Buda says no, Kyle yes: Cities differ on pipeline project loan

By Moses Leos III

Possible penalties from surpassing debt issuance limits have Buda waiting until 2016 to pay for its share of Phase 1A of the Hays Caldwell Public Utility Agency’s (HCPUA) pipeline project. 

In doing so, the city opted to decline a low-interest loan from the State Water Implementation Fund for Texas (SWIFT). 

The loan, totaling $12.5 million, was applied for by the HCPUA through SWIFT.  The cost would go toward the design and construction of the Phase 1A portion of the project, which would see a water pipeline and pump station constructed between Buda and Kyle. 

The project could allow Kyle to sell water to Buda during the “interim period” of HCPUA’s main project – a 40-plus mile pipeline that would pump water from the Carrizo-Wilcox Aquifer to its sponsors, including Buda, Kyle and San Marcos. 

Graham Moore, Executive Director of the HCPUA, said the Phase 1A project is in the early stages of design. The agency’s goal is to have the project operational by 2017. 

To help with financing, Moore said the HCPUA applied for SWIFT funding. The state set aside $2 billion from the so-caleld “rainy day” fund in 2013 for water projects. The Phase 1A project was given the nod for funding after it ranked fourth in the state’s water plan. 

Moore said the program offers a lower interest rate than what entities could obtain in the marketplace, taking advantage of the state’s credit rating.

According to Moore, the loan would have a 2.85 percent interest rate for the life of the loan. He said HCPUA could opt to use SWIFT funds on future phases of the project. 

But of the three major entities participating, only Kyle has so far opted for a loan for its share of the project.

Buda City Manager Kenneth Williams said Buda’s reason for declining the loan was due to the city reaching debt issue limits. Earlier this year, the city issued the first $10 million in GO Bonds for its $55 million road and infrastructure project. 

“Because of the amount of debt we are issuing this year, we wouldn’t be able to,” he said. “It wouldn’t be favorable for us.” 

Williams said issuing any more debt beyond the $10 million would incur penalties. Instead, the city is opting to issue its own debt to fund its portion. 

While Buda opts to wait, Williams said the city is excited that the project is moving forward. 

“We’ve worked on it for years. It’s great to see that some actual infrastructure is going to come to fruition,” Williams said. “We’re excited about the project and possibility to deliver water to Buda.” 

A repayment of $3.4 million over 30 years will be Kyle’s share of a loan meant to finance its part of the Phase 1-A project.  

Perwez Moheet, Director of Finance in Kyle, recommended the 30-year route for Kyle’s share.  

Moheet said the 30-year route would give the city the “most financial flexibility.” With several water and wastewater items on the city’s Capital Improvement Project list, Moheet said the option had given the city “more room to mitigate rate pressures we’ll see in the next five to ten years.”

With the HCPUA project having an economic life of 30 to 50 years, Moheet said the recommended plan would allow the city to match the revenue stream from the assets with debt service payments. Balancing intergenerational equity in terms of rate design and payment was also a factor.

In addition, mitigating rate pressures was also key, as the city has several water and wastewater projects on the horizon. In addition, the city’s total share of the entire HCPUA project is estimated at $60 million. 

“Why should today’s ratepayer pay for assets that benefit ratepayers 10, 20, 30 years from now?” Moheet said. “This helps us move the cost to the actual users of the system in the future.”

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