Bossier City should sink too risky water deal

In present form, the water deal proposed by the Port of Caddo-Bossier is all wet that the Bossier City Council should sink.

This week, the Council will take up the offered cooperative endeavor agreement that would allow the Port to pass on the cost of a water distribution and treatment facility to the city which would operate it and generate sales from it to the Port and its tenants over a period of 99 years. The city also could use capacity beyond that required by those entities for its other customers.

Last week, the Council met in a workshop to allow for councilor and public questioning about the deal. Port Executive Director Eric England fielded inquiries about the terms and financial aspects of the arrangement.

While a few details emerged, these didn’t alter the basics of the proposal. On its property in Caddo Parish the Port would build the facility but would want the city to operate it. This would mean laying some pipe by the city to hook up to it. The city would bear all expenses to run and maintain it even as it wouldn’t own it. England testified that $35 million in bonds would have to be issued to pay for this, but that the Port could secure these at an interest rate of 0.95 percent. If so, 30 years of monthly payments would cost about $112,000 a month meaning just over $5 million in interest over the duration or a total cost of about $40 million. (Over 20 years, England claimed the interest would be $6.5 million, but it was unclear as to what actual rate and duration would be.)

The deal creates a three-layered cost-shifting mechanism. Outlined in section 3.05, at its most basic using established commercial rates in city ordinance each quarter the city either remits half of all (“of all” actually appears consecutively in the CEU) collections of revenue by or through the delivery of water and sewer services to the Port and its users, less documented treatment expenses, or hands over an amount equal to the next ensuing scheduled payment of principal and/or interest on the bonds accumulated from any previous payment, whichever is less. In other words, after expenses, quarterly the city collects from the Port at half off unless that total charged exceeds the previous three bond payments whereupon it keeps everything after that, if any.

However, this is overridden if the running total over the decades paid by the city exceeds (from the example above) the $40 million. Thus, unless the city wants to accelerate the payments which it can, the minimum amount of time to pay out would be 30 years, assuming the scheduled bond payout is at least hit every quarter. After this final payoff, the half-price deal ends and the city makes no remittances and keeps the full charge for the next 69 years, regardless of the volume.

If not, a running deficit occurs that then must be paid off over part or all of that ensuing 69 years to reach $40 million, even if in balloon fashion at the very end. This is overridden only under one circumstance, if the facility never transmits or treats a drop of water. As soon as that usage commences – and that includes, the questioning revealed, Bossier City’s tapping into it – the city is on the hook for $40 million, not in debt but in non-current liabilities.

Republican Councilor Chris Smith got to the heart of this matter when he asked directly about the language reading “the total payments by Bossier City to the Commission shall not be less than the principal and interest payments made or to be made by the Commission on the Bonds.” Keep in mind that this would be for a facility the city never would own but had only the privilege of operating.

It was here that England began tapdancing as fast as he could. He deflected from admitting payments would equal bond payments by saying the city wouldn’t pay for the bonds and alleged the city wouldn’t be out-of-pocket because he claimed those volumes (he said 3 million gallons was the breakeven point) would be achieved and that wouldn’t take long. But there are no guarantees this would happen and would continue to happen and the fact remains the city assumes all the risk by essentially paying for something it never will own while the Port assumes next to no risk in acquiring a facility essentially for free.

Some other issues also were glossed over, which was brought up by frequent Council questioner David Crockett. He wondered about issues dealing with the pipe construction, the agreement duration, and the city’s slow population growth that didn’t appear to warrant concern over outgrowing existing water capacity in the near future. England replied urgency was there because of interest rates possibly climbing.

But while that may be a reason to move forward with the project, it’s no reason to proceed with the exact deal offered. Again, if the Port wants water and its treatment and Bossier City the potential to increase capacity not needed in the near future without expanding its eye-popping nearly half a billion dollar debt, you don’t have to have such a convoluted, one-sided deal.

Simply, the Port builds the facility and contracts its operation, with an agreed-upon profit margin built in, to the city and pays the city for maintenance when needed, and if the city wants to draw service from the plant it subtracts the value of these from its profit, and if those exceed that then the city pays the balance. The city never has to plunk down $40 million for something it can’t own and may never need and doesn’t have to hope for the enormous volumes over an extended period necessary to make that expenditure cost-effective, while the Port could launch the financial machinations immediately. Getting the specific deal on the table done is unrelated to moving the project forward if the Port acts as owner with the city as operator without all the cost-shifting.

Absent the nonexistent certitude that water volumes will be sufficient over the few decades, it’s a bad deal for the city especially when more cost-effective arrangements exist that don’t transfer all risk to the city. As currently constructed, the Council must reject the offer.