Keenly aware that Glendale is being watched closely by credit-rating agencies, the City Council this week narrowly approved issuing $35 million in water bonds to improve the city-owned utility’s liquidity.
The flush of cash is set to be used over the next five years to cover part of a $46-million plan to improve “bread and butter” infrastructure like pipes and groundwater wells — projects once pushed to the sidelines as the city focused on big-budget items, such as reservoirs.
But as those capacity projects moved forward, the money to pay for them wasn’t really there, and bond ratings agencies took note. Although the city increased water rates earlier this year, it wasn’t enough to satisfy the agencies, whose scores can have a significant impact on the ultimate cost of issuing bonds or borrowing.
“I think [bond rating agencies] look back and say ‘Yeah, you’re on the right track now, but you still have to pay for the sins of the past.’ I think that’s what we are dealing with right now,” City Manager Scott Ochoa said.
He was referring to the tens of millions of dollars the water side of Glendale Water & Power had spent despite the City Council not approving $60 million in bonds a few years ago. The water side drew down on its reserves and borrowed money from its electricity counterpart, digging itself into a $24-million hole as of September.
Glendale Water & Power is currently on Moody’s Investor’s Service credit watch list as it reviews dozens of California cities for possible downgrades, which signal deterioration of financial stability.
Despite the ratings watch, Councilman Rafi Manoukian stood fast in his opposition to the bonds, preferring instead to use money from other city funds to get some water projects off the ground and pay for less critical ones down the road as more cash becomes available.
Due to the rate increase, the water side is expected to return to the black by 2016.
“Last I checked, the ratings agencies were not the ones making policy for this city,” Manoukian said.
Mayor Frank Quintero also voted against the bonds, noting that although the utility is turning around with new management, he wanted to wait before incurring more debt.
The $35 million in bonds would end up costing the city about $60 million over their life span. Glendale Water & Power has yet to start paying the principal on $50 million in bonds issued in 2008, which will cost the city about $90 million in the end, officials said.
But in joining the three-vote majority, Councilman Dave Weaver said his colleagues have seen troubling photos of corroded pipes and a deteriorating system.
He said he preferred to issue bonds and get the money up front for projects, “rather than sit there and watch for [the system] to fail like so much of the L.A. system has.”