The city of Missoula has met another milestone as stewards of our public water system: The city issued and closed a public sale of long-term bonds that refinanced the short-term loan that was used to originally purchase the system.
Think of this milestone as if you were replacing a line of credit with a mortgage. In this case, though, the numbers are a bit bigger, and the positive impact to residents is substantial. And like your home mortgage, the interest rate is a big deal.
A quick reminder of how the process worked: The city used a short-term loan to acquire the system in June 2017; that loan gave us the flexibility to buy the system, deal with the cloud of outstanding litigation contingencies and get some operating experience, which credit ratings agencies, banks and bond-buyers like to see, that would inform the long-term debt.
Our strategy was to get our arms around the operation, create a full facilities plan and find efficiencies within departments that reduced costs for everyone. In addition, we wanted outstanding legal issues to be largely decided before seeking a long-term loan. This strategy paid off to the tune of millions of dollars saved over the life of the debt.
S & P Global Ratings, the international credit-rating agency, saw it the same way and in March upgraded Missoula Water’s credit rating to “A+” on the long-term bonds from an “A” rating for the short-term loan. With this improved credit rating, coupled with savings we realized because the city isn’t beholden to far-away investors and corporate profits, we were able to reduce the term of the long-term bond from 30 to 25 years.
In the end, we saved $55 million by using a short-term loan rather than pursuing long-term bonds on Day One.
The final, total debt of the $101 million in bonds, including interest, is almost $16 million less than our estimate while making our case in court for the necessity of public ownership in 2014. The bonds include the purchase price of the system, attorney and professional fees of the City and the defendants and three years of funding for capital improvements to immediately start bringing the water system to industry standards.
And we did all of this at rates to water customers that are 6 percent lower than when the City began pursuit of ownership.
We were also pleased to get local bankingparticipation from First Security Bank, which provided $5 million of the bonds. In addition, individual Missoula and Montana investors purchased $500,000 in bonds through the public sale.
The lower cost of borrowing is also helping increase capital improvements for the water utility as we ramp up investment in the system to more than $7 million this year, more than twice the investment the private owner was making. We expect capital investment to be more than $8 million annually, almost triple the investment under private ownership. This not only helps rehabilitate aging water infrastructure, it helps improve our streets as we replace entire sections of road and curb by working with our Street Division on each project, rather than just patch asphalt.
A $101 million investment to own our water system is not trivial. But that investment in the future of Missoula is paying all of the dividends we argued it would, and resident ratepayers have already seen return on their investment.
We acquired the system, paid all the legal costs and nearly tripled capital investment, all at rates lower than it was in 2014. We are very proud of that.
Dale Bickell is the City of Missoula’s chief administrative officer.