Fix for New Orleans' Ailing Water System Pegged at $1B

DALLAS — Repairing and replacing New Orleans’ damaged and obsolete water utility infrastructure will require more than $1 billion of new revenue debt by 2020 and a doubling of customer rates to finance and operate the water, sewer and drainage networks, a report warns.

The report released Tuesday by the New Orleans Sewerage and Water Board listed $3.48 billion of needed system upgrades and improvements. The analysis by Raftelis Financial Consultants Inc. said the utility does not have the revenue or funding in place to support the necessary work.

“Currently, the board does not have adequate financial resources to meet the capital and operating requirements of the drinking water, wastewater, and storm water systems,” the consultants said.

“As a result, the condition of the systems continues to degrade, customer perception of services provided remains below satisfactory levels, and financial institutions are unwilling to provide additional borrowed capital,” according to the report

By 2020, the board will need to issue another $381.1 million of water bonds, $349 million of sewer revenue bonds, and up to $337 million of drainage bonds to finance its portion of the $3.48 billion capital improvement plan proposed in the study.

Federal and state agencies would provide the remainder of the money, the consultants said.

Debt sales would begin in 2012 and extend into 2020. The utility’s total annual debt service is estimated at $127 million in 2020.

The board’s current five-year capital improvement plan calls for spending $446.7 million by 2015. The Raftelis report said a 10-year plan is more realistic, as debt issued in the first five years must be serviced over a longer span.

The consulting firm was hired by the water board to develop a financial plan and rate study in November 2009 after the utility failed to meet debt service requirements on outstanding sewer revenue bonds.

The board’s $172 million of sewer revenue bonds and $34.6 million of water revenue debt are rated BBB-minus by Fitch and Standard & Poor’s, and Baa1 by Moody’s Investors Service.

The Sewerage and Water Board will consider the report at its Nov. 19 meeting.

Meeting the higher debt service requirements and the additional costs of operating the proposed new facilities will require a revenue increase to $364.2 million in 2020, up from $159 million in 2011, the Raftelis report said.

More than 70% of the drinking water treated at the system’s plants leaks out of the deteriorating system before it reaches a meter, the report said, although some of that volume is water provided free to governmental and other facilities. Reducing that level would cut treatment costs by more than 44%.

Under the proposed plan, the average residential water bill would go to $124 a month by 2016, with additional increases through 2020. The current residential bill averages $52.50 a month.

Deputy mayor Cedric Grant said it is too early to comment on the report.

“We have an obligation to adequately fund the Sewerage and Water Board, but we will do it in a responsible way and in a way the citizens of New Orleans can afford,” he said.

“In the coming months, we will be engaging the public and the City Council about ways to finance critical infrastructure and operations improvements for our water, wastewater, and drainage systems,” Grant said.

The capital effort laid out by the consultants includes $476.6 million for 205 water projects, with federal and state agencies providing grants and contributions totaling $146 million.

Sewer project costs are estimated at $553.8 million, with the board responsible for $392 million. The more than 200 drainage projects are expected to cost $2.24 billion, but federal agencies are expected to provide $2 billion of that total.

The New Orleans utility system had more than 140,000 customers before Hurricane Katrina hit the city in August 2005. The count fell to around 100,000 in the aftermath of the storm, but is now estimated at more than 121,000 customers.

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