BOARD01860

• Board Meeting Date: 11/25/2002
• Description: CF Section - New Loans - Town of Paonia - Ark Land Property Water Rights Purchase
• Board Meetings - Doc Type: Memo

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Town of Paonla - Water Rights Purchase
November 25-26. 2002

Agenda Item 201

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Water Rates -The Town is planning to pay the CWCS loan with Water Fund Revenue from
increased water rates and a portion of their tap fees (conservatively assumed to be 2 taps per year
at $8,500 each.) In order to stabilize revenues, the proposed water rate increases would be
increased gradually over a 4-year period, increasing $1.50 per month for each year from 2004-
2007. This would represent a total increase of 57% over the 4-year period. A summary of the
proposed increases and the anticipated incremental annual revenue is as follows:

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Monthly Cumulative Additional
Year Increase Increase Revenue
2004 $1.50 $1.50 $24,966
2005 $1.50 $3.00 $49,932
2006 $1.50 $4.50 $74,898
2007 $1.50 $6.00 $99,864

The Town intends to sell the land, with water rights usage, to an adjacent ranch operation for an
estimated $800,000 or more. Staff is recommending that the proceeds from the sale would be used
to pay down the CWCS loan. If this occurs in the;first year, the loan amount would be reduced to
$910,000, either as a pre-payment on the existing loan with the annual payment staying the same,
or with a re-amortization of the remaining principal. If the remaining $910,000 Is re-amortized the
annual loan payment could be reduced to $56,144 (including the 10% reserve requirement) at the
loan terms of 3.75% for 30 years. In this case, the proposed water rate increase might only be
needed for two years, 2004 and 2005, resulting in an overall increase of $3.00 per month pei tap.
This would be a total increase of 29% over existing rates.

Creditworthiness: The Town currently has no outstanding loans through the water fund. In
1993, the Town obtained a $150,000 State Impact Assistance Loan to help finance the construction
of a water treatment plant. The final annual payment of $22,103 was made in 2001.

Table 2 shows the Financial Ratios for the Town and indicates strong ability to repay the
$1,710,000 CWCS loan. For the purpose of calculating financial ratios, tap fees were not included,
except as shown in the first year of loan repayment in 2004.

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Table 2. Financial Ratios

Existing With Project
(Average Future Years wi Proposed Rate
I Financial Ratio (1999-2001) Increases
2004 2005 2006 2007+
Operating Ratio (revenue/expense)
weak: less than 100% 152% ' 133% 142% 152% 161%
average: 100% - 120% (strong) (strong) (strong) (strong) (strong)
strong: greater than 120%
Debt Service Coverage Ratio .
.(revenues-expenses)/debt service 468% 101%- 104% 128% 152%
weak: less than 100% (strong) (average) (average) (strong) (strong)
average: 100% - 125%
strona: areater than 125%

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