Consider the situation of Westlands Water District, which is currently issuing $77 million in Refunding Revenue Bonds. The bonds will refund outstanding Revenue Certificates of Participation from 2002, purchase a municipal bond insurance policy to guarantee payment of principle and interest, and purchase municipal bond debt service insurance.
The Official Statement regarding the bond issue notes that Westlands hasn’t formally decided whether to participate in the cost of constructing the Isolated Facility (Peripheral Tunnels). It also notes that the Isolated Facility wouldn’t be completed until at least 2026, which is when those paying beneficiaries could expect to get whatever “reliable” water supply they’ve been able to finagle.
According to this Official Statement, Westlands is projecting its water usage to remain basically unchanged from 2012-13 to 2016-17. (In 2012-13, they may use water rescheduled from 2011-12.) But it is hard for them to predict how much they will be paying for it. From 2009 to 2013, the cost of federal Central Valley Project water has gone up between 15% and 20%, depending on which rate individual users pay.
And what if California experiences another drought? The Official Statement is over 40 pages long, not including appendices. As far as we can tell, the word “drought” appears in it only once. Apparently Westlands has collected a reserve of close to $3 million “to fund long-term water acquisitions” and will use that to help meet debt service requirement in the event of a drought.
This document dials back Westlands’ obligations as a beneficiary to pay for an Isolated Facility:
“Based upon the cost allocations contained in the Administrative Draft [of the BDCP], approximately 75% of the costs of the Isolated Facility are expected to be funded by users of the Isolated Facility, including the [Westlands Water] District. Based on costs and yield information projected in the Administrative Draft, and assuming that all State and CVP water delivered south of the Delta share proportionately in the cost of the DHCCP [Delta Habitat Conservation and Conveyance Program] on a per acre foot basis, the District share of such costs would be approximately $2.4 billion.”
So where would the other 25% come from to pay the rest of the costs of an Isolated Facility? Apparently from everyone’s favorite uncle: the government. In other words, taxpayers. This stretches the usual definition of “beneficiary pays.”
On the other hand, Westlands also expects capital and operating costs for habitat restoration in the Bay-Delta to be paid by the Bureau of Reclamation and passed through to Westlands and other contractors receiving water through the federal Central Valley Project (CVP).
The $50 million in bonds for DHCCP costs is interest-only payments through 2013, when the full amount is due. Westlands assumes they will roll the whole thing into other DHCCP related debt.
It is also interesting that the $300+ million Westlands still owes the federal government is not listed as a liability. Meanwhile, their share of conveyance costs would be $200 million per year, which significantly exceeds their current annual revenue of $125 million per year.
Rising water rates, iffy reliability, costs in excess of revenue. Altogether not a rosy picture.