Controversy, delay in refinancing debt costing Boulder City

By Dylan Scott

Thursday, Nov. 25, 2010 | 2:05 a.m.

With interest rates on the rise, the clock is ticking for Boulder City as it attempts to refinance its debt to the Southern Nevada Water Authority.

The city owes SNWA about $13.6 million over 20 years for new water pipes coming into the city from Lake Mead, a result of the lake’s continuing drop in water levels. The two parties signed a contract in 2005.

On Sept. 28, city Financial Director Thomas Inch recommended Boulder City refinance its obligations to SNWA to take advantage of lower interest rates, which are part of the Federal Reserve’s efforts to stimulate economic growth.

He estimated at that time that the city could save $1.1 million immediately and $4 million in the long term with a new interest rate of 4.05 percent, down from 4.92 percent.

But in the two months since Inch’s initial recommendation, the potential savings for the city have been cut in half, City Manager Vicki Mayes reported at Tuesday’s council meeting.

Marty Johnson of Johnson Consulting Group, who has advised Inch and the city on the matter, said savings now would likely be about $450,000 immediately and $1 million to $2 million over the life of the debt after interest rates increased at the beginning of November.

Before Inch’s recommendation, a group of Boulder City citizens had put forth a ballot question that would require a vote by the electorate if the city planned to go into debt for more than $1 million.

On Oct. 12, the City Council voted to wait to see the results of the election before moving forward with the refinancing. The measure passed by a 58 percent to 42 percent vote on Election Day.

City Attorney Dave Olsen and Councilman Travis Chandler, also an attorney, disagree about whether refinancing the SNWA debt qualifies as new debt or not, and therefore, if it would require a vote by Boulder City residents.

At Tuesday’s meeting, the council decided again to wait and see.

Olsen is in the process of challenging the ballot initiative regarding debt and, if it is overturned, then the question of whether refinancing is new debt would be moot. If it is upheld, the City Council could call for a special election.

Also, at Chandler’s request, Olsen will seek an opinion from Attorney General Catherine Cortez Masto about the city’s situation.

Olsen said that because the city plans to issue new bonds and use that revenue to pay off its debt to SNWA, it is still legally new debt. In a letter to Olsen, Swenseid and Stern, a Las Vegas law firm and the city’s bond counsel, gave the same opinion.

He also provided a letter from Carole Vilardo, president of the Nevada Taxpayers Association, discouraging the city from calling a special election, which would likely run up a bill in the thousands of dollars.

Olsen pointed out that Boulder City wouldn’t be able to sell new bonds as part of its refinancing without a positive opinion from Swenseid and Stern. Chandler expressed his hope that a favorable opinion from Masto would change the firm’s mind. Olsen said he was skeptical it would.

Calls to the law office were not immediately returned on Wednesday.

For his part, Chandler said refinancing doesn’t constitute new debt, so the city doesn’t need to call a special election to move forward. He provided an opinion from a former Nevada attorney general, who argued that if the debt had only changed forms, then it was not considered new debt.

Olsen countered that the attorney general’s opinion only applied to its specific circumstances, which involved a school district in White Pine County in the mid-1990s. A school district’s financing and a municipality’s financing are not analogous, he said.

The trouble for Boulder City is, again, the clock. Olsen said opinions from the attorney general typically take at least six months to arrive. In the case of the ballot question, it is likely that whichever way the court rules, the losing party will appeal.

In the meantime, a steady rise in interest rates seems likely, slowly closing the city’s window to save.