TELLURIDE – Five years after local voters authorized a $10 million bond to fund construction of a new Pandora Water Treatment Plant high in Bridal Veil Basin, the Telluride Town Council finally pulled the trigger on those bonds by approving the second reading of an ordinance authorizing their issuance in a 5-2 vote on Tuesday.
“I am so very pleased that we are able to move ahead and activate the bonds on the Pandora Water Treatment Plant,” said Mayor Stu Fraser. “It allows us to make sure that we will have not only excellent water, but storage that we don’t now have for decades to come.”
The financing will be divided into two separate bond series. The first includes about $2 million in tax-exempt general obligation bonds, while the second totals about $8 million in taxable general obligation bonds issued under the Build America Bonds program.
“This continues to be a little bit of a moving target on how much to do in each; it depends on the interest rates,” said Steve Jeffers, a managing director at Stifel, Nicolaus & Company, the town’s underwriter, explaining why the exact amounts of the two bond series changed slightly from those presented during the first reading of the ordinance three weeks ago, and could still change as the bonds are sold over the coming days.
Part of the American Recovery and Reinvestment Act of 2009, the BAB program provides a federal subsidy for a larger portion of the borrowing costs of state and local governments than traditional tax-exempt bonds in order to stimulate the economy and encourage investments in capital projects in 2009 and 2010.
As a result, the US Treasury will reimburse the town up to 35 percent of its interest payments on the taxable bonds, making them more cost effective then doing all tax-exempt bonds, Jeffers said.
Assuming a 20-year repayment schedule, the town should see more than $800,000 in interest savings as a result.
“In today’s market place, post-subsidy the overall interest rate would be about 3.14 percent,” said Jeffers, identifying the interest rate as “very attractive.”
There is a 10-year no-call provision on the bonds, meaning the town may not prepay its debt ahead of schedule for the first 10 years.
Yet despite the favorable interest rate and support from a supermajority of council, Councilmembers Thom Carnevale and Chris Myers continued to oppose issuance of the bonds, as they also did three weeks ago, at the first reading of the ordinance.
“I think that we’re jumping the gun on this and allowing fear to make the decision for us,” said Carnevale, referring to a general concern by council about three statewide anti-tax measures that appear on the November general election ballot.
In particular, Amendment 61 and its proposal to limit the length of time local governments may borrow to not more than 10 years, raised concerns that if the bonds were not issued by election day they might have to adhere to the 10-year limit, rendering them unaffordable and effectively killing a project that has been nearly two decades in the works.
Carnevale also alluded to the town’s “unresolved issues” with the Idarado Mining Company, the other major water-rights and easement holder in the Bridal Veil Basin, that have been discussed by council in executive session.
“Being in favor of the project as I am, I want to make sure we get it right,” he said, explaining, “We should have resolution to those issues with Idarado.”
After Myers echoed Carnevale’s concerns, Councilmember David Oyster set the final authorization in motion.
“At the risk of naïveté, I move to approve,” he said.