On December 19, 2011, The Benton City Council passed Resolution 50 of 2011 to authorize the Benton Utilities Commission’s proposal to offer public utility revenue bonds in the amount of $11,200,000 $12,200,000. This Monday night (March 12), the council will consider Ordinance 13 of 2012 to authorize the new debt.
I have no criticism of the listed projects to be funded by this new debt. I support increasing water capacity in partnership with Saint Gobain’s plant expansion plus their possible second plant, adding a fourth electrical substation (increase reliability, redundancy and capacity) and replacing dilapidated infrastructure. I do question the urgency (we are currently at 86% of total electrical capacity during peaks) and I have the following concerns:
A. REFINANCING THE 2005 BONDS (aka: “FREE MONEY”)
During the December 19 council meeting, the aldermen were told we (aka: you, the ratepayers of the utility system) could borrow this money “without raising utility rates” and without increasing our monthly payment or extending the term of the debt (pay off in year 2036). I questioned how Benton could generate net proceeds of $11,200,000 $12,200,000 and pay all of the attorney’s fees and broker’s fees/commissions without increasing our revenue stream, our debt service payment, interest rate or loan term – it seemed too good to be true to me (“Free Money”). Since then, I have learned the new debt is not free:
B. LOSS OF BANK QUALIFIED/PREFERRED STATUS FOR CITY DEBT
During the December meeting, I shared the fact that the new utility debt will cause the City of Benton to lose its status as a “Bank Preferred” borrower which would increase the borrowing costs of future debt. I reminded the aldermen the citizens of Benton recently passed the convention center bonds in a historic landslide election. I warned them of the increase in the borrowing costs of the convention center bonds that will result from passing the new utility bonds due to the city’s loss of “Bank Preferred” status. I offered a suggestion to wait by saying, “we (Benton) need an opportunity to catch our breath and see how we are going to come out on the A&P bonds before we commit to this additional amount.” We can only estimate the increase costs of the convention center bonds approved by the people. But, we can safely say it will be more expensive for Benton to borrow money as a result.
C. CASH ON HAND
Based on conversations with utility’s personnel and Benton’s CFO, it seems feasible to use cash reserves to pay for the fourth (4th) electrical substation that accounts for about $3,000,000 of the debt proposal. Why not negotiate an interest free cash payment schedule with the substation vendor instead of increasing the ratepayer’s total debt? I suggest we work with Saint Gobain to get a firm timeline of their proposed expansion and the exciting possibility of them adding a second (2nd) plant. Can we defer this project to 2013 or 2014? What other purpose for cash is there for our utility system but to fund expansion, maintenance, and response to catastrophic events? If not used for those purposes, why not rebate the excess funds to the ratepayers in the form of a lump sum payment?
D. SUPPORT THE PEOPLE’s PROJECT
In support of the people’s mandate to fund the new convention center and to take advantage of a multi-million dollar private investment, I believe the people’s project must be an absolute priority in 2012. It concerns me that we are proposing additional new debt so soon after the November 2011 election. Instead, the focus should be on minimizing the cost of the people’s project.
Time is of the essence – the original meeting date to consider this new debt was March 26. Please make yourself available Monday night (March 12) to attend the required public hearing scheduled at 6:45 and the Benton City Council meeting at 7:00.
Alderman Brad Moore
City of Benton