Construction On Pipeline Project Starts In March

Payson applies for low-interest federal loans to finance $33 million pipeline project

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After a year of logjams, work on the Blue Ridge pipeline has suddenly hit flood stage.

Construction on the $30 million to $40 million pipeline will start in the early spring and Payson has moved toward getting its construction permits approved by the Forest Service and an application for long-term financing approved by the federal government.

In addition, the town will use the federal township act to quickly acquire a five-acre parcel near the Mesa del Caballo subdivision for the $7 million water treatment plant at the end of the pipeline buried alongside Houston Mesa Road.

“I think we’re rolling and moving forward,” said Payson Mayor Kenny Evans. “We’re getting the townsite act started to acquire the land for the treatment plant. We’re moving along fine for a spring start, since we’ve agreed not to do any construction in the winter.”

The pipeline will cost roughly $2,200 per resident. Federal grants and loans, plus water rate increases will spread the cost and the repayment pain over 40 years.

The town agreed to limit any loud construction activities in the winter to avoid upsetting any nearby endangered Mexican spotted owls. No owls apparently nest in the tangles of cottonwoods and sycamores along the East Verde River, however, the U.S. Fish and Wildlife Service has included a thick forest about a mile from the river as critical habitat for the endangered owl. Payson agreed to avoid things like blasting to bury the pipeline during the times of the year critical to the owls.

Construction will take two years, said Evans. The schedule still calls for delivery of the first water in 2014 or 2015.

A year-long delay by the Tonto National Forest in approving the biological assessment of the pipeline project had alarmed town officials. The questions raised by biologists revolved mostly around the endangered Mexican spotted owl and Chiricahua leopard frog. Neither live along or in the East Verde, but both have “critical habitat” within a mile of the stream.

However, in the month since the Forest Service and the Fish and Wildlife Service both concluded the project won’t hurt either species, things have moved along rapidly, said Evans.

The comment period on the notice in which the two federal agencies have come to that conclusion ends on Dec. 19.

“No one has raised any objections,” said Evans. “So we have a month to wait to see if anybody who is on that list who received the notice of the final decision protests. If they don’t, we’re good to go. So far, not a peep, which is very rare. The Forest Service just seems shocked by how well the project has gone forward now.”

Evans said the town has also applied for a low-interest, long-term loan from the recently overhauled Rural Water Act, administered by the U.S. Bureau of Reclamation. Payson recently won passage of a law making the Bureau solely responsible for overseeing the pipeline construction.

“We have applied, we’ve gotten approval and we’ve done a feasibility study,” said Evans.

“By next spring, we’ll apply for the long-term financing.”

Evans said the town should get the loan at an interest rate of 3 percent over 40 years, compared to a normal rate of more than 5 percent.

“That’s not only a good interest rate: It will allow us to spread the cost of the project out over 40 years,” said Evans.

The town recently put into effect a 10 percent increase in its water rates, with an additional 20 to 30 percent phased in over the next several years — including a jump that goes into effect this month.

Those increases will raise the money to upgrade, aging, undersized water mains that have left large sections of town without fire hydrants, but they also guarantee a revenue stream to support the bonds for the Blue Ridge pipeline, said Evans.

The town can’t sell the low-interest revenue bonds to secure the federal loans unless it can demonstrate it has enough money coming in to repay the loan. Originally, the town thought it could finance the $33 million pipeline with money from a $7,500-per-unit water impact fee. But that was during the boom years when the fee was producing about $2 million annually.

The collapse of the housing market has forced the town to shift to a backup plan that relies on higher water rates to guarantee the revenue stream to repay the bond.

The council could cancel or reduce water rate increases slated for the next two years if growth resumes, producing more impact fees.

For instance, the Rim Country Education Alliance has already agreed to pay some $7 million in impact fees if it can strike a deal with a university to build a $400 million college complex here. That development alone would cover some 20 percent of the cost of the pipeline.

“The SLE would spread the payments out over three years the minute that encumbrance is created” with the start of construction on the campus, said Evans.

Once that happens, the council will sit down with its water rate consultant and determine how much to modify the scheduled water rates in the next two years. If those rates take effect without modifications, they will raise the town’s water rates by about a third.

Evans said the water rates, construction costs and the town’s growth projects will all play a role in determining the timing and interest rates of the bonds for the pipeline.

“They look at the credit rating of the town to determine the bond rate — but they also look at the revenue stream to determine whether they’re going to loan you the money or not.

“They won’t take a plan if we say we have a plan for 38,000 people in town so we don’t need to raise the rates. They base it on a measure of where you’ve been. They’re not going to take your word on something as big as a $7 million development fee you say someone’s going to pay you some day.”

In addition, the state Legislature threw another wrench into the works this year by adopting tough new restrictions on the ability of towns to impose development fees to pay for the public facilities needed to accommodate growth. Evans said the town’s attorneys are still working on how to modify the town’s impact fee policies to comply with the new restrictions, but noted the town might have trouble using impact fees in the future to cover the cost of the pipeline.

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