OCR Text |
Show WATER PRICING POLICY STUDY received through ad valorem tax collections into the revenue requirements upon which rates are based. While the precise rate impact this restriction would have on water users would depend on a number of factors and would require a series of actual rate studies by each impacted agency, an average per unit rate impact was calculated from the perspective of a number of different types of water users. Rate impacts would be felt by wholesale customers of CUWCD, wholesale and retail customers of petitioners, and retail customers of petitioner wholesale customers. There are a number of examples to illustrate the relationships described. All petitioners of project water are wholesale customers of CUWCD. Orem is a petitioner who has retail customers. Metropolitan Water District of Salt Lake City is a petitioner who has wholesale customers ( Salt Lake City and Sandy). Salt Lake County Water Conservancy District ( SLCWCD) is a petitioner who has both wholesale customers ( such as Sandy, Kearns Irrigation District and Granger- Hunter Irrigation District) and retail customers. Salt Lake City, Sandy, Kearns Irrigation District and Granger- Hunter Irrigation District are all examples of retail agencies that are wholesale customers of petitioners. The primary focus of this analysis was to determine a quantitative per unit effective price impact resulting from the phase out of ad valorem tax collections by CUWCD and project water petitioners. In addition to this quantitative analysis, the phase out of ad valorem taxes could precipitate a number of other impacts. One potential impact that could be felt by entities that currently levy ad valorem taxes is a change in their bond rating. Ad valorem taxes are one of the most stable forms of revenue available to a utility or agency. Altering the source of an agency's revenue stream from a partially tax- backed revenue stream to one that is entirely backed by rates may decrease the agency's bond rating. This is important because the higher the bond rating, the lower the interest rate available on any bonds issued by the agency. Thus, the loss of tax- backed revenue may result in higher costs of operation due to higher interest costs on bond issuances for required major capital improvements. Also, if ad valorem taxes are being used to back bonds that are currently outstanding, the taxes must remain in effect until the bonds are defeased. Failure to do so would result in a breach of contract on the terms of the bond issuance. Another impact would be the need by petitioners of project water to enter into new contracts. Current petitioner contracts with Metropolitan Water District of Salt Lake City ( MWDSLC) and the Salt Lake County Water Conservancy District ( SLCWCD) require those entities to collect ad valorem taxes that secure contract payments. Concerns raised by local water agencies include a potential negative impact on the development of necessary capital improvements due to a less stable revenue stream and greater difficulty in securing bonds with a high rating and low interest rate. Another concern is the potential price shock felt by water customers. While discontinuing ad valorem tax collections would result in a decrease in tax costs to area landowners, it could also result in a substantial increase in the cost of water to the ultimate consumer. Executive Summary ES- 34 |