Lower bills could raise Brightwater costs by $1 billion

Most King County sewer customers and many in Snohomish County may pay more than $4 billion for the Brightwater treatment plant, counting 40 years of interest payments, officials now project.

Higher interest rates and a revamped borrowing strategy could push the total cost of the plant $1 billion above the estimate of just one year ago.

The Metropolitan King County Council last year approved a proposal by County Executive Ron Sims to hold down the sewer rate for the next few years by spreading debt payments over a longer, 40-year period.

Now, as the county prepares to sell $900 million in bonds this year and next to build the sewer plant in Snohomish County north of Woodinville, Sims wants to slow projected sewer-rate increases by putting off payment of principal and some interest until after construction is completed in 2011. Sims also is delaying or dropping $113 million in non-Brightwater sewer projects.

Sims' plan would reduce sticker shock for ratepayers over the next four years.

Brightwater will serve much of northern King County and southern Snohomish County. Most of the cost is to be paid through a 15-year charge on new sewer connections, but all customers of the regional system are paying higher rates.

If the County Council agrees next month to Sims' debt proposal, the monthly sewer rate for most households in King County and parts of Snohomish County would go from $27.95 this year to $30.20 in 2009.

Without Sims' proposed debt restructuring, the rate would go to $32.96 next year. Rates are expected to top $41 by 2013 under both approaches.

The savings under Sims' plan would be most pronounced in 2010, when ratepayers would pay $4.40 a month less than under level debt payments. But by 2013, Sims' plan would mean payments higher by 94 cents a month.

Between 2013 and 2048 — when the bonds would be paid off — Sims' plan would cost ratepayers an average of 58 cents more each month.

Under Sims' bonding proposal, the county would pay only interest and no principal through 2012. Interest payments would be reduced through mid-2011 by "capitalizing" part of the interest, or paying it in later years.

Over the life of all county sewer bonds issued between now and 2013, that approach would increase total debt payments by $169 million. Taking inflation and the earning power of money saved in the early years into consideration, Sims told the council in a letter, the "net present value" of those future payments is only $2.7 million.

"I believe this modest cost spread over 40 years is more than justified by the benefits of less volatility and more predictability in the rates," Sims wrote.

The rapid run-up in projected debt payments has almost nothing to do with the construction costs, but everything to do with borrowing costs. The expected cost of building the $1.8 billion Brightwater plant has gone up $35 million in the past year — barely a blip compared with the $1 billion more in projected debt payments.

The final bill for Brightwater, including the last debt payment more than 40 years from now, is projected to cost $4.16 billion — up from $3.13 billion a year ago, economist Tom Lienesch said last week.

Last year's number was artificially low, Lienesch said, because it was based on bond terms of less than 30 years. Bond terms were shorter because of the length of contracts with cities and utility districts that send their sewage to King County plants.

When the County Council authorized 40-year bonds, that reduced the monthly sewer rate — but raised long-term debt costs by $597 million.

County officials again raised their estimate of future debt payments last month after the interest rate for municipal bonds spiked. Since then, the interest rate has dropped, and Lienesch said it seems likely that debt will be lower than the current projection.

County Councilmembers Larry Phillips and Bob Ferguson said they hadn't studied Sims' rate proposal closely enough to comment on it.

Bellevue City Councilman Don Davidson isn't happy about Sims' proposal for delaying debt payments. "Sometimes when you're confronted with this, biting the bullet may be the best way," he said.

But the Metropolitan Water Pollution Abatement Advisory Committee, which represents 35 cities and utility districts, had asked Sims to consider financing options such as the one he has proposed, "since they push some of the costs into the future to be borne by those customers for which Brightwater is being built."