One buyer’s Mountain Water is another buyer’s mountain of debt

As you likely know, last fall, a Missoula District Court determined that the city of Missoula could take ownership of the local water system via condemnation. Specifically, the court ruled that it was “publicly necessary.” That case is currently under appeal in the Montana Supreme Court. But in the process, ironically, no one asked the public. Do you, as a water customer and resident, believe it’s necessary to own Mountain Water? And at what price?

City officials initially painted a rosy financial picture, claiming they’d secure the system for around $50 million, plus $400,000 in attorney fees. Two years later, that picture has changed.

With the end of the case nowhere in sight, the city has spent $5.2 million to date on teams of attorneys. And the promised $50 million purchase price? It’s looking more like Missoula — if it wins the court case — will pay something north of $300 million for the system. Here’s how.

THE MOUNTAIN OF DEBT

To pay for the system, city officials intend to borrow 100% of the purchase and future infrastructure costs in the form of revenue bonds. As of today, that means 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. At that price, the city will pay an additional $105 million in interest over the lifetime of the bond.

That’s a minimum of $229 million that needs to be paid out of Mountain Water Company 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 replace the water system infrastructure. 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 that doesn’t include unanticipated emergent needs. If, for instance, a major drought occurs here or there are changes to water quality regulations a decade from now — and either or both require additional infrastructure to address those needs — the city will be the one that has to fund those costs. That means even more debt.

THE PRIVATE OWNERSHIP MODEL

By contrast, private ownership under Liberty Utilities places no debt on the community. For proof, you need look no further than Liberty’s recent purchase of Western Water Holdings, Mountain Water’s grandparent company. That purchase didn’t raise your water rates one dime. It didn’t lead to hefty connection costs. It didn’t impact you negatively at all. In fact, it can’t.

NEW PUBLIC DEBT
Here’s how different ownership of your water system impacts public debt in Missoula. Both models assume roughly the same expenditures on infrastructure in the next 10 years. All figures are minimums:
City
Ownership
Private
Ownership
System assets $88.6 million $0.00
Legal & closing costs $15.5 million $0.00
Statutory interest $14 million $0.00
New infrastructure $60 million $0.00
Bond interest $134 million $0.00
TOTAL NEW DEBT: $312.1 million $0.00

As a privately owned utility, the rates charged by Mountain Water are strictly regulated. Liberty can’t fold the price paid for Mountain Water into rates. And we can’t arbitrarily raise water rates. We have to go before the Montana Public Service Commission and prove our case, giving you the public a guaranteed opportunity for involvement and an experienced regulatory voice speaking on your behalf.

That won’t exist under city ownership. The city government will be able to — and need to — raise rates significantly and at its own discretion to meet its financial obligations to bonding institutions. In fact, with revenue bonds rates can increase automatically to meet the bond requirements.

Unanticipated future needs under private ownership means no debt for the community. The private utility responds with its own debt and equity. Just as it always has over the decades here in Missoula.

WHAT WOULD YOU CHOOSE?

Over the past two years this case has been in and out of courts, splashed across the pages of papers, and flashed repeatedly on the nightly news. Through all of that, we’ve heard from judges, attorneys and politicians — everyone, actually, but you.

So, we pose a simple question. Given all the needs our community has — education, economic development, housing, transportation, public health, police and fire services, open lands conservation — is owning the water system a $300 million priority for you?

In other words, do you choose a private system operated like Mountain Water? Or a mountain of debt?

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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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