Filing an agenda item on the Wednesday before being sworn in Monday, Dec. 9, newly elected El Dorado Irrigation District Director Greg Prada sought a four-month delay in the 5 percent rate hike scheduled Jan. 1.
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He lost that motion on a 3-2 vote, attracting only Director Alan Day, who was given the president’s gavel earlier in the meeting.
Newly installed Director Dr. Dale Coco voted against Prada’s motion, though he said his goal was to freeze rate hikes or at least confine them to inflation adjustments. But Coco said a rate freeze “cannot be done retrospectively,” but must be done “prospectively.”
Coco was also concerned that stopping the Jan. 1 water 5 percent rate hike would prevent the district from refinancing its debt at a lower interest rate. “We have to sign documents under penalty of perjury that the budget will not change.”
That budget for 2014 was adopted in October.
General Manager Jim Abercrombie said he would have the documents for the refinancing prepared for the Jan. 13 meeting. Refinancing $130 million of the debt at a lower rate would provide the district a savings of $300,000 in 2014 and $1 million each year thereafter.
“This is going to be a harsh, harsh blow,” Prada said.
Dave Houston of Citi Bank, who has handled EID’s bonds and Certificates of Participation since 2001 praised the district for being “proactive in managing its cost strategies.”
“EID’s name in the capital markets is very well respected,” Houston said, adding that the district’s recent endeavors to pay for capital improvement projects out of existing revenues has “enhanced its creditworthiness.”
Abercrombie, in a memo in response to Prada’s agenda item, wrote, “A mutual goal of the board and the staff is the ability to fund smaller capital projects in the future on a pay-as-you-go basis. Maintaining the 5 percent increases scheduled for 2014 is a critical part of the goal.”
“A1/A+ is the strongest rating since the district was incorporated,” Houston said. “Prepaying debt shows credit strength.”
“In 2012 a refinancing by the district attracted 2 1/2 times the available bonds and allowed a lower rate,” Houston said.
Keying off an audience comment that EID “should be run like a business,” Houston said EID operates like a business. It has improved in 12 years. “I work with 750 utilities from Puerto Rico to Guam.”
Asked by Director George Osborne about the possibility of getting a higher credit rating, Houston said AA credit ratings generally go to districts with “bigger demographics — 400,000-500,000 customers, whereas EID has 100,000 customers.”
“I can tell you they will burn this building down if we have more rate increases,” Coco said to Houston. “I think development is going to be tamped down” by the El Dorado County Board of Supervisors. Prada, noting the district’s debt goes through 2039, asked if the refinancing would extend it.
Houston said the refinancing would lower the interest rate but not extend the term of the debt.
Prada also expressed concern about amount of variable debt. “Sometime rates will go up.”
Houston said if variable rates go up the district’s $85 million in reserves would compensate by earning more interest. “The only thing I would be concerned about is if you reduce the reserves,” Houston said.
“We need to know what ticking time bombs we have,” Prada said. “Clearly it’s worked out well. At some time it won’t. We need a five-year plan.”
Houston listed two key exposures the district has to variable bond rates: 1. spending reserves, and, 2. if tax rates do go down at the federal level.
“What about pension obligations?” asked El Dorado Hills resident Bob Lucca.
“These are all included in the disclosure documents. EID is at the pinnacle of bond rating for a district this size,” Houston said.
Among the subscribers to EID bonds are names like Vanguard, Lord Abbott, Black Rock, BNY Mellon, PIMCO, Wells Capital Management, Northern Trust, Western Asset and Oppenheimer.
Regarding his request for a four-month rate freeze, Prada said, “There are multiple ways to call a timeout. Noting the debt refinancing cost reduction of $300,000, he also said “property tax revenue (to EID) is going to be more happy. All these create an opportunity to step in front of rate hikes. What I am proposing is a deferment for a four-month period. There is a mandate from the election. That’s why I pushed to put it on the agenda.”
“Mobile home park residents teared up, teared up” about the rate increases,” Prada said.
“During the Cost of Service Study I think you were in favor of going to the 50/50 rate,” said Director George Osborne, referring to splitting water rates 50 percent between base rate charges and 50 percent commodity charges,.
At an Oct. 24, 2011, public workshop on the Cost of Service Study in Cameron Park, Prada said he favored the 50/50 plan.
“I was opposed to it,” Osborne said, “because it was a substantial change.”
Osborne favored staying with the 25 percent base charges and 75 percent commodity charge as more beneficial to those living on Social Security. Abercrombie sought the change to 50/50 because of the volatility of the higher commodity charge percentage.
“The primary function of this board is that we have the wherewithal to deliver water and sewer. We brought it down from 11 percent (rate hike) to 5 percent. I look to the general manager to find as much savings as possible. I am in no way going to jeopardize that bond rating.”