Cottonwood hopes to refinance water bond debt
COTTONWOOD -- The Cottonwood City Council Tuesday night set the stage to re-finance its 2006 water bonds, originally used to purchase the former Cottonwood Water Works.
The city is proposing is to refinance and retire $13.6 million of the original bonds remaining from a loan of nearly $24 million to purchase water facilities in Cottonwood and Clarkdale.
Broker Grant Hammill, managing director of Stifel, Nicolaus and Co., and Cottonwood finance chief Rudy Rodriguez explained that the city hopes to lower interest in the range of 2-2.25 percent over the term of the loan, which would expire in 2035.
The SR260 water line extension project will also provide "a badly needed level of redundancy," said Rodriguez.
He explained: No one needs a level of redundancy until a main well fails. Such a failure occurred just before Christmas in Verde Village but because of "redundancy" few people realized it, even though the well was not fixed for a week.
The funding vehicle for this project -- WIFA -- is not specifically a refinancing tool, but will refinance as long as there is a water extension component. Cottonwood is hoping to use WIFA to extend its water line on SR 260 for more than 5000 feet south to provide service for a large area zoned commercial that is not now served by utilities.
Councilman Terence Pratt said the project will both "save the city money as well as provide economic development" by providing infrastructure for businesses interested in the commercial property.
Local Realtor Phil Terbell asked if the interest money will be saved, would the city be able to relieve the annual cost of water rate increases?
Rodriguez said the City is already pushing debt service coverage to greater than 1.35 percent required in order to boost reserves.
Verde Village resident Sherry Twamley claimed that Cottonwood water users are paying the highest costs in Arizona, a claim Rodriguez disputed, even though he admitted fees are higher than many services in Northern Arizona.
Terbell continued that Cottonwood projects a 5-percent increase each year for the next five years and still there is no relief from the savings?
Councilman Randy Garrison said the loan payment is an ongoing expense. He said the project is also a "creative way to let Clarkdale take ownership of its own debt."
"My problem," according to Garrison, "is that we are setting ourselves on a path to saving money, but creating the same debt load where it was. I don't ever remember discussing this as a viable need."
Councilman Jesse Dowling disagreed: "That (260) infrastructure has been discussed, but there has never been any funds." He said as a planner, he has worked with several properties there, where the lack of city water service was an issue.
Realtor Holly Grigaitis, insisted "Don't do this. Cottonwood is near bankrupty."
Rodriguez said Grigaitis was wrong, "Cottonwood is nowhere near bankruptcy. We are struggling, but state law requires that every city and town come back with a balanced budget each year."
Terence Pratt formed the motion to approve the resolution to submit an application to WIFA. It was passed with 5 votes of approval.
Randy Garrison abstained. Karen Pfeifer was absent.
According to the timeline, during April or May, the WIFA board will meet to approve the loan.
Call notices will be sent to bond holders of the 2006 Water Bonds during May and June and the loan will also close.