WESTMINSTER : Bond Issue to Keep Water Rates Down

The $8.5-million bond issue approved by the City Council in July to finance improvements to the water system will probably help hold water rates down, officials said.

The council unanimously approved documents last week, including a trustee agreement with Bank of America, which will administer the bond. Also, the council approved so-called covenants required by bond rating agencies as safeguards for bondholders.

Income from the bonds will be used to buy automatic meter readers, improve some of the city’s water wells and pay off a $300,000 debt from a 1965 bond issue.

“The long-term effect is the lowering of cost to the users,” said Mayor Charles V. Smith. “As we get the cost down, the rates will be lower.”

In the past three years, the city has increased water rates three times, the last in September, 1992, when average residential water bills went up by $3.

Rates rose from 73 cents to 89 cents for every 748 gallons of water used, a 21% increase, city records show.

One covenant included in the agreement requires the city to maintain annual water income that is 150% higher than the cost of paying back the principal and interest over the 30-year life of the bonds, according to Finance Director Brian Mayhew.

Under this covenant, the city must earn in excess of $670,000 a year from its water system, Mayhew said. He said the city projects to earn $8.2 million for the current fiscal year. Annual payments for the bonds would cost about $450,000, he said.

In addition, he said, the city’s water fund is expected to have a $760,000 surplus at the end of the 1993-94 fiscal year. “We look pretty solid,” Mayhew said. “We don’t foresee any water rate adjustments.”

The bonds would be sold to an underwriter through a negotiated sale, Mayhew said, at an average rate not to exceed 6.95%. The underwriter will get a 2% discount, he said.

The bonds, or more accurately, certificates of participation, have not been rated yet by any of the nation’s rating companies, Mayhew said.

“We’re hoping for an investment grade,” Mayhew said, that could save the city as much as “$30,000 a year in interest payments.”