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Town officials examine agreement with PAWSD

Risk management was the key phrase mentioned at the Pagosa Springs Town Council’s work session held Thursday afternoon to review the fine points of an intergovernmental agreement (IGA) between the Pagosa Springs Sanitation General Improvement District (PSSGID) and Pagosa Area Water and Sanitation District (PAWSD).

The IGA, which has been reviewed by the PAWSD board of directors, defines the terms which will enable the PSSGID to have its wastewater transported to and treated at the PAWSD Vista wastewater treatment plant. To accomplish this, a pipeline (with two pump stations) must be built between the treatment plant and the town-based system.

The plan splits proposed construction into Segments A and B. Segment A consists of one lift station, which will be built in the vicinity of the existing PSSGID wastewater treatment plant, and a pipeline extending from the Segment A lift station to the Segment B lift station. PSSGID will be financially responsible for constructing Segment A. Segment B consists of one lift station, built at the end of Segment A pipeline, and a pipeline extending from the Segment B lift station to the Vista wastewater treatment plant. PAWSD will initially be responsible for the construction and payment of Segment B, but PSSGID will reimburse PAWSD for construction of both pipeline and lift stations over an amortized period of 20 years. PAWSD will absorb both Segment A and B into its infrastructure.

“I believe that this IGA is a blessing for the community; it is very positive,” said Town Manager David Mitchem as he started off the meeting before launching into the issues in the IGA he viewed as potential, future risk management problems.

The first section Mitchem brought to the board’s attention was section 23.b, regarding the segment B repayment to PAWSD by PSSGID. The section states, “In addition to principal repayment, the PSSGID will repay the PAWSD’s lost opportunity on invested funds (“LOIF”) on the outstanding principal amount. The LOIF shall be calculated based on the highest interest rate actually earned by PAWSD on its investment of surplus funds.”

According to Mitchem, this essentially defines an adjustable rate loan set at what PAWSD would be making if the money were put in the bank. The current interest rate is 0.25 percent, a rate that Mitchem said, and the board agreed, was “very kind.”

The potential risk, though, said Mitchem, is, since this is a 20-year loan, the possibility of inflation rates rising toward the end of the loan payment is likely. Though impossible to say when or how much interest rates will rise, as part of risk management, Mitchem suggested setting a cap.

“The rate is much lower than a loan rate, and it’s very generous. My concern is that part of the board’s leadership responsibility is risk management,” Mitchem said.

Trustee Kathie Lattin, also conceding that the offer from PAWSD was very generous, suggested that while it might cost the PSSGID in the beginning of the process, an attempt should be made to try to set a flat rate at 2 percent.

“This will be a base we can rely on,” Lattin said.

At this, trustee Darrell Cotton noted that PAWSD, as a special district, could not make money on their money. Cotton recommended that the town officials agree to the current rate, with a stipulation that, in five years, both boards reevaluate the terms.

While the PAWSD board and staff has not yet heard these concerns, Mitchem said he would bring them the idea for a five-year reevaluation of the interest rate terms and for a possible cap on the interest rates.

PSSGID manager Phil Starks brought to the board’s attention the last line of the 23.b, “The annual LOIF rate shall be calculated by PAWSD and approved by the Committee.” The Committee is comprised of three members from each board. Starks’ concern was that, with so many points in the IGA referring to the Committee making the final decision, there was a possibility for a deadlock in the committee.

“We need a way of dealing with a deadlock,” Starks said, recommending that perhaps an outside and unbiased party be brought in as the tie-breaker.

“If it’s not resolved now, it’s going to become an issue in the future,” Starks said.

The other point Mitchem brought before the board was in Section 24.a, in which the maintenance cost responsibility is defined in loose terms. The section states that costs exceeding $10,000 for Segment A will be paid by recommendation of the Committee and both district boards. All costs under will be covered by PAWSD.

What would constitute $10,000 (whether it would be per event or calculated annually) — was unclear to the PSSGID board.

“I’d go to the PAWSD board and ask them to further define,” Councilor Don Volger recommended.

Before anything is agreed to, Mitchem will discuss the matter with PAWSD personnel.

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