Bossier City needs to reject Port's all wet deal

Even as the Bossier City Council conducted a workshop over a controversial financial deal with the Port of Caddo-Bossier that resulted in some changes to the proposed deal, too many questions have been answered unsatisfactorily or left unanswered for the city to accede to the imprudent arrangement.

In essence, the Port wants to borrow $35 million to build a water distribution and wastewater treatment plant on its property as a means of attracting future tenants. It wants to hook this to Bossier City’s utilities and have the city run the facility. The terms create a rate structure where the city surrenders from it half of all revenue after expenses (both operating and capital) to the Port up to an equivalent of the bond payments’ cumulative amount, whereafter it keeps the entirety, but regardless it must pay the entire amount. It also may use the facility to distribute water and treat wastewater for its own purposes.

Understanding the recklessness of the deal is best done by asking discrete questions:

Q: How much is the deal worth?

A: During the workshop, Port Executive Director Eric England mentioned at present since the deal had a wastewater component he could snare $7 million for 20 years at 0.95 percent and the remainder for 30 years at 4.9 percent, rates he alleged wouldn’t last long and implied they soon would be on the way up. That works out to almost $61.2 million in principal and interest. Throw in typical issuance costs and let’s call it $62 million — about the same cost the city anticipates spending on the carriageway named for Port Commissioner Walter O. Bigby’s father.

Q: Does this put Bossier City on the hook for $62 million?

A: The cooperative endeavor agreement states that the city owes nothing if the plant never distributes or treats a drop of water. But once it does — and as was made clear, that includes if the city sends even a drop through the pipes built as part of the project for its own purposes — that long-term liability goes from zero to $62 million immediately.

Q: How long does the city have to pay the $62 million?

A: The revised deal says if the half-and-half reimbursement doesn’t meet the amount of the note, the gap accumulates over time up to 40 years. If the gap still exists then, the city then owes the balance presumably as a balloon payment.

Q: Will the city own the facility it must operate and maintain on Port property?

A: No, it is a lease arrangement. Bossier City will pay $62 million for something it never will own, and its ability to operate the plant for its own benefit ceases at 40 years unless renewed.

Q: Is there a way for the city to capture a non-negative return on this $62 million wasting asset?

A: Up through $124 million worth of sales beyond costs — the 50/50 deal, whether it comes from Port customers or to city residents or businesses — it makes back its investment, but that doesn’t include the time value of money. If we assume an inflation rate of 4 percent over that four decades, it works out to $153 million in sales beyond expenses, starting at $3.1 million (giving away half) that first year. (This annual payoff is a rough figure that would be a bit higher for the first 20 years and lower the last 10, because of the two different debt issues.)

Of course, the city makes $62 million in the process of making the $62 million that goes to paying off the wasting asset leaving $91 million as the additional value from the $1.55 million paid out yearly that increases 4 percent annually, if invested in some alternative ways over that 40 years (in other words, $1.55 million in water earnings otherwise retained in the initial year if not for the payout and invested at 4 percent for 40 years, the same again next year for 39 years, etc.).

The leftover $62 million actually earned and retained can be an offset of another expense, such as the cost to provide water and its treatment beyond existing city capacity for its own customers; that is, it doesn’t have to go out and build its own plant and run that and maintain that for up to 40 years. Also, the quicker earnings eliminate the gap, the lower the total amount. Still, to move beyond the time value of money it would have to do $153 million in business if needing all of those four decades just to stand still financially, and more if it wanted a positive return on investment besides the $62 million it would get to keep (past that point pocketing not 50 but 100 percent of revenues past expenditures). And, again, it loses control of the asset after 40 years regardless.

By way of comparison, in 2021 the city made around $33.7 million on water with operating expenses of $30.3, or a difference of $3.4 million (which ideally goes into reserves for future capital needs). In essence, the city would have to double almost its revenue in order to make its liability payments to leave no gap each and every year for the next 40.

Q: One argument is that this project can meet growing city needs without requiring raising rates to pay off expanded capacity, by adding volume in bulk. Does the city need significantly more capacity soon?

A: A recent news story indicates average city consumption is 12 million gallons a day with the maximum daily use ever occurring during last December’s record cold, about 30 MGD. The city’s website indicates it has capacity already to produce 50 MGD. Keep in mind the city’s population growth over the 2010-20 period was only around 3 percent. So, there appears to be no compelling need for additional capacity for years, perhaps decades, to come.

Q: Does the Port guarantee it will have customers enough to provide enough business for long enough for the city to make its liability payments off the plant, much less compensate for the time value of money or even more to put away to add capacity to its existing system?

A: No.

Q: Are there conflicts of interest among city employees that could influence the decision favorably?

A: At least one councilor definitely has such a conflict, and the city engineer’s employer may have one.

Republican Councilor David Montgomery since 2008 has received over $600,000 in insurance business, personally and to his business, from the Port (it’s likely significantly higher since he took office in 2001, but disclosure was not required for seven more years). He also sits on the board of directors of Port Allen’s B1bank, which in 2021 did a private placement of $55 million of Port bonds and potentially could do the same in this instance as England mentioned that possibility. Montgomery received compensation from B1bank for his directorship, which with compensation from two other sources exceeded $100,000 in 2021.

City Engineer Ben Rauschenbach, who at the workshop with England fielded questions, is designated with that title on behalf of Manchac Consulting, the firm the city contracts with for engineering services. From his rhetoric at the workshop he appeared to reveal that Manchac already has been engaged in considerable work for the Port on this project. With this insider knowledge, Manchac could end up bidding for and likely win the contract to build the facility and its ancillaries that could be worth millions of dollars in profit.

Q: Is there any rush for the city to approve the project?

A: Both England and Montgomery have argued this, but its timeline doesn’t suggest that. The Port passed a resolution at its Oct. 17, 2022 meeting to issue the bonds, a meeting to which Montgomery was invited (as he is to all). But it wasn’t until four months later that Montgomery had the agreement queued up for the Council to consider.

Q: Why doesn’t the Port build the facility and have Bossier City just run it rather than lease it as well, or just run pipes under the Red River to tap into the existing excess capacity that the city appears to have, or consider some other alternative to meet, if necessary, future needs?

A: ? Nobody from the city has asked that question.

Q: Is this a good deal for the Port?

A: Are you kidding? Half-priced water up to a point for its tenants and a free plant it doesn’t have to deal with?

Q: Is this a bad deal for Bossier City?

A: Are you kidding? Unless the Port lines up tenants that will cause city production to mushroom about 90 percent (remember, two-for-one pricing for years to come and likely understates the needed increase as this figure assumes inflation built into water pricing, which is unlikely in its entirety) and fast and lasting for decades just to tread water much less to beat inflation while building a reserve to deal with water issues after the 40 years are up, there are better ways for the city to use $62 million, especially since it will be many years before the city needs more capacity.

Regrettably, councilors unanimously approved the arrangement at its first reading. They will disserve Bossier Citians by not rejecting the deal at their meeting this week.