By Marcela Navarrete / El Paso Water
How does a municipal utility pay for its aging infrastructure and facilities when it doesn’t have enough cash to pay upfront?
El Paso Water does the same thing our customers do when they purchase a home: Take out a loan. In our case, we issue revenue bonds, which we pay back annually with principal and interest. When we issue a bond, we are borrowing money to finance our water, wastewater and stormwater system projects. This action does not affect ratepayers’ taxes, nor does it affect current water rates.
On Tuesday, Aug. 2, the El Paso City Council will consider $441 million in revenue bonds that El Paso Water is seeking to help fund the utility’s large water, wastewater and stormwater infrastructure projects for the remainder of the fiscal year.
Bond actions sometimes elicit a flurry of questions on why bonds are needed and what this means to ratepayers. EPWater uses revenue bonds as a financial tool.
Demystifying revenues and bond debt
EPWater’s primary source of revenue stems from ratepayers who pay their monthly water and wastewater bills, which also includes stormwater fees. Contrary to popular belief, the utility does not receive revenue from property taxes. For EPWater, issuing revenue bonds does not require voter approval because the bonds are secured by a steady stream of utility revenue.
In my nearly 30-year career at EPWater, incurring debt has been part of our financial plan and the time-tested strategy has worked for us. EPWater continues to earn among the highest ratings awarded by agencies such as Standard & Poor’s (AA+) and Fitch Ratings (AA+). We are not alone in employing this strategy. Many in the water utility industry fund their projects the same way because utility needs are substantial.
Issuing bonds will not affect our customers’ current rates and fees. Rate and fee increases that became effective in March already have the new debt built into them.
Like other water utilities across the U.S., EPWater faces constant pressure to balance critical infrastructure and financial responsibilities while providing affordable, safe and reliable services to our customers. Because water utilities are capital intensive – or require the investment of large sums of money – taking on a certain amount of debt becomes a normal part of business every year.
Water investment challenges
Despite a recent increase in water and wastewater rates and stormwater fees for the 2022-2023 fiscal year, EPWater’s needs regarding system reliability and resilience are far greater than the amount of revenue we collect. Budget constraints force us to prioritize our system improvements in order to keep our rates and fees affordable for our customers. EPWater has among the lowest water rates of large Texas cities, including Houston and San Antonio.
EPWater’s revenue is allocated toward operational costs first, followed by debt expenses, then maintenance and construction projects. Our large capital improvement projects are primarily funded by revenue bonds. We also pursue federal and state funding opportunities to help finance our water, wastewater and stormwater system improvements, which helps lessen the impact on our ratepayers.
However, as our customers know with their own homes, upkeep is critical to keep issues from becoming urgent. The demands of booming East Side and Northeast communities also drive us to expand water and wastewater systems to keep up with city growth.
All water utilities face infrastructure and investment challenges, and EPWater is using a reliable financial strategy to pay for its projects. Our robust financial profile continues to earn top-notch credit ratings from prestigious firms, reflecting confidence in our financial performance.
We uphold a responsibility to ratepayers to maintain careful financial stewardship. As an international model for water resource innovation, EPWater intends to preserve the respect and trust of our customers as we work to ensure that El Paso has reliable, high-quality water for years to come.
Marcela Navarrete is Vice President of Strategic, Financial and Management Services for El Paso Water.