FPUD approves issuance of revenue bonds

The Fallbrook Public Utility District will be funding some of its Capital Improvement Program expenses with revenue bonds.

A 5-0 FPUD board vote Jan. 22 authorized the issuance of the 2024 Water Revenue Bonds, approved the form of the financing documents, and authorized FPUD staff to finalize and execute the financing documents. The motion authorizes FPUD to issue $12 million in debt which will be repaid over a 30-year term.

On July 10, San Diego County’s Local Agency Formation Commission approved a reorganization in which FPUD and the Rainbow Municipal Water District would detach from the San Diego County Water Authority and join the Eastern Municipal Water District contingent upon approval by the FPUD and Rainbow voters. The voters of both districts overwhelmingly approved the reorganization Nov. 7.

After the LAFCO decision, the SDCWA filed a lawsuit against LAFCO, FPUD, and Rainbow. The four agencies agreed to a settlement Dec. 21. FPUD’s detachment from the CWA and annexation to Eastern became effective Jan. 1. The Rainbow detachment will be completed after pump stations allow all Rainbow water to be taken from turnouts north of the delivery point where the CWA takes over operation of the San Diego Aqueduct from the Metropolitan Water District of Southern California.

The LAFCO conditions included an exit fee to be paid over five years to cover the loss of the CWA’s revenue from fixed charges. The total exit fee is $24,305,000 with Rainbow responsible for 65% and FPUD paying 35%. The settlement agreement included payment of the full exit fee amount upon detachment, which equates to $8,506,750 for FPUD with Rainbow paying $15,798,250 when that detachment is complete.

The issuance of revenue bonds for capital improvement projects allows FPUD to provide rate relief to water users rather than to incorporate the exit fee into the current rates or to defer capital improvement or maintenance projects.

Although the pay-as-you-go method for capital expenses frees up interest payments for other projects, bond debt for capital improvement projects translates into future beneficiaries paying their share as opposed to being paid for in full by current residents who leave the area before the project's completion with newer residents not paying at all for the project.

“It’s not really fair to make current ratepayers pay the entire burden of detachment,” said FPUD General Manager Jack Bebee.

The State Water Resources Control Board has a State Revolving Fund which provides 20-year loans at interest rates between 1.5% and 3.0%. FPUD has utilized State Revolving Fund loans for the district’s wastewater treatment plant rehabilitation and the Conjunctive Use Project which recharges water in the lower Santa Margarita River basin and increases available water supplies for FPUD and Camp Pendleton.

The $12 million of debt will be in addition to $65.2 million of outstanding debt but does not violate the Additional Bonds Test requirements of the State Revolving Fund loan terms.

The estimated interest rate for the new debt is 3.9% in which case the annual debt service would be approximately $695,000 and the estimated repayment cost including interest would be $20,856,625. The estimated cost of issuance for the bonds is $210,020. The bonds are expected to be offered to investors in March.