A light at the end of the tunnel? Or a freight train of debt?

Last year, a Missoula District Court determined that the city of Missoula could take ownership of the local water system via condemnation. However, in that ruling (currently under appeal to the Montana Supreme Court), the city was not required to answer one of the most practical questions at stake: What is the financial impact of city ownership on water customers and the city’s overall financial health?

City officials would have you believe that the takeover is nearly complete and that if they take over the system, they’ll be able to keep more money in the local economy and pour unprecedented funding into the system, all while charging lower water rates than Mountain Water Company charges.

It sounds good. Until you actually do the math.

Trainloads of money will leave town
While city officials have talked loudly about money leaving town under current private ownership, they’ve been quiet about the tens of millions they plan to ship out of town. You see, to pay for the system the city intends to borrow 100% of the purchase and future infrastructure costs in the form of revenue bonds – an approach that actually sends more Mountain Water revenue to private institutions and investors than Mountain Water ever has under private ownership.

THE STARTING PRICE: $124M

The city has kept the community in the dark regarding all the costs associated with taking over Mountain Water. Here are our best estimates given limited information:

$88.6 million: system assets
+ $14 million: interest on system assets (increases $740K/mo.)
+ $6 million: year 1 infrastructure improvements
+ $3 million: bond closing costs
+ $5.2 million: legal fees for the city
+ $7.3 million: legal fees for defendants
= $124.1 million total new debt

… all paid (along with $105M bond interest) through your water rates.

How? As of today, the city would need to bond at least $124 million in order to pay for the system as well as statutory interest, legal fees, closing costs and first-year infrastructure investment. Over the lifetime of the bond, the city will pay an additional $105 million in interest – interest that only benefits bond investors, many of them far from our valley.

That’s a total of $229 million that needs to be paid out of Mountain Water revenue – the rates you pay for water service – over 30 years.

That’s just the start of it. City officials said under oath they need to invest $6 million–$9 million each year for at least the first 10 years to maintain, repair and upgrade the water system. Meaning, if the city takes over the water system at least another $83 million in principal and interest would have to be paid off over the next 30 years – directly impacting the water rates you pay.

And unlike private ownership, under municipal ownership there will be no Public Service Commission regulation or independent oversight by the Montana Consumer Counsel to moderate or adjudicate that impact.

Runaway debt and rates: the impact of city ownership
In early January of this year, Liberty Utilities with its own cash bought the stock of Mountain Water Company’s grandparent company. The price Liberty paid will not affect your water bill – not by one dime. It’s the law.

If the city takes over the system, your water rates increase with every dime of principal and interest the city pays. This extra community debt has the potential to reduce the city’s bonding capacity for other, vital needs of local government.

The mayor has promised that water rates wouldn’t rise in the first five years of city ownership (he has since backtracked to no rate increases in the first year). Either way, simple math says that the city would need additional revenues of at least 18%. The city would need to either raise water rates or make other choices such as raising taxes, reducing other city services, eliminating water system staff, or imposing hefty connection fees – an approach that would significantly increase the cost of housing in Missoula.

And again, the financial burden on the local community would only increase from there, every year that the city performs infrastructure improvements.

A light at the end of the tunnel?
This condemnation case is years from being decided. As the owners of the system, we intend to exhaust every legal avenue to protect our property and rights.

Win or lose, the city has already burdened the community with debt, having paid its attorneys $5.2 million – 13 times what was promised the community at the outset of this case. Late last year a court-appointed commission set the fair market value for the water system at nearly twice what the community was told to expect. And that price goes up every month to the tune of $740,000 in statutory interest.

Pursuit of condemnation has put Missoula on track for runaway debt at a time when vital public needs are already underfunded. Sure, the city says it will all be worth it, that there’s a light at the end of the condemnation tunnel.

Simple math would tell you it’s more like an oncoming train.

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Want more details about the issues discussed in this post? Check out the article at this link, in which Mountain Water Co. president John Kappes explains the math and other important background information.

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