Published: October 10, 2011 3:00 AM
Updated: October 11, 2011 8:36 AM
With annual payments of nearly $14 million, it’s going to cost this city $345 million over 25 years for a new water supply and treatment centre at Stave Lake under a public-private partnership.
And those projections by the City of Abbotsford are based on the city borrowing $149 million – not the $230 million which voters will be asked to approve in the Nov. 19 referendum.
“The $230 million is a maximum safeguard … we have to put the maximum number in the referendum,” explained Pat Soanes, general manager of finance and corporate services for the city.
Here’s how the city numbers work:
The city is hoping to receive $61 million in federal funding from PPP Canada (no decision has been announced yet), that would bring the amount down to $230 million.
In its projections, the city has included $51 million in expected “grants” and “recoveries,” including the possibility of provincial funding. If that occurs, it would bring the cost down to $179 million.
Included in “recoveries” are other partners or municipalities, like Langley for example, which may also contribute.
City manager Frank Pizzuto said in order to recover some of the costs, it is likely the city would sell water to other communities.
Of the remaining $179 million, the city anticipates using up to $30 million in water reserves by 2016, bringing the borrowed amount to $149 million. Currently, the city has approximately $27 million in water reserves.
If these projections prove accurate, the city would finance the remaining $149 million by acquiring $95 million from the P3 partner (at a projected interest rate of 7.59 per cent) and borrowing the remaining $54 million as a standard municipal loan (at a projected 4.59 per cent). Part of a design/build/finance P3 agreement involves the private partner investing money in the project, which is paid back over the term of the contract.
Based on monthly payments, over a 25-year period, the city would pay approximately $8.5 million a year for the $95-million loan and $3.7 million annually for the $54-million loan – or approximately $12.2 million a year. Add to that an estimated $1.6 million paid each year to the P3 partner for operating the facility.
In total, the city would be making payments of $13.8 million annually for the P3 water supply deal.
The city proposes to pay off that amount with water user rates ($12.6 million) and DCCs – development cost charges – ($1.2 million). Taxes cannot be used to pay for water, Soanes said.
Water rates were already predicted to rise 10 per cent each year over the next five years. Currently, the average family home pays $350 a year. That is expected to rise to $550 by 2016.
All figures are city projections, based on fixed costs. The numbers could easily change due to interest rates and other factors. The figures could also change during the life of the 25-year contract, based on variable operating costs, including increases in water quantity or new quality standards.
In comparison, if the water project went forward as a traditional public infrastructure project, the total estimated capital cost is $328 million.
The higher cost comes from the loss of anticipated efficiencies a private company could provide. The city would likely have to tender different companies to design, plan and build the project.
With no federal funding for P3, the city would hope to receive up to $63 million in provincial grants and other recoveries, plus $30 million in reserves.
That would leave $235 million to be borrowed at 4.59 per cent. Over 25 years that would result in payments of approximately $15.85 million a year, plus another estimated $1.3 million a year for the city to run the plant, resulting in an annual payment of $17.4 million, or $435 million over 25 years.
Originally, the Deloitte Touche report indicated that a P3-run facility would cost $1 million a year more to operate than if the city operated it.
However, the city considers that figure to be closer to $300,000, as the report assumed the city could use some of its present staff to run the new facility, which administrators maintain would not be possible, due to lean staffing levels.