Payson this week finalized arrangements to borrow $6.5 million from the federal government to begin work on the Blue Ridge pipeline.
The Water Infrastructure Financing Authority (WIFA) set the rate at 2.9 percent on the 10-year loan obtained as part of the federal stimulus package. Accepting the loan will also qualify the town for a $4-million grant.
The town will pay the loan back during the next decade, with annual payments of roughly $460,000, depending on the interest rate.
Federal regulations require the town to pay back that money with water sales, which means current water users will pay back the loan during the next 10 years.
Water impact fees from new development have paid millions of dollars in preliminary costs and can be used to pay down the principle, but can’t be used to pay interest on the loan, said Payson Mayor Kenny Evans.
The town also hopes to qualify later this year for another $20 million or so in loans from another low-cost federal program, which will let the town repay the money over the next 40 years.
All told, the town will probably end up paying $1.2 million annually for the two loans needed to pay for the pipeline that will deliver 3,000 acre-feet annually.
Impact fees can’t be applied to the interest payments on those loans. As a result, payments by current users will end up paying for about half of that annual cost — roughly $600,000.
However, those payments won’t trigger a rate increase, said Evans.
The town is about to pay off bonds it issued when it bought the water system, which will save the water department $150,000 a month. In addition, the payoff will free up about $300,000 in reserves that the town can apply to the Blue Ridge pipeline loans, said Evans.
The water district can absorb the balance of the $600,000 or so in interest costs, without a rate increase, said Evans.
However, the town probably will update a previous study comparing the town’s water rates to other cities, said Evans. That previous study completed several years ago recommended small, annual increases in rates. However, the town council has never implemented those recommendations.
The town has hired an outside bond consultant and legal firm to help it issue the revenue bonds.
Previously, town officials had said that the the town’s $7,500-per-unit impact fee would pay most or all of the cost of the $30-million Blue Ridge pipeline.
However, the federal restrictions on the use of impact fees required the town to use water revenues for at least the interest payments on the federal loans.
Still, the low rates and long terms on the federal loans will likely save Payson water users millions of dollars, in addition to the $4-million grant.
Moreover, the town gets the actual water from the reservoir worth millions on the open water market for free, under the terms of federal legislation. The residents pay only the cost of building and operating the pipeline, which they will share with the Salt River Project for the portion of the pipeline on top of the Rim.
The Blue Ridge water will actually be cheaper than pumping water out of the ground.
The water will flow downhill after being pumped initially out of the long, deep, narrow reservoir. The flow of the water will actually generate electricity along the way to recoup much of that initial pumping cost.
By contrast, the town pays a significant cost to pump water out of the ground from its network of wells. As a result, the Blue Ridge water could end up costing significantly less than well water, saving existing rate payers money when it finally arrives.
Currently, the town uses about 1,800 acre-feet annually, almost all of it pumped out of its network of wells. Rainfall on a long-term average, puts about 2,400 acre-feet into the ground in the watershed feeding the town’s wells.
The Blue Ridge pipeline in about 2015 will deliver some 3,000 acre-feet of water annually, more than doubling the town’s water supply.
Initially, the town plans to rely almost entirely on the Blue Ridge water during the nine months a year water flows through the pipeline. Hopefully, that will allow rainwater and runoff to build up in the underground water table, which dropped by several hundred feet prior to the imposition of water conservation measures some years ago.
As the well levels rise, the costs of pumping the water out of the ground should fall, providing an added bonus for rate payers.
The 3,000 acre-feet from Blue Ridge coupled with the 2,400 acre-feet of natural recharge should provide enough water to supply a town of up to about 44,000, with a cushion to get through drought years, according to town water officials.