Wastewater Rehab on Tap

Little Rock Wastewater officials will meet with the city’s Sanitary Sewer Committee on Thursday to determine how to finance at least $200 million of capital improvements to the system.

The utility’s current budget calls for a $62.1 million revenue bond issue in 2012 and a $134.7 million bond issue in 2013, along with a $17 million revolving loan in 2013.

The work is needed to comply with a settlement agreement with the Sierra Club in which the city of Little Rock said it would make improvements to the system to prevent sewer overflows.

The wastewater utility has already spent $262 million to comply with the 2001 agreement.

The upgrade is set to be completed by 2018. The consent agreement calls for completion in 2015, but the city is seeking a three-year extension from the Arkansas Department of Environmental Quality.

Utility officials are asking for a 20% rate increase in 2012 to support the bonds needed to finance the rehabilitation. Officials have also proposed a 10% rate increase in 2013, and 5% increases in 2014 and 2015.

According to the financing plan, the utility would become “insolvent by midyear 2012 without one of the following: a rate increase, decrease in operations and maintenance expenses, or reduction in funding capital costs out of sewer revenues.”

In December 2010, Moody’s Investors Service lowered the city’s wastewater revenue bonds to Aa3 from Aa2, with a negative outlook. The utility has $172 million of outstanding debt.

Moody’s said the city faces challenges in meeting rising debt-service requirements on the bonds.

“The rating downgrade to Aa3 reflects the system’s weakened financial position resulting in narrowed debt-service coverage and diminished reserve levels,” the credit agency said. “The Aa3 rating continues to take into consideration the system’s high debt ratio but a substantial and diverse customer base.”

Little Rock Wastewater serves 67,000 customers in Little Rock and 700 outside the city.

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