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Despite low water usage from Austinites, Austin Water continues to pay down debt

Wednesday, May 16, 2018 by Jessi Devenyns

As it happens every year, Austin Water, the city-owned water and wastewater utility, is currently in the midst of planning its budget for the next fiscal year, which will also reflect an updated financial forecast until the year 2023.

Although this financial forecast is just a preliminary budget according to David Anders, assistant director of financial services for Austin Water, things are looking less pricey for the utility. At the last meeting of the Water and Wastewater Commission, he presented a forecast capital spending plan that was markedly reduced from what it has been in past years.

In 2009, Austin Water was forecasting that $1.4 billion would be required for the following five years, but in the most recent five-year projections, the figure has shrunk down to $912.6 million. Almost 30 percent of that allocated budget is slated to be used in 2020 when Anders said several large projects are going to be transitioning out of the design and into the construction phase.

However, Austin Water does not expect these upcoming projects to significantly increase its debt. “Rather than just paying off old debt … we’re actually trying to avoid issuing the debt altogether,” said Anders. He explained that the water utility plans to increase the percentage of cash it uses to pay for a project to 35 percent.

This payment structure, Anders noted, would increase the rate at which the municipal utility pays down its overall debt, which currently rests at about $180 million. Later this month, Austin Water expects a $64 million defeasance of debt that will go forward through Council.

Although Austin Water still has significant debt service requirements, the percentage of its debt service since 2015, when compared to its total financial requirements, shrank from 43 percent to 30 percent in 2018. By 2023, Anders expects to see debt service requirements hovering around 25 percent of the utility’s overall financial obligations.

“For many years (the debt) was around 50 percent,” said Commissioner Mickey Fishbeck Maia. “For it to go down to around 25 percent is really phenomenal.”

When Austin Water reaches this balance of debt service requirement payment, Anders explained that it would be at a debt service coverage target of 1.85. Currently, it is at 1.61. “Some people would say that’s a very conservative financial policy,” Chair William Moriarty said.

Anders countered that Austin Water is not taking a particularly conservative approach since “during the drought, we went to a coverage of 1.25.” At that level of coverage, “we barely got by,” Anders explained. “That is when our rating agencies put us on a negative watch.” To maintain a AA credit rating for bond, which Austin Water maintains, the required debt service coverage level must be over 1.20.

The reduction in debt is even more remarkable when it is put into perspective. Not only are the residential rates remaining stable for the next several years, but residents aren’t using as much water as they were a decade ago. Ten years ago 50 percent of water was used for irrigation. Now it is around 20 percent.

Anders gave a shout-out to Austinites who, since the last drought, have consistently kept their water usage at an average of 5,900 gallons a month. During the last drought, the average water usage was 5,800 gallons a month. “Right before the drought it was right around 8,000 gallons on average,” said Anders. “We thought (average water consumption) was going to tick back up just a little bit, but even last year it stayed.”

It is noteworthy that this trend holds steady, as the number of Austin Water accounts increases by 3,500 new customers a year. “And that’s pretty much where we’ve been for the last couple years,” said Anders.

While final numbers are still being tallied, the initial glimpse into the next five years of Austin Water’s finances looks promising. The final proposed budget will come out at the end of July to be approved by Council in August.

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