Glendale moves to issue more water bonds for infrastructure upgrades

With Glendale’s bond rating under scrutiny, the City Council this week moved toward issuing $35 million in water bonds to cover the cost of planned infrastructure work.

In October, Moody’s Investors Service put Glendale and dozens of other California cities on credit watch as it reviews possibly downgrading bonds. And in July, Fitch Ratings downgraded $50 million worth of water bonds issued in 2008, partially due to Glendale Water & Power’s lack of liquidity.

A bond downgrade signals a deterioration of an agency’s financial stability.

The grinding on bonds had Councilman Rafi Manoukian on Tuesday advocating the use of Glendale financial reserves in lieu of issuing more bonds.

“We have the financial means in the city to deal with the financial needs of the water fund and electrical fund, in my opinion,” he said.

But that idea fell flat with some of his colleagues. And City Manager Scott Ochoa said that while the city may have tapped reserves to cover smaller expenses in the past, he didn’t advise doing so this time, with money tight and bond raters watching.

“This meeting, I guarantee, is being watched by Moody’s,” Ochoa said.

The City Council must still hold a final vote on the latest bond issuance next week.

Glendale officials have historically used a blend of cash on hand and bonds to pay for big infrastructure projects. A few years ago, a capital plan was based on issuing about $60 million in bonds. That never happened, but work on the capital projects, including revamping water reservoirs, went forward, said Eric Campbell, a finance administrator for Glendale Water & Power.

The water side of the utility burned through its cash to pay for the projects until September, it was nearly $24 million in the red, even after having borrowed funds from its electrical counterpart.

Manoukian called it bad financial planning, but utility officials in the past have said the projects needed to be done.

Earlier this year, the City Council redesigned and ratcheted up water rates in order to get the water side back in the black by 2016. And Glendale Water & Power recently went through a leadership reorganization after its former general manager resigned.

In addition, the utility has switched its focus to fixing corroded pipes from larger, more expensive projects, such as improving reservoirs. The utility plans to spend $46 million over the next five years on capital improvements, including cleaning and replacing nearly two dozen miles of pipes installed more than 70 years ago.

While the utility’s goal is to pay for projects as they go, it’s not there yet, Ochoa said.

Until then, Councilwoman Laura Friedman said in an interview she would support issuing bonds over tapping reserves as a more “conservative and appropriate” approach.

“We know we can pay the bonds back so that’s not an issue,” she said.

The $35 million in new bonds would end up costing the city about $60 million over their lifespan. Glendale Water & Power has yet to start paying the principal on the 2008 bond issuance, which will cost the city about $90 million in the end, officials said.

Since 2007, the utility has spent about $73 million on water infrastructure.

The work that has been done over the years has increased system reliability, but aging pipes are still a challenge, officials said.

“It doesn’t make any sense any more to patch it, it’s time to replace it,” said Steve Zurn, the utility’s general manager.

-- Brittany Levine, Times Community News

Follow Brittany Levine on Google+ and on Twitter: @brittanylevine.