Monday, October 27, 2008

Will state taxpayers pay $2 - $9 billion for Pipeline?

Representative Steve Urquhart responded in Saturday's SL Trib to the charge that he's lying about Lake Powell Pipeline financing (see below). He's now claiming that state taxpayers will pay interest on at least $1 billion in loans on the project. With an expected 50 year payback, that adds up to $2 billion or more.

It's good that Steve has made this statement publically. It is the same claim that my opponent Alan Gardner has recently made. Now all fiscal conservatives in Utah, like me, who oppose the endless expansion of government bureaucracy through unaffordable, unnecessary pork barrel projects have a reason to convince their friends in Washington County to vote for Brooks Pace (Urquhart's opponent) and Lin Alder.

I disagree with Steve's interpretation of the State's pipeline financing plan as described in Senate Bill 27 authorizing the Pipeline (in 2006). The law clearly states that the State Board of Water Resources "shall establish prices for the developed water sold to the districts and electricity sufficient to: recover the reimbursable preconstruction costs, construction costs, and INTEREST on those cost" (emphasis added). This makes it clear that the state has the authority to charge whatever it considers reasonable for water and electricity to cover interest costs when the time comes.

Here's the catch: Urquhart can claim today that the State will cover $2 billion of interest costs when the project would start delivering water sometime between 2015 and 2020. But according to S.B 27, the State is under no obligation to do so.

The truth is that Pipeline construction costs will likely at least double, if not triple, by the time the project is completed. So the State will likely face $4 to $9 billion of interest and refuse to "eat it" (Urquhart's term). Steve can then say "Sorry, Washington County taxpayers. It was my understanding in 2008 that the State would cover the interest."

S.B. 27 says that the State will determine water and power rates when water starts flowing. What condition will the State budget be in if/when that happens 7 to 12 years from now? If the economy is weak, the State will have $2 to $9 billion of interest payments that must be paid, no matter what. The State will do its best to extract the most from Washington County taxpayers, but the rest must come from Utah's other taxpayers. This would cut into hard-fought education and transportation budgets.

Now that Urquhart has let the cat out of the bag, how likely is it that the majority of State legislators will go along with this new burden on the state's future budget? Again, I don't believe that Urquhart is interpreting the law correctly, but now that he says all Utah taxpayers will pay a large portion of southwest Utah's Pipeline project, how will northern, central and eastern Utah legislators respond?

This is one more reason why Washington County and Utah water officials need to get very serious about studying three Pipeline alternatives: surface water (Virgin & Santa Clara rivers), groundwater (Navajo aquifer) and water conservation. I'm not a betting man, but if I were, I'd put $1,000 on the Pipeline not being built, due to either funding problems, political issues with downstream users or concerns about Lake Powell being too unreliable.

Regardless of the reason, if the Pipeline is not built, Washington County sure better have a solid plan B, C and D to pursue in its place. Since 1991, Utah water officials have been so single-mindedly pursued the Pipeline as southern Utah's sole future water source that we're dangerously far behind with a back up plan if/when the Pipeline gets the official thumbs down.

In case you need extra encouragement to vote for me (or convince your friends to do so), here is my promise. As Washington County Commissioner, I'll make sure the Pipeline Environmental Impact Statement (EIS) objectively studies surface water, groundwater and conservation with equal vigor to studies of the Pipeline. When this EIS is finished in 2012 (hopefully), I'll make sure citizens are informed about all realistic water options. I'll then support an initative or referendum so citizens can select the water option they prefer for Washington County's future.

--Lin Alder

Here's Steve Urquhart's response fron the Trib...

State taxpayers big contributors to Lake Powell pipeline
Stephen Urquhart
Article Last Updated: 10/25/2008 12:05:52 PM MDT

A Tribune op-ed by Bruce Wilson under the title: "Urquhart joins Powell Pipeline Liar's Club" states I enter the liar's club when I say, "The state will pay for a big chunk of this [Lake Powell] pipeline."
The bill at issue is SB 27 - Lake Powell Pipeline Financing (2006). Section 201 specifies that the Legislature will fund the project - to be paid back by the districts using the water.
However, Section 401 of the bill reads, "The state shall pay the nonreimbursable project costs allocated to recreation and fish and wildlife." That provision, of course, means that the state will pay some costs of the project.
Section 402 specifies that the Washington, Iron and Kane water conservancy districts (the "Districts") must pay back the state within 50 years of the date of the delivery of developed water. The key trigger date for the districts' financial commitment is not the project's completion date; rather, it is when developed water is actually taken by the districts.
I'll explain the financing with an analogy. Let's say Capital Finance covers construction costs for a new five-story building that Company X eventually will own. Company X will repay Capital Finance the actual construction cost for each floor, only when it occupies each floor.
If Company X grows to occupy all five floors within 50 years, and it pays cash for each floor as it occupies that floor, it won't pay any interest on the original construction costs. Capital Finance will cover those costs, thereby contributing significantly to the financing and overall cost of the building.
Likewise, if the districts pay cash for each block of water they take, at the time they actually take each block, the districts won't pay any interest. The state will cover the interest costs of the pipeline project. That, clearly, is "a big chunk."
Wilson and other project opponents tend to significantly exaggerate the financing costs of the project, then they happily trot out those costs as a reason that Washington County cannot afford the pipeline.
Let's hope that those project opponents, when it is pointed out that those same costs actually will be picked up by the state, won't try to say that those costs suddenly constitute something less than "a big chunk."
This is an important project to southern Utah and to the entire state of Utah. As such, local residents will pick up a good portion of the tab and the citizens of Utah also will help - just as we've done, and will do, with water projects and infrastructure items in other parts of the state.

* STEPHEN URQUHART, a Republican, represents St. George in the Utah House.

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