - thank you for keeping your promises . Keep up the good work. To Dale Coco, try and do the right thing. Garth Hoffmann Rate Payer El Dorado Hills

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  • Phil VeerkampJanuary 29, 2014 - 6:41 pm

    Mr. Hoffmann, Please read and study the article for which I am providing a link. LINK - How EID got to where it is now

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  • Foaming at the MouthJanuary 29, 2014 - 10:20 pm

    Garth, you're demonstrating the kind of math skills that got Greg Prada elected. Hint: Better recheck your calculations.

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  • Phil VeerkampJanuary 30, 2014 - 8:02 am

    Thanks, FatM. I had not noticed Garth's math. . . . . CORRECTION: (stipulating Garth's average EDH home price of $500,000 and FCC of $17,578) Presently FCC are ~3.5% of home price. ALSO: For those who have not read the article I provided Garth, the short version is this. EID is presently paying for the last time EID's Board of Directors lacked the political courage to increase rates annually. They instead did what Garth AND PRADA are advocating which is finance capital improvements with FCCs(hook-up-fees). We're still paying for Vargas and Bergmeister and Deister. Pay as we go - annual rate increases are better than replaying past blunders.

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  • Ron BriggsJanuary 31, 2014 - 9:52 am

    The next time someone wants to take a shot at the county consider this: We have 1,700 employees; decent labor peace (relatively speaking); built enviable reserves; are midway through a $6 million financial computer update (our financial computer system is circa 1988 DOS) ; reinvesting into your county facilities; lowered building fees; lowered and working on further reducing Traffic Mitigation Fees (TIM Fees) all the above done while annually bringing forth balanced budgets and paying our bills as we go. We paid off our last bit of debt in 2009 making us a debt free county. Our county is not going to get another shot of growth similar to El Dorado Hills even if we wanted to. I think all us rate payers should be very concerned how EID plans to pay $316 million of debt AND continue to pay its ever increasing salaries and benefits in a limited growth era. Recently, County Fire followed the Board of Supervisors lead to make the tough choices. They bravely addressed not having enough money and are seeking to right their ship with what they have. Tough choices are not pleasant but are necessary for those who choose to lead his friends and neighbors. Tough choices are an obligation when representing a constituency and, in my opinion, the EID Board of Directors have side stepped this obligation for a long time now. I for one, am really sick and tired of paying higher and higher rates for a gimmick ridden $316 million debt repayment. Ron Briggs Z&B Ranch farmers since 1971

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  • Fran DuchampJanuary 31, 2014 - 11:30 am

    RE: Taking shots at the county. Mr.Briggs, I for one have said many times that I respect government...and I do. However, It is hard for me to believe that a government entity would allow a group of unelected people and their choices to have so much power...many times it makes the board look like they have no clue as to what is going on. LUPPU would be an example. As far as rates, and debt repayment...I will have to concede to your knowledge. I would not want your job. I realise that people have to weigh issues. People come to the board first--out of respect--I know I do. Now issues will go to ballot--because people feel ignored (or dumbfounded...such as the issue about the Brown Act). CEDAC/CEDAPP should be dissolved. Respect deserves respect Sir. I respect all of you--I really do. You and the BOS were elected in. But I demand the same respect when I bring in an issue. Business is great--but consumers matter...some of the appointed people under the county --have forgotten that and worse--the BOS seems to be condoning it in some of their decisions. With much respect Mr. Briggs, EID is probably doing the same--figuring out how to get out of this "debt" mess (which did not just "happen"--as you know being in politics.). Politics-- a game of give and take. But even politicians love their children and grandchildren--and I dont believe anyone wants to leave their family paying the bills. I have heard you say that you protect the ruralness of El Dorado--and I have always believed you. I have heard a few at EID say the same about protecting our water--and I believe them as well. In closing, I can only speak for myself...if I take a "shot" at is because an answer to one of my questions--just doesnt make sense. Fran Duchamp -- someones grandmother since before he was born into this world--11 years ago. shrugging shoulders. He loves Pollock Pines--he loves building forts in the greenbelt behind his home...skipping rocks at forebay...riding his bike on the backroads. He loves his church as well as the others he visits...he loves his teachers, his friends...the big buck who eats my roses. So I dont own much--but my voice is just as important.

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  • Phil VeerkampJanuary 31, 2014 - 1:08 pm

    Ron Briggs, where in this article or in the comments do you see, " . . . a shot at the county . . . ". I don't see it. But I will supply this observation. When the county performs proportional staff reductions and employee "give backs" as compared to the staff cuts and employee concessions at EID your observations will be more impressive, noteworthy and carry more clout.

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  • Ron BriggsJanuary 31, 2014 - 11:44 am

    Fran, apologies. rb

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  • Fran DuchampJanuary 31, 2014 - 11:48 am

    No worries Sir. Fran :)

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  • Robert D NollJanuary 31, 2014 - 11:49 am

    "sick and tired" not the first time you have shared that point of view

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  • 1036-FrankFebruary 02, 2014 - 9:43 am

    Sometimes it is best to look at another water agency for direction and Placer County is a good example as their county decided in the 1960's to float a bond measure of around 140 million for the Middle Fork Project. The voters were told there would be millions in revenue from sales of power, which there was but the money mostly went to general fund projects through the BOS. PGE ran their program and did this in exchange for debt payment, now the PCWA is running their program since last year. Here is where the huge difference in priority begins with their program and EID. PCWA will service their debt through sales of electricity and water outside of Placer County. This is sound fiscal/rate payer policy that EID should take very seriously as PCWA debt although lower is manageable, over 300 million in debt is another story. This is a debt crises and there should be revenue sources outside of rate payers to pay off debt for a start. All revenue sources from developer fees to excess water sales should be on the table.

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  • Phil VeerkampFebruary 02, 2014 - 10:25 am

    Frank, sometimes it is best to look at another water agency at the EID reporting for direction and this Mountain Democrat article is a good example . . . LINK - County tries approach to pursuing new water rights ~~~ Look near before you look far, Frank.

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  • 1036-FrankFebruary 02, 2014 - 11:19 am

    Here's what I am looking at and of course legal battles can go either way, SMUD-Vrs-EID in a protracted legal battle over water rights. Who pays the bills? 300k was just approved for legal fees for the 300 mill in bonds, the bonds were now floated out to 2039 this is pushing debt down the far distant road and assures very high water costs for ratepayers. This debt crises was handled differently in PCWA. In the 1960's 140 mill was a lot of money, here at EID the debt was rolled into bonds same as there, but where is the plan in place at EID except rate payers? Placer used PGE to pay their debt for the MFP, Middle Fork Project, for about 50 years while using the millions of dollars in power revenue for many things like the giant expansion of Roseville/Rocklin, now you know how they paid for the infrastructure. Now, 2013, PGE turned over the Middle Fork Project over to PCWA who is making decisions on how to pay off the remainder of the about 60 million bond debt, who won? Placer county ratepayers did pretty well and this debt could of been paid off long ago if the BOS didn't divert it to the General Fund which people aren't too happy about as they, ratepayers, were told they would share in the profits which never happened. I can bet NID, Nevada County, also has nowhere near the 300 mill debt load that EID has. EID will have to look at all revenue sources and they should be all on the table to repay this debt and the ratepayers aren't going to continue to accept increases or paying for developer infrastructure costs, they will take other action though at the polls if need be and if this debt isn't taken seriously and all revenue sources considered and used, they will have to. This is where board dysfunction comes in, those who want to keep floating a huge debt off ratepayers and those who want to pay it off are going to have trouble. Just as if your spouse wanted to keep refinancing your house or car and float the debt. Eventually, people will demand that EID take the PCWA course of action by revenue sources, because the only other things left will be increased fees and/or more cuts to staff and benefits or a combination of all will be used.

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  • Phil VeerkampFebruary 02, 2014 - 11:31 am

    Frank, in the '60 Placer succeeded with the Middle fork project. El Dorado's equivalent failed. Frank, we tried SOFAR as Placer was trying Middle fork.. They succeeded. We failed. Now we try again. Until then we have no extra water to sell, Frank . . . BUT, say we do as you suggest. During this drought EID sells water to XYZ agency for HUGE "profit". And while lawns dry up in that low rent district of El Dorado Hills the buzzard lowyers line up to sue EID for selling the water that could have saved lawns, landscape and golf courses in EDC. All the profits from sold water goes to the lowyers representing brown lawns right here in EDC. HUGE WIN, FRANK!

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  • 1036-FrankFebruary 02, 2014 - 1:47 pm

    SOFAR seems so far ago now, but the 500 million price tag was no small change then or now and PGE wasn't going to run the hydro for EID and give back millions in revenue. Long term, the current debt has to be paid off with something other then a multi-decade slow payment with interest by ratepayers. I have heard about a lot of projects with price tags that without revenue aren't going to happen with a 300 million debt being slowly paid out and proposals of adding these 100 million dollar projects like Alder Creek Reservoir will be very hard to do, If not impossible, with the current debt anywhere near 300 million. PCWA and NID, have nowhere near a 300 million debt which is something that has to be dealt with before any substantial new debt..

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  • Phil VeerkampFebruary 02, 2014 - 2:24 pm

    Frank, out of 404 California water districts participating in the study 103 district rates are lower than EID rates, and 300 districts have higher rates than EID. To the extent that we have a debt crisis (we do not) it is traceable to the decade of Al Vargas and Bergmeister and EID's dysfunctional refusal to keep rates apace of inflation. The rate payers were taken in by the siren song of "no rate increases". We fell behind. We screwed up with Ane Deister. We are "paying the piper".

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