BWP Can Issue Bonds to Boost Infrastructure

First published in the Oct. 30 print issue of the Burbank Leader.

Burbank Water and Power received permission this week to issue up to $31 million in bonds to pay for upgrades and maintenance to its water infrastructure.
The Burbank City Council’s unanimous vote on Tuesday gave the go-ahead to the municipal utility, whose officials said they will also use the funds to pay off the remaining $5.5 million in loans received from the State Water Resources Control Board. Another $24 million will go toward replacing old pipes, repairing a leaky city reservoir and accomplishing other local projects. The rest will pay for the legal consultations associated with the issuance and serve as a contingency fund.
BWP estimates the repayment of the bonds, including interest, to cost $1.2 million a year, the utility said in a staff report to the council, requiring an estimated 3.3% increase to Burbank water rates. That jump is included in the BWP’s projected 6% water rate increase for fiscal year 2022-23. Similar rate increases are projected through 2025-26, though officials said Burbank’s water rates will remain lower than those charged in Los Angeles, Pasadena and Glendale through at least fiscal year 2024-25.
The water revenue bonds have maturities of up to 30 years, according to the staff report.
Richard Wilson, a BWP assistant general manager, told council members that the utility has collected less revenue than it needs to, and that its cash reserves are well below the recommended level. That recommended standard, added Chief Financial Officer Bob Liu, will likely rise in future years because of the statewide drought.
But with interest rates at historic lows, Liu argued, “There’s no better time to issue a bond if you really had to issue a bond.”
He added that the projected interest rate for the portion of the bonds used to pay off the utility’s loan is 1.14%, while the rate for the loan itself is 2.6%. Refinancing with the lower rate, the staff report noted, will save the city an estimated $383,000. However, the interest rate for the new bonds for the capital projects is estimated at about 3.16%.
Liu explained that BWP plans to complete many more projects in the next three years than it has in the past several years. The staff report estimates capital spending over the next three years at about $39.4 million, compared with $25.6 million spent over the past six years.
The proposed project list included an upgrade to the Valley Pumping Plant — a facility Wilson said has reached the end of its life — and a new disinfection system. A large portion of the funds will also go toward replacing piping. Out of the 278 miles of pipe in Burbank, Wilson said, 30 miles are about 100 years old. The utility also plans to replace leaky and undersized pipes with larger pipes.
“The main thing we look at is leak history,” he said. “Age is one factor; just because a pipe’s 100 years old doesn’t mean it’s going to fail. But it’s much more likely to fail at 100 years old than at 60 and 70.”
City Council members supported BWP’s request, lamenting what they saw as the inadequate state of water infrastructure in neighboring Los Angeles.
“The last thing a Magnolia [Park] merchant would want is having a river of water at 3 [a.m.],” Mayor Bob Frutos said.