More than $60 million in new debt Owensboro Municipal Utilities, Ky., could issue this month to pay for the expansion of its William Cavin Water Treatment Plant would have no effect on the city's credit.
Although it's up to the Owensboro City Commission next week to approve or deny OMU's requests to issue upward of $69 million in revenue bonds and increase water rates by 32 percent, the risk would not affect the city's credit rating, said Finance and Support Services Director Angela Hamric.
"OMU is a standalone entity," she said. "Should they need more revenue to service their bonds, they would simply raise their rates."
The municipal utility was chartered by the city and falls under its oversight authority, much the same way the Kentucky Public Service Commission oversees private-sector utilities. But officials say that's the limit of the city's financial liability.
All bonds OMU plans to issue would be OMU water system revenue bonds at no recourse to the city.
"The city taxpayers are not liable for this debt," said interim OMU General Manager Kevin Frizzell. "There won't be any recourse to the city whatsoever. According to Kentucky state statutes, the city does ultimately own all of its assets, but, legally speaking, OMU is a separate entity."
Almost three-quarters of the financing power the utility is seeking will cover the costs of a $41 million expansion to the Cavin plant meant to increase its treatment capacity nearly threefold and shutter the century-old Plant A farther west. The foundation of a 1950s-era filter building addition in the latter plant's grounds has been settling, putting pressure on some of the water distribution network's unforgiving cast-iron mains, and main breaks in 1994, 2017 and last month have only highlighted the need for more reliable water treatment operations.
Frizzell said he doesn't cherish the fact that he will have to ask for the city commission's approval for this debt, but he recognizes it as a necessary upgrade to the region's aging infrastructure network and hopes elected officials will see the need for what it is.
Part of city's limited liability puts the weight of change squarely on the utility's shoulders. Owensboro's tax-increment finance districts couldn't be used to pay for the plant expansion, for example, because of their limited scope and boundaries. Even money the Regional Water Resource Agency will look to reimburse for improvements it's made near Gateway Commons required a consent decree approved by the state government.
Insurance premium license fees earmarked to service the debt the city incurred in its downtown reinvestment strategy couldn't have helped rebuild the Cavin plant either, officials say, despite early complaints OMU has fielded from some ratepayers.
"They're completely separate issues," Frizzell said. "I understand people's frustrations, because, in many ways, we share them, too. But I don't worry about taking these rate increases and bonds to the city, because I know that this project is necessary."
