Mayor Steve Bach's refusal to put his signature on lines of credit for Colorado Springs Utilities could erode the enterprise's bond rating and drive up its cost of borrowing.
But Bach and Council President Scott Hente, who chairs the Utilities Board, say they're trying to work out a deal so Bach feels comfortable signing documents for an agency over which he has no control. The long-term solution is changing the City Charter to better define the mayor's role with Utilities — probably more than a year off.
On Dec. 13, City Council approved establishing a $125 million line of credit for Utilities to cover operations and maintenance work, if needed, and to satisfy a liquidity requirement imposed by bond-rating agencies.
It was a routine agenda item that arises annually. But this was the first time since Bach took office in June. When the documents came to be signed, he refused.
First of all, he says in an interview, the line of credit costs ratepayers $140,000 a year in financing fees for access to money that, he notes, has never been used.
Second, City Attorney Chris Melcher advised him not to sign. "The way it's worded," Bach says, "not only is Colorado Springs Utilities obligated as a borrower, but so is the full faith and credit of the city of Colorado Springs, and [Melcher] questioned whether that is appropriate."
The root of the problem lies in the Charter. It gives the mayor no say in Utilities matters but requires the mayor to sign contracts and agreements, including those of all city enterprises, and to assure they are "faithfully kept and fully performed."
"If I do not have stature in negotiating contracts of any kind, whether Springs Utilities or Memorial Health System, how can I be expected to not only sign contracts, but then be personally liable that they are faithfully kept and fully performed?" Bach asks.
Hente says a prior legal opinion by outside counsel cleared the way for the mayor to sign, but Melcher, appointed by Bach in September, disagrees.
"The city attorney says, 'Maybe you're the right person to sign this,'" Hente says. "I'm happy to sign it, but I think the Charter prevents me from signing it."
Hente disagrees that the mayor's signature obligates the city's general fund: "The Charter clearly calls out the fact that Utilities can have indebtedness as long as it's backed up with its revenue." And Bach's refusal to sign "has the potential to affect Utilities' bond rating," Hente says, noting that debt holders require Utilities to be able to access additional money at any time.
Utilities chief planning and finance officer Bill Cherrier says in a statement, "Maintaining a revolving-loan agreement is the lowest cost way to maintain liquidity and a strong bond rating. A strong bond rating keeps interest rates low, which in turn, keeps utility rates low for our customers."
That's a nice way of saying that, with Utilities currently carrying $2.3 billion in debt, even a tiny change in interest rates could cost ratepayers millions.
Melcher has promised to determine for certain whether the mayor can sign the documents without obligating the city's taxpayers within a week or two, Hente says. Meantime, Utilities officials are trying to allay bonding companies' concerns, he says.
"Bottom line is, we can't let this drag out forever," Hente says. "Utilities does carry a fair amount of debt, and there are promises made, and if you don't live up to that, the bond-holders and rating agencies will start to question that."