The Pagosa Area Water and Sanitation District (PAWSD) Board of Directors discussed funding mechanisms for the district’s regulatorily required upgrades to the Vista wastewater treatment plant at its Aug. 29 meeting.
Following a discussion, the board directed staff to move forward with seeking funding through a revenue bond publicly issued by the district to finance upgrades to the Vista plant required by Colorado Department of Public Health and Environment (CDPHE) Water Quality Control Commission Regulation 85, in addition to other collection system improvements mandated by the CDPHE.
Regulation 85 requires that certain wastewater treatment plants in the state reduce the amount of nutrients, such as nitrogen or phosphorus, contained in the outflows of treated water from the plants.
PAWSD Engineer/Manager Justin Ramsey opened the discussion, explaining that the district tried to finance its expansion of the Snowball water treatment plant from the Colorado State Revolving Fund (SRF) but that it missed the deadline to apply for SRF funding for the Vista project due to the plans for the project still being reviewed by CDPHE.
He added that the district learned through contacts at SRF that its budget has also been cut and that applications for such funding will likely be extremely competitive in the future.
Due to this, Ramsey stated, staff started looking at other funding options such as the federal Water Infrastructure Finance and Innovation Act (WIFIA) or a revenue bond.
PAWSD Business Manager Aaron Burns added that PAWSD has a contractor for the Vista project who needs to start “very soon.”
PAWSD board member Glenn Walsh asked if WIFIA requires the same level of design approval by the CDPHE as the SRF.
Ramsey indicated he believes it does not.
Walsh added that the CDPHE is “miffed” with PAWSD and suggested that the district may not receive design approval on the timelines that may be required for loan funding.
Burns commented that staff did not feel that the SRF funding would “pan out” in time and explained that he started investigating the district issuing a revenue bond while PAWSD Programs Manager Renee Lewis investigated WIFIA.
He stated that the district reached out to the investment bank Piper Sandler to help facilitate the WIFIA or revenue bond funding on the recommendation of the district’s bond counsel on the Snowball plant expansion.
Piper Sandler was positive about the prospects for the district securing funding in the amounts and on the timelines it needs, Burns stated, adding that the district requested $12 million, including $10 million for the Vista project and $2 million for work to reduce inflow and infiltration (I and I) into the PAWSD system to comply with a mandate from the CDPHE.
Walsh asked how the district would account for the $2.5 million contribution that the Town of Pagosa Springs, through the Pagosa Springs Sanitation General Improvement District (PSSGID), would be required to make to support the Vista project due to previous agreements between the PSSGID and PAWSD.
He also asked if the PSSGID would be sharing the loan payments instead of paying its $2.5 million portion of the project upfront.
Burns commented that sharing the loan payments could be preferable, as the PSSGID would share in the interest payments and the cost to the district would be spread out.
The board then discussed the town’s status as a disadvantaged community and if this would allow it to secure better funding terms from the state, with Ramsey concluding that this is unlikely given previous discussions with state representatives.
PAWSD board member Bill Hudson asked if the town provided $800,000 to support the planning for the Vista project, which Burns and Ramsey confirmed.
Hudson went on to suggest that the town could potentially come up with $2.5 million.
Burns noted that the $800,000 is the total cost of the project, not the town’s share of it.
Hudson commented that he thought that amount was the town’s share.
Burns explained that the WIFIA funding or issuing bonds would be more expensive than using the SRF, potentially costing 20 percent more using a 30-year loan term.
The board and staff discussed the requirements that would be included in the WIFIA funding, including American Disabilities Act compliance, American iron and steel requirements, Davis Bacon wages and Build America Buy America Act (BABAA) requirements, with Ramsey noting that some of these requirements would be easy to meet while others, like BABAA, would be more difficult.
Burns added that these requirements would also be involved with SRF funding, but would not be involved in revenue bonds.
Hudson commented that the district’s choice seems “pretty clear” and asked if the board was “wasting time” discussing the issue further.
Burns stated that staff wanted to make sure that the board is comfortable with the options and commented that a revenue bond seems the easiest and most practical approach to take.
Walsh asked what the total cost of CDPHE-mandated I and I work would be.
Ramsey explained that the CDPHE requires that the district do $1 million a year in additional work until I and I is reduced to the mandated levels, adding that he is unsure how long this will take.
Walsh commented that the district might need to ask for $13 million or $14 million in funding to support the I and I reduction work.
The group discussed if the district would be able to pursue less aggressive rate increases for the district by spreading out the costs over a longer period of time due to stretching out the payments for Regulation 85, with Walsh and Hudson speaking in support of potentially reducing the increases due to the altered payment structure.
Burns and Ramsey commented that they would look into what alterations could be made to the rate increases.
“I appreciate all the due diligence and the options, but it’s like there’s really just one option,” Walsh said.
Hudson raised the possibility that the district could pursue a general obligation bond instead of a revenue bond to finance the project, although he commented that this would require voter approval and that it is potentially “too late” to explore this option since it likely would have needed to be voted on in June.
Walsh commented that he also prefers general obligation bonds, but that it might be too late to pursue them.
Burns commented that the district’s debt service ratios and other metrics would be covered with either WIFIA or a revenue bond.
The board concluded the discussion by directing staff to move forward with a revenue bond.
josh@pagosasun.com
