Cash flow 

Here's how we'll pay for SDS — and why some think we're doing it wrong

The Southern Delivery System water project has finally picked up speed, cleared its biggest barriers, and come roaring toward reality.

So has its price tag: $880 million ... for phase one of the two-part project.

(A little perspective: Colorado Springs' amended 2009 general fund budget is $228 million.)

All of us will pay for SDS. Colorado Springs Utilities has assured we'll pay for it slowly, over a decade or more. Some people think that's a brilliant idea. Others, like Tom Gallagher, the only City Councilor to vote against the latest financial and building plan for SDS, disagree.

The problem with buying slowly, he says, is that prices could rise on necessities like land and building materials. (He has other gripes too; see "A sweeter deal" on pages 12-13.)

"It's not the most cost-effective way to do it — get in and out," Gallagher says. "Talk to any contractor."

Well, OK. Chuck Murphy, what do you think?

"It's a question of who's paying for it and how much money they have," says the president of Murphy Constructors of Colorado Springs. "It's like you buying a house. Do you want to pay it all up front?"

So maybe not all contractors see it the way Gallagher does. But he's certainly not the only person to have misgivings over SDS. Over the past decade-plus, many have worried about what route would be used to pump up to 78 million gallons of water a day to El Paso County; or about wastewater, flooding and environmental issues; or about whether it's fair to ask today's residents to pay for a system benefiting tomorrow's homes and businesses.

These days, all those arguments are drowned out by the collective moan of sticker shock. This year, water rates jumped 41 percent. With ratepayers bearing SDS costs, rates should rise another 10 percent in 2010, 12 percent annually from 2011 to 2017, and about 4 percent in both 2018 and 2019.

Taking inflation into account, that means the average monthly water bill would go from $34.80 in 2009 to a projected $91 in 2019.

Project director John Fredell notes that Utilities has cut $50 million off a price tag that had ballooned to $930 million for the first phase, which will cover the pipeline and the necessities that go with it, like a water treatment plant, permitting, land, mitigation and pump stations. Phase two, estimated to cost $520 million, will include two reservoirs and system expansion.

Chief planning and finance officer Bill Cherrier says Utilities also spread out costs as much as possible, while still making the progress needed to keep its hard-won permits. That meant water customers didn't see 26 percent rate hikes two years in a row. And that Utilities maintains its enviable AA bond rating, which keeps interest rates on SDS loans low. If the rating fell two notches, interest could run an extra $15 million to $27 million a year, Cherrier says.

Former City Council candidate and growth skeptic Dave Gardner never liked SDS, but he says if it's going to happen, spreading out costs is sensible.

"The chances are, over the long haul, it's going to even out," he says.

But the financial structuring does lead to uncertainty. The project will start before scores of needed permits are obtained, before land is purchased and before the project is fully engineered — which means costs could rise. As for rate hikes, if the city grows faster, you pay less. And if growth is sluggish, well ...


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