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Council votes 5-2 to analyze cost of stopping water plant construction

Friday, July 29, 2011 by Michael Kanin

The drama over whether to build Water Treatment Plant 4 continued this week as if it had not be planned, discussed, promoted and opposed for the past 35 years.

 

On Thursday, the Austin City Council passed a resolution that formally directs City Manager Marc Ott’s office to assemble an estimate for what it might cost to delay the project by either five or ten years. The measure also instructs Ott to “immediately suspend” his issuance of the notices that the city’s construction manager at risk, MWH uses to approve new work. That suspension expires on Sept. 2, according to the resolution.

 

The action came after Mayor Pro Tem Sheryl Cole re-worked language originally suggested by Council Members Bill Spelman, Chris Riley, and Laura Morrison. The new resolution includes a provision that additionally instructs staff to determine how much it would cost to accelerate water conservation, reclamation, and distribution by 20 percent over five and ten years. It also throws something of a bone to besieged Water Utility officials in a clause that instructs Ott to figure out how a “redistribution of…cost will most likely impact the financial position of the utility.”

 

Mayor Lee Leffingwell and Council Member Mike Martinez voted against the resolution. Cole has also firmly supported building the plant so Thursday vote should not be read as a change in her position. On Tuesday, she told In Fact Daily, “Any appearance of a halt now in the Water Treatment Plant 4 construction process has mind-boggling implications on our bond ratings.”

 

Much of the discussion centered on questions about what a postponement of construction might do to the city’s bond rating. Austin’s bond advisor Bill Newman of Public Financial Management told the Council that bond investors are conservative.

 

“Uncertainty normally translates to those type of people as…risk,” he said.

 

Newman said that the city could expect to receive a negative outlook from bond raters on at least its Water and Wastewater bonds, should it decide to hold off on the plant. That, he said, would almost certainly result in a higher interest rate for the city. He estimated that the higher rate would result in a cost of an extra $25 million for every $100 million that the city borrows via bonding.

 

Spelman tried to turn the risk concept around. “If there is a cheaper way, from the ratepayers point of view, of meeting our water and wastewater obligations than the immediate construction of Water Treatment Plant 4, then that would meet bond rating agencies concerns about keeping our rates competitive and ensuring that our revenues and costs are in balance,” he suggested.

 

Water utility director Greg Meszaros told In Fact Daily that a suspension of construction would also have an effect on rates. “The cost to complete the plant over the next five years, we estimated at about 8.6 percent rate increase,” he said. “It’s going to take hundreds of millions of dollars to stop the plant and do other interim solutions.” Stopping the plant, he said, is actually going to be more expensive than doing on-time completion.

 

Spelman reminded In Fact Daily that Newman believes that a simple change in course would bring the city “one bump down in the outlook.”

 

“What that means, basically, is that a few people who might have been willing to bid on our bonds when they go up to auction might not bid on the bonds – or may not bid quite so high a rate,” he continued.

 

Spelman noted that things were not likely to change drastically unless the utility got a ratings downgrade. “What triggers the downgrade is if the bond rating agencies believe that we have not done our due diligence and provided water and wastewater services in the most cost effective way,” he said. “So long as we make the right decision to provide water and wastewater services in the most cost effective way, at the lowest rate, then I think we’ll be able to go to the bond rating agencies and explain what we did and they’ll say, ‘okay, that makes sense to us.’”

 

Morrison, Riley, and Spelman represent a block vote against the plant – and have for quite some time. The election of new Place 3 Council Member Kathie Tovo gave that section of the council the fourth vote needed to change policy. For her part, Cole supported Tovo’s bid against former Place 3 Council Member Randi Shade.

 

“WTP 4 was not a minor issue in this election,” Austin Sierra Club vice chair Roy Waley said Thursday. “It was a very major issue.” Tovo, however, never promised to stop the plant and there were many other factors in the public’s decision to reject Shade.

 

The resolution gives the City Manager’s Office until August 18 to deliver their findings. However, there was some recognition of the fact that they might not come exactly then. “We’re going to shoot for the 18th,” said Assistant City Manager Rudy Garza. “But … I think it’s more important that we give you an accurate report, and I won’t hesitate to request additional time.”

 

From the dais, Morrison indicated that she does not expect the Council to take any further action on the plant until Sept. 1.

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